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Consumer Banking and Payments Law: 7.8 Mobile Payment Systems

Payment systems accessible through mobile devices are rapidly developing. The term “mobile payments” generally refers to a payment made through a mobile phone other than one that is made simply by accessing a bank’s mobile application (which is termed “mobile banking”).

Many mobile payment applications (or “apps”) that access stored funds are effectively prepaid cards or gift cards and are covered under the laws discussed above.1139

Consumer Banking and Payments Law: 4.1 Introduction

This chapter examines a consumer’s rights when a paper check is paid to the consumer—that is, when the consumer is a payee on a paper check. The rules discussed in this chapter apply equally to paper checks drawn by non-governmental and governmental drawers.1

Consumer Banking and Payments Law: 4.2.2 What Constitutes Delivery of the Check to the Payee?

Delivery of the check to the payee occurs when the payee comes into possession of the check “either directly or through delivery to an agent or a co-payee.”27 The UCC commentary explains: “The payee receives delivery when the check comes into the payee’s possession, as for example when it is put into the payee’s mailbox. Delivery to an agent is delivery to the payee. If a check is payable to more than one payee, delivery to one of the payees is deemed to be delivery to all of the payees.”28

Consumer Banking and Payments Law: 4.4.1.1 Introduction

The rights of the payee of a check that is lost or stolen after delivery differ depending on whether the check was bearer or order paper as of when the check was lost or stolen. If the check was bearer paper when lost or stolen, the payee will have no rights on the check except against the thief, although the payee may have rights under other law.

Consumer Banking and Payments Law: 4.5.7 Second-Day and Fifth-Day Availability

Local checks that are not entitled to next-day availability must be made available by the second business day following the banking day on which the funds were deposited,254 unless an exception applies.255 Non-local checks must be made available not later than the fifth business day following the banking day on which the funds were deposited.256 However, effective February 27, 2010, the Federal Reserve Board amended the availability rules for check

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