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Consumer Banking and Payments Law: 5.17.7 NACHA Enforcement of Consumer Complaints

NACHA rules specify that they do not create rights or remedies for consumers.1734 However, every financial institution participating in the NACHA system agrees to comply with the rules’ enforcement procedure,1735 which provides a method for reporting rules violations and the imposition of fines.1736 Any “ACH participant” who is a party to a transaction may submit to NACHA a rep

Consumer Banking and Payments Law: 6.1 Introduction

This chapter generally discusses the alternative payment systems and devices that are typically not directly connected to bank accounts or prepaid card accounts. These payment devices are often used by people who do not have bank accounts (called the “unbanked”) or who do not use those accounts regularly (the “underbanked”). These consumers often have fewer payment options because they do not have ready access to the banking system.

Consumer Banking and Payments Law: 6.2.1 Overview

Money orders are a crucial type of payment device for consumers who do not have bank accounts.6 In a typical money order transaction, the consumer purchases an order in a one-time transaction. Typically, money orders are sold with one original and two carbonized copies. The issuer keeps a copy of the check. The payee on the check is left blank, and the consumer who purchases the money order fills in the name of the payee.

Consumer Banking and Payments Law: 6.2.2 Distinguishing Bank from Personal Money Orders

There are two types of money orders: bank money orders and personal money orders. Whether a money order is a bank or personal money order depends on how the money order is written. As explained in the commentary to the UCC: “‘Money orders’ are sold both by banks and non-banks. They vary in form and their form determines how they are treated in Article 3.”10

Consumer Banking and Payments Law: 6.2.3.2.1 Forgery of the payee’s name

As described in § 6.1.2, supra, a bank money order is not treated like a personal check. Rather, with a bank money order, the drawer and drawee are both banks, and the purchaser of the money order has the rights of a “remitter.”

If a bank money order is lost or stolen and the payee’s name is forged, the remitter is given the right to bring a conversion action—a right that normally can only be asserted by the payee itself.

Consumer Banking and Payments Law: 6.2.3.2.2 Replacing or getting a refund on a lost or stolen bank money order

When a bank money order is lost or stolen, the purchaser is likely to want a replacement bank money order or a refund from the issuing bank. The problem for the bank is that if the bank money order is presented for payment by someone entitled to enforce the bank money order, the bank will be obligated to pay the bank money order, which has been pre-accepted by the bank. If it refunds the money to the purchaser of the money order, or issues a replacement bank money order, the bank will have paid out the value of the money order twice.

Consumer Banking and Payments Law: 6.2.4.1 Introduction

When a consumer pays for something with a check from the consumer’s bank account, the consumer has a certain period of time between the issuance of that check and the time when the check is presented to stop payment on the check, thereby preventing a defrauding payee from being paid.41 So long as the stop payment order is given before the check is presented, the consumer drawer will not have the money taken out of his/her bank account.

Consumer Banking and Payments Law: 6.2.6 Money Order Drawee’s Insolvency

If the money order issuer becomes insolvent, the payee may refuse to accept the money order. Meanwhile, the consumer has paid the issuer for the money order. The consumer will have to pay the payee again. Alternatively, the payee may accept the money order, not knowing of the issuer’s insolvency, but then demand payment from the consumer when the issuer is unable to honor the money order.

Consumer Banking and Payments Law: 6.2.8 State Regulation of Issuers of Money Orders

Issuers of money orders may be governed by state money transmitter laws.68 Those laws regulate entities that forward money for others. The laws are designed primarily to ensure the safety and soundness of the issuers and to provide bonding and other mechanisms to reimburse consumers in the event of the company’s insolvency. However, some laws contain other provisions.

Consumer Banking and Payments Law: 6.2.10 U.S. Postal Money Orders

The U.S. Postal Service sells money orders that are subject to federal regulations, not the UCC.71 Postal money orders are similar to other money orders, except “the postmaster general has the usual right of a drawee” and “[m]oney orders are deemed paid only after examination [by the postmaster general] is completed.”72

Consumer Banking and Payments Law: 6.3.1 Overview

When a consumer uses a cashier’s or teller’s check, they will normally pay for the check before it is issued by the bank.75 With cashier’s and teller’s checks the drawer is not the person who purchased the check, but the bank from which the check is purchased. The drawee is either the same bank, or another bank.

Consumer Banking and Payments Law: 6.3.3 Stop Payment of Cashier’s and Teller’s Checks

When a consumer pays for something with a check from the consumer’s bank account, the consumer has a certain period of time between the issuance of that check and the time when the check is presented to stop payment on the check, thereby preventing a defrauding payee from being paid.87 So long as the stop payment order is given before the check is presented, the consumer drawer will not have the money taken out of his/her bank account.

Consumer Banking and Payments Law: 6.3.5 Replacing or Getting a Refund on a Lost or Stolen Cashier’s or Teller’s Checks

When a cashier’s or teller’s check is lost or stolen, the purchaser is likely to want a replacement cashier’s or teller’s check or a refund from the issuing bank. The problem for the bank is that if the cashier’s or teller’s check is presented for payment by someone entitled to enforce the cashier’s or teller’s check, the bank will be obligated to pay the cashier’s or teller’s check, which has been pre-accepted by the bank.