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Consumer Banking and Payments Law: 5.17.2.1 Remedy When Institution Fails to Follow Consumer Transfer Instructions—Section 1693h

Section 5.6.1, supra, discusses the EFTA’s general remedies and application to any violation. The EFTA also provides special remedies for several specific violations. The first of these is a special remedy for certain violations involving the failure to follow a consumer’s money transfer instructions. A financial institution is liable to a consumer under 15 U.S.C.

Consumer Banking and Payments Law: 5.17.2a.2 Good-Faith Conformity With Rules or Certain Approvals or Interpretations

The second EFTA statutory defense to liability provides that a defendant is not liable for any act done or omitted in good faith that conforms to any rule, regulation or interpretation by the CFPB or in conformity with any interpretation or approval by an official or employee duly authorized to issue interpretations or approvals under prescribed procedures, notwithstanding that the rule, regulation or approval is later invalidated.1536 Several other

Consumer Banking and Payments Law: 5.17.3 Who Can Be Held Liable for EFTA Violations?

The EFTA casts liability on “any person” who violates one of its provisions. Some of the EFTA’s substantive requirements and prohibitions apply only to financial institutions, but certain entities that do not hold consumer accounts but provide electronic fund transfer services are nevertheless subject to the EFTA in almost the same manner.1559 Some Regulation E provisions apply to any “person,” not merely financial institutions.1560

Consumer Banking and Payments Law: 2.1 Scope of This Chapter: Bank and Non-Bank Accounts Holding Consumer Funds

This chapter discusses issues primarily related to the bank-customer relationship and bank accounts.1 The Truth in Savings Act currently applies only to bank accounts, but some of the other topics discussed in this chapter may apply to non-bank financial service providers that hold consumer funds in deposit accounts or very similar types of accounts, like prepaid card accounts or mobile wallets.

Consumer Banking and Payments Law: 2.3.1 In General; Fiduciary Duty

When a customer opens a deposit account at a depository institution, the relationship between the bank and the customer is governed by the contract between the customer and the institution and by applicable statutes and regulations. The essence of the bank-customer relationship is that the bank owes the customer the money and is therefore a debtor of the customer.15

Consumer Banking and Payments Law: 2.3.2 Duty of Good Faith and Ordinary Care and Other Common Law Principles

Banks have a duty to act in good faith and use ordinary care in their dealings with their customers, arising both under common law and under the Uniform Commercial Code (UCC).18 The UCC does not create a separate duty of fairness and reasonableness that can be independently breached, but the duty to act in good faith and use ordinary care does color the interpretation of—and duties under—the UCC.19 A specific, applicable provision of the UCC may trump a more generalized common law duty.

Consumer Banking and Payments Law: 2.5.1 Overview and Scope

The Truth in Savings Act (TISA) was passed in 1991 for the purpose of requiring clear and uniform disclosures of interest rates and fees in connection with deposit accounts so that consumers could make meaningful comparisons.28 The TISA also requires disclosure of a number of other aspects of savings and demand deposit accounts, and regulates the calculation of interest payable.

Consumer Banking and Payments Law: 2.5.2.2 Interest Rate Disclosures

For any checking or savings account that pays interest, the TISA and Regulation DD require that the rate of interest offered and paid on deposit accounts be displayed as an “annual percentage yield” (APY).39 Regulation DD sets forth the manner of calculating the APY,40 and also requires disclosures about:

Consumer Banking and Payments Law: 2.5.5 Calculation of Interest to Be Paid

TISA and Regulation DD govern the method of calculating the interest that is payable on an interest bearing account. The regulations detail the permissible methods of calculating interest, how the minimum balance to earn interest is determined, compounding and crediting policies, and when interest begins to accrue.75

Institutions need not pay interest on timed accounts after the account matures, but must pay interest on dormant or inactive accounts.76

Consumer Banking and Payments Law: 2.5.6 Enforceability

The TISA’s private right of action was removed in 2001.77 Consumers may be able to use TISA violations as a basis for an action under the state’s UDAP statute,78 although some courts have found that Congress intended to bar state law claims based on TISA violations.79

Consumer Banking and Payments Law: 2.6 Other Disclosure Laws

The Electronic Fund Transfer Act requires certain initial disclosures at the time a consumer contracts for an electronic fund transfer service or before the first electronic fund transfer, as well as other subsequent disclosures under certain circumstances.

Consumer Banking and Payments Law: 2.7.1 This Section’s Scope

When a consumer has insufficient funds to cover a check or a debit card, ATM, or other electronic transfer (typically an automated clearing house (ACH) transaction), the financial institution can either deny payment or cover the amount of the transaction. This subsection considers fees assessed in situations in which the bank pays the item, and makes an overdraft loan,85 despite the fact that the account does not contain sufficient funds and the account has not been linked to another account that provides a source of funds or credit.