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Consumer Banking and Payments Law: 3.10.4 Common Law Ratification of a Forged Signature

If the drawer’s signature is forged, the victim of the forgery can validate the forgery through the ratification doctrine.663 This ratification may occur after a forgery by conduct as well as express statements.664 The comment explains that ratification may be found, for example, “from the retention of benefits received in the transaction with knowledge of the unauthorized signature.”665 The UCC incorporates the common law principles that apply to

Consumer Banking and Payments Law: 3.11 Accord and Satisfaction

The accord and satisfaction rules in the revised UCC can be advantageous to consumers, but only consumers who are well-informed will be able to take advantage of them. One of the chief advantages of accord and satisfaction is that it provides consumers with a non-judicial, quick, and inexpensive method to resolve a dispute.669 The consumer can take advantage of accord and satisfaction when the consumer is the debtor.

Consumer Banking and Payments Law: 3.12.1.1 Generally

The Check Clearing for the 21st Century Act, popularly known as Check 21, was enacted in October of 2003, with an effective date of October 28, 2004.683 Check 21 allows institutions to unilaterally decide to truncate all paper checks.684 The Act defines the term “truncate” as meaning the “removal of an original paper check from the check collection or return process and sending to a recipient, in lieu of such original paper check, a substitute check or, by agreement, information relating to the

Consumer Banking and Payments Law: 3.12.1.2 Justification for Check 21 and Implications for Consumers

The main goal of Check 21 is to eliminate the necessity of original paper checks being physically transported all over the country and instead to facilitate the electronic transfer of an image of a check or other information about it.689 The Federal Reserve and the banking industry sought to decrease dependence on a system relying on the transportation of physical paper checks, which was slow, costly, and inefficient.690

Consumer Banking and Payments Law: 3.12.4 Consumer Awareness Notices

The Check 21 Act required every bank to provide a notice explaining substitute checks to those who were customers of a bank on the effective date of the Act.704 no later than the first regularly scheduled communication with the consumer after the effective date of the Act.705 The notice must also be provided to new customers at the time at which the customer relationship is initiated.706 The notice must be provided to each consumer of the bank who

Consumer Banking and Payments Law: 3.12.5.1 Right to Require Bank to Reinvestigate

The Check 21 Act does not provide federal rights concerning unauthorized check payments or related issues. What it does is provide federal rights when the substitute check process, as opposed to the processing of the underlying original check, causes consumer injury.717 This might happen, for example, if conversion of the paper check to an electronic image and back to a substitute check results in the check’s being paid twice or if the substitute check does not accurately reflect the original check.

Consumer Banking and Payments Law: 3.12.5.2 Receipt of the Substitute Check

A consumer must at some point have received a substitute check to make an expedited re-credit claim.726 However, the consumer does not have to be in possession of the substitute check when he or she submits a claim for a re-credit.727 According to the FRB, the re-credit is not available to a consumer who receives only an image of a substitute check.728 Although that consumer is not entitled to a re-credit, unless he or she has received a substitute

Consumer Banking and Payments Law: 3.12.5.3 Time Frame for Submitting a Claim

The consumer must submit a re-credit claim within forty calendar days after either the bank mails a periodic statement to the consumer or the substitute check is made available to the consumer, whichever is later.731 The bank is required to give the consumer an additional “reasonable amount of time” if the consumer’s inability to meet the forty-day deadline is due to extenuating circumstances.732 A consumer who does not file a claim within the deadline loses the right to use the re-credit proced

Consumer Banking and Payments Law: 3.12.5.4 Banks Can Require Written Claim Submissions

A bank can accept a claim for a re-credit in any form, but the bank can require the information to be submitted in writing.733 If the bank does require a submission in writing, it must inform the consumer of that requirement and provide a location to which such a written claim should be sent.734 If the consumer has agreed to communicate with the bank electronically, the bank that requires a written submission can permit the consumer to submit the claim electronically.

Consumer Banking and Payments Law: 3.12.5.6 Reversing the Re-Credit

A bank that re-credits the consumer’s account may determine that it wrongly re-credited the account because the substitute check was properly charged to the account. In that situation, the bank may reverse the re-credit if the bank notifies the consumer of the amount of the reversal and the date the re-credit was reversed.749

Consumer Banking and Payments Law: 3.12.6.1 Generally

The Check 21 Act does not provide private remedies for unauthorized check payments or related issues. It only provides remedies when the substitute check process, as opposed to the processing of the underlying original check, causes consumer injury.757 For example, a remedy is provided if conversion of the paper check to an electronic image and back to a substitute check results in the check being paid twice or if the substitute check does not accurately reflect the original check.

Consumer Banking and Payments Law: 3.12.6.2 Damages

A private action under the Check 21 Act can be brought in federal or state court but must be brought within one year of when the consumer first learns or should reasonably have learned of the facts and circumstances giving rise to the cause of action.758 However, even before this one-year period expires, if a consumer who is aware or should be aware of a claim delays in giving notice of a claim, the bank may not be liable for additional losses caused by that delay.759 A bank cannot ask the consu

Consumer Banking and Payments Law: 3.12.6.3.1 Generally

When a paper check is converted and a substitute check is provided, the banks involved make two types of warranties: the warranty of legal equivalency and the warranty regarding duplicative payment. Breach of these warranties can lead to a claim for consequential damages and also allow the consumer to require the bank to investigate the consumer’s claim and provide an expedited credit.764 The first bank that gives the warranties is the reconverting bank, the bank that creates the substitute check.

Consumer Banking and Payments Law: 3.12.6.3.2 The legal equivalence warranty

The “legal equivalence” warranty770 provides that any bank that transfers, presents, or returns a substitute check warrants that the substitute check meets all the requirements for legal equivalence.771 This warranty protects against the risk of errors occurring in encoding the amount of the check and account numbers and against a substitute check’s blurry image resulting in the consumer suffering loss because the consumer needed an accurate copy to determine the validity of a claim.

Consumer Banking and Payments Law: 3.12.6.3.3 The duplicative payment warranty

The “duplicative payment” warranty776 warrants that no other party will be asked to make a payment based on a check that the bank, drawee, drawer, or endorser has already paid.777 This warranty protects against the possibility that the original check will be processed and presented for payment as well as the substitute check, resulting in a double debit.

Consumer Banking and Payments Law: 3.12.6.5 Certain Banks Have Limited Liability to Certain Parties Even When No Warranty Is Breached

Certain parties can recover any loss related to a substitute check from certain banks—but only up to the amount of the substitute check—even if the Act is not violated and no warranty is breached.789 The parties liable under this provision are the reconverting bank and subsequent banks. Parties that can pursue such a claim are limited to the drawer, payee, endorser, depositor, and various banks and transferees. The parties can also recover interest and expenses, plus costs and reasonable attorney fees and other expenses of representation.

Consumer Banking and Payments Law: 7.1 Overview of Types of Stored Value Systems

The term “stored value card” or “stored value system” is a generic term that covers a wide variety of payment devices. In general, the term refers to funds that are not held in an individual bank account and that may be redeemed for goods or services or sometimes for cash. Most stored value systems are referred to by their function—such as “gift card,” “prepaid card,” “payroll card,” or “prepaid phone card.” Many stored value systems are reloadable accounts that are bank accounts in all but name.