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Consumer Banking and Payments Law: 4.5.8 One-Day Extension for Certain Withdrawals

The consumer’s bank is allowed to extend the time it holds the consumer’s funds by one business day if the consumer withdraws funds not by writing a regular check but by withdrawing cash or withdrawing by electronic payment or by obtaining a cashier’s check, a teller’s check, or a certified check.258 The one-day extension does not apply to all of the consumer’s funds in this category, however. The bank must make $450 available for withdrawal by these means not later than 5:00 p.m.

Consumer Banking and Payments Law: 4.5.9.1 New Accounts

Regulation CC establishes an exception to the funds availability rules for new accounts, that is, accounts established within the last thirty days.263 An account is not considered new if the consumer already had another account at the same bank for at least thirty days.

Consumer Banking and Payments Law: 4.5.9.2 Doubtful Collectability

A second exception is for checks if the bank has “reasonable cause to doubt collectability.”271 Under certain circumstances, a bank may reasonably believe that the chances are great that the checks a consumer deposits will be dishonored.272 The bank does not want to allow early withdrawals of those funds by the consumer and then have to try to collect the amount of the withdrawal from the consumer.

Consumer Banking and Payments Law: 4.5.10.1 Fund Availability Schedule

Regulation CC imposes longer hold times if the consumer does not deposit the check in person to an employee of the bank. For example, deposits can be made by mail or through an ATM. More recently, checks can be deposited by taking a picture of the check and uploading it through a mobile or consumer application (a process known as “remote deposit capture,” or RDC). RDC raises special issues, discussed below.

Consumer Banking and Payments Law: 4.4.2 Rights If Check Was Bearer Paper When Lost or Stolen

If a check is bearer paper, either because it started out that way or was indorsed in blank, then anyone with physical possession of the check has good title.52 This is the case whether the check was handed to the next party or stolen by the next party. The payee will not have rights to the check once the check is physically possessed by someone else, except as against the thief.53 Because the next party has good title to the check, the diagram for a theft of bearer paper would look like this:

Consumer Banking and Payments Law: 4.4.3.1 General

If a check is “order paper” when lost or stolen, then later handlers of the check will not have good title to the check or rights on the check.59 Without the payee’s indorsement the check remains the property of the payee.

Consumer Banking and Payments Law: 4.4.3.2 Payee Can Request New Check from the Drawer

When a check that is order paper has been stolen from or lost by the payee, the payee can ask the drawer for a new check. Since the first check is not properly payable out of the drawer’s account,70 the drawer will not risk double payment of the obligation, unless the payee regains possession of the original check, indorses it, and sends it through the check collection system. The drawer will, however, have to convince its bank that the check was not properly payable. Thus, this may not be the best option for the payee.

Consumer Banking and Payments Law: 4.4.3.3 Payee Can Recover the Physical Check and Send It Through the Check Collection System

If the payee is able to locate the physical check, the payee can seek to recover the check from any party that has possession of the check by making a claim to the physical check or its proceeds. U.C.C. § 3-306 states “A person taking an instrument, other than a person having rights of a holder in due course, is subject to a claim of a property or possessory right in the instrument or its proceeds . . .

Consumer Banking and Payments Law: 4.4.3.5.1 General

A payee who has had a check made payable to order stolen after delivery to the payee may bring a conversion action under the UCC90 This action can be brought against the party who stole the check,91 or any of the banks who collected the check.92 Article 3 incorporates the law applicable to conversion of personal property and c

Consumer Banking and Payments Law: 4.4.3.5.3 The negligence defense

The negligence rule provides that “[a] person whose failure to exercise ordinary care120 substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.”121 If the victim of the forgery or alteration is negligent by this standard, the victim may be barred from bringing a conversion action ba

Consumer Banking and Payments Law: 4.4.3.5.4 Employee indorsement rule

A bank that is sued in conversion may raise a defense that the loss should be shared between the bank and the payee when the payee is an employer and the party who indorsed the check is an employee of the payee with the requisite responsibility.131 This defense to conversion is not covered here as it is unlikely to arise in the consumer context.

Consumer Banking and Payments Law: 4.5.12 Remedies for Violation of the Availability Rules

Regulation CC imposes liability upon banks which fail to comply with “any requirement imposed” under the funds availability rule.329 In addition, banks are liable for failure to comply with any provision of state law that supersedes any of the federal funds availability rules.330 Action can be brought in any United States district court or any other court of competent jurisdiction331 within one year of the date the violation occurred.

Consumer Banking and Payments Law: 4.5.13 Account Holds and Impediments to Accessing Funds

Consumers expect to have access to funds in their deposit accounts. Setting aside the initial hold that a bank may put on a deposit under the EFAA, what if the bank or other account provider for some reason decides to put a hold or freeze on the account or some or all of its funds? What if some technical malfunction prevented the consumer from accessing their account and funds for an extended period of time?

Consumer Banking and Payments Law: 4.6 Deposit Errors

Financial institutions may on occasion make errors with respect to check and other deposits. The bank may credit the account with the wrong amount (too much or too little), or it may put the deposit in the wrong account altogether.

Consumer Banking and Payments Law: 4.7.1 Introduction

A payee may try to cash a check at the drawee bank,383 such as when an employee without a bank account seeks to cash an employment check at his employer’s bank. This raises the question of whether the drawee bank is obligated to cash the check for the payee, and whether the drawee bank can require the payee to prove his/her identity, such as through a fingerprint, or charge a fee for cashing the check over the counter.