Consumer Banking and Payments Law: 2.7.9.3 Legal Claims: Use of Available Balance
As discussed in § 4.5, infra, the account’s actual balance and the balance that is available to the consumer may differ.
As discussed in § 4.5, infra, the account’s actual balance and the balance that is available to the consumer may differ.
Banks and other payment providers often impose a variety of fees for various account activities. The source of the consumer’s liability for these fees is the account agreement.289 If the agreement or documents incorporated by reference into the agreement do not grant the bank the authority to charge a fee for a particular service or activity, or fail to disclose the fee, then the bank may not charge the fee.
After banks and their customers enter into an agreement at the commencement of their banking relationship, banks periodically raise fees or impose fees on services formerly offered without charge. The UCC permits unilateral changes in the terms of the original agreement as long as such unilateral changes are authorized in the original agreement.295
A consumer paying with a check or automated clearing house (ACH) transaction with “not sufficient funds” (NSF) in the consumer’s bank account faces two types of liability if the financial institution returns the transaction unpaid rather than paying it as an overdraft.
Banks often charge fees for services that they are required by law to perform. Depending on the context, those fees may be impermissible, especially if they discourage consumers from exercising their legal rights or enable banks to avoid legal duties.312
Closing a bank account might appear to be a simple matter, but increasingly it is not. In the old days, consumers merely needed to make sure that all outstanding checks (usually recorded in the consumer’s check register) had cleared, and then simply requested the bank to close the account.
Under the UCC, a consumer has the absolute right to close an account for any reason or no reason at all:
Article 3 of the Uniform Commercial Code (UCC) governs transactions involving negotiable instruments. There are two kinds of negotiable instruments. Both types of negotiable instruments must be in writing.9
The ordinary check contains several features that are crucial to the nature of this payment device and the way the check collection process operates. Preprinted checks contain computer-readable numbers that are encoded using a process known as magnetic ink character recognition (MICR). These numbers on the bottom of the check represent the drawee bank, the bank’s branch, and the customer account number.
All check transactions will have at least three parties:
It is sometimes helpful to keep track of the parties to a check using a standard diagram, as rights and liabilities on the check are based on the role and order of the parties in the life of the check. Standard practice is to place the non-bank parties on the top line, and the bank parties on the bottom line, since rights and liabilities may be different for banks.
The diagrams use the symbol Π to indicate the plaintiff and the symbol Δ to indicate defendant. A diagram in which the payee takes the check directly to the drawee bank for payment looks like this:

A forgery of the drawer’s signature may occur if the drawer’s checkbook is stolen or an identity thief or someone else creates phony checks that look like the drawer’s checks. A drawer’s signature might also be made by someone falsely claiming to have authority to sign on behalf of the drawer.
Remotely created checks, which go by a number of names, are checks that are created by an entity other than the drawee bank and do not bear a purported or actual written signature of the drawer. They are typically authorized in an agreement and then later created by the payee or the payee’s agent.
Remotely created checks are checks governed by the UCC and other check rules. However, they present a number of special issues and have some special rules.
Should a drawer write a new check if the check was stolen before the payee was able to indorse or deposit the check?
Should a drawer write a new check if the check was stolen after the payee specially indorsed the check over to an individual?
Should a drawer write a new check if the check was stolen after the payee indorsed the check in blank?

Drawers have the right to stop payment on checks written on their checking account and to close their checking account. A drawer is likely to do a stop payment order if the drawer is defrauded into writing the check or has other claims or defenses arising out of the transaction that was paid for by check. If payment on a check is stopped, or the account is closed before the check is paid, the drawer may still be liable to pay the check.

The drawer’s rights are different when the drawee bank pays a check despite a stop payment order or an account closure. This includes the situation in which the drawee bank refuses to close an account or performs a “soft close” and continues to pay checks out of the account.

If an account does not have enough money in it to pay a check, the drawee bank may bounce the check. Here are the sections of this chapter that are relevant to the drawer’s liabilities when this happens.
Some payees, after a check is dishonored based on a stop payment order, re-present the check with the amount or some other detail slightly altered to evade the stop payment order.
Consumers may fall victim to check scams, sometimes called mystery shopper scams, involving two different checks. The victim is sent a bogus personal or certified check drawn on a non-existent account at a bank. The victim deposits the check into his or her account and, thinking it has cleared, writes another check or wires money to the scam artist. The first check later bounces and the bank recoups the funds.
When a drawer writes a check to pay for something, there are three basic ways that the check can make its way through the check collection system. How the check is handled determines what rules apply. If, however, the debit to the consumer’s bank account was not made or initiated by a paper check or a remotely created draft, Articles 3 and 4 of the UCC do not apply; instead, the EFTA may apply.33
First, the check may remain a paper check from start to finish. In this case, the rules described in this chapter apply.
The main rules governing payment by check are contained in UCC Articles 3 and 4 (checks issued by the United States Treasury may be an exception43). UCC Article 3 covers negotiable instruments law, and, since checks are negotiable instruments, they are governed by Article 3. UCC Article 4 covers bank deposits and check collection.
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 aspects of the Uniform Commercial Code (UCC). The UCC specifically says that “every . . . duty within the Uniform Commercial Code imposes an obligation of good faith in its performance and enforcement.”63