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Consumer Banking and Payments Law: 3.7.2.2.2 Consequences if drawer’s signature is missing or forged

In the case of any forgery of the drawer’s signature, the drawee bank must re-credit the account and cannot assert subrogation rights against the drawer whose name was forged.303 Rather, the drawee is stuck with the loss from the improper payment on a forged drawer’s signature, unless a prior party (not including the drawer) breaches a presentment warranty by having “knowledge that the signature of the purported drawer of the draft is unauthorized.”304 However, a forged or unauthorized signature

Consumer Banking and Payments Law: 3.7.2.3 Forgery of the Payee’s Name or a Special Indorsee’s Name

If the payee or a special indorsee signs a check in blank and it is then stolen, the check is still properly payable out of the drawer’s account, since the blank indorsement has turned the check into bearer paper.314 But if the payee’s name is forged, or a special indorsee’s name is forged, the check is not properly payable, and the drawee bank cannot charge the drawer’s account.315 This is because the drawer instructed the bank to follow the instructions of the payee (with “pay to the order of”

Consumer Banking and Payments Law: 3.7.2.4 Stopped Payments

A stop payment order is essentially an order to the drawee bank telling the drawee bank not to honor a specific check when it is presented for payment. The drawee bank cannot charge a customer’s account if a customer has properly stopped payment on a check since, when the customer stops payment, it is a recanting or reversal of the order to pay contained in the check. The key to making the check not properly payable is to follow rules on stop payment orders, which are described here.

Consumer Banking and Payments Law: 3.7.2.5 Closed Accounts

Both the UCC rules on closing bank accounts and the common law of agency give customers the right to close a bank account at any time, and to prevent the bank account from being re-opened without the customer’s consent. The consumer’s right to close the account is discussed in § 2.9.2, supra.

Consumer Banking and Payments Law: 3.7.2.6 Death or Incompetence of the Depositor

A bank may continue making payments on checks drawn on the account of a depositor who has died or been adjudicated incompetent until it knows that the depositor has died or been adjudicated incompetent and has reasonable opportunity to act on that notice.355 Additionally, even if the bank receives notice of the customer’s death, for ten days after the date of death the bank may pay on checks drawn before the death date unless someone claiming an interest in the account orders the bank to stop payment on those checks.

Consumer Banking and Payments Law: 3.7.2.7.2 Obligations of debt collector and other payees regarding post-dated checks and other payment instruments

The fact that a bank may not be liable for cashing a post-dated check prior to the date on the check does not mean that the consumer does not have remedies vis-à-vis the payee for cashing a check early. The UCC rules concerning post-dated checks define the relationship between the consumer and her bank, not between the consumer and the payee on the underlying transaction, including whether the payee agreed to not cash the check before a certain date.

Consumer Banking and Payments Law: 3.7.2.8 Checks Older than Six Months (Stale Checks)

Six months after the date on any check, the check is considered a “stale” check.377 A stale check is properly payable only if the drawee bank pays it in good faith.378 Good faith is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.”379 White and Summers have opined that a bank does not act in good faith if it notices the date on the stale check and pays it anyway without checking with the drawer.

Consumer Banking and Payments Law: 3.7.2.9 Insufficient Funds and Overdrafts

When there is not enough money in an account to cover a check that is presented, the check may or may not be properly payable, depending on if the customer has an agreement with the bank requiring the bank to pay checks even if they create an overdraft.385 If the customer has an overdraft agreement, checks creating an overdraft up to the limit of the overdraft agreement are properly payable.386 If there is no such agreement, checks creating an overdraft are not properly payable.

Consumer Banking and Payments Law: 5.17.4 EFTA Statute of Limitations

A consumer must bring an action under 15 U.S.C. § 1693m within one year from the date of the occurrence of the violation.1562 The statute of limitations on a claim based on violation of the error resolution procedure does not begin to run until ten days after the date the consumer gives notice of the alleged error to the financial institution.1563

Consumer Banking and Payments Law: 5.17.5 Private Enforceability of NACHA Rule Violations

NACHA rules apply to virtually all ACH entries transmitted through an ACH operator.1573 But they are not a public body of law, and they do not create a right of action for consumers.

Many of the rules do create rights for consumers (such as the right to stop payment, revoke authorization, or receive re-credit for an unauthorized transfer). Because a consumer is an obvious beneficiary of the rules, one might reasonably assume that a consumer may bring a third-party beneficiary contract claim to enforce compliance with the rules.

Consumer Banking and Payments Law: 5.17.6.1 Introduction

Article III, section 2 of the United States Constitution limits the judicial power of federal courts to cases and controversies. Article III standing when seeking statutory damages under a federal consumer protection statute, such as the EFTA, has become an important issue since the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins1594 and its 2021 decision in TransUnion L.L.C. v.

Consumer Banking and Payments Law: 5.17.6.5.2 Informational injuries

The Spokeo decision also addresses informational injuries to some extent. It cites two earlier decisions with approval in which it had held that the plaintiffs had standing to litigate the denial of information that the law required to be disclosed.1525 The context suggests that the Court was treating these two cases as examples of procedural violations, although the opinion does not give any guidance as to whether the court would consider all informational requirements as procedural.

Consumer Banking and Payments Law: 5.17.6a Actions Brought in Bad Faith or for Harassment

Upon a finding by the court that an unsuccessful action under the EFTA was brought in bad faith or for purposes of harassment, “the court shall award to the defendant attorney’s fees reasonable in relation to the work expended and costs.”1732 Bad faith can arise after the filing of a complaint, and the fact that a claim made it to trial does not automatically mean that it cannot be brought in bad faith.1733

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