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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.

Consumer Banking and Payments Law: 4.7.4.1 General

Generally, drawee banks can charge a fee to a payee who presents a check for payment over the counter.403 The payee has no cause of action against the drawee bank for refusing to pay the check without a fee,404 even if this gives the check drawer a cause of action against the drawee bank for wrongful dishonor.405

Consumer Banking and Payments Law: 4.7.4.2 State Labor Law May Limit Charges When Employees Cash Pay Checks at Employer’s Bank

In California, employers are required to pay their workers with checks which can be cashed at the drawee bank without paying a fee.418 This statutory requirement has led to lawsuits by both employers against banks that charge a check-cashing fee and by employees against their employers. Employers have alleged that their drawee banks have, by charging a fee, forced them to violate California law. Employees also have alleged that their employer violated this statute when the employer’s bank charged the employee a fee.

Consumer Banking and Payments Law: 4.8.4 The Indorser’s Obligation

Most checks start out as order paper, that is payable to an identified payee.450 Because the check is payable to the order of the payee, the payee will have to “indorse” (sign) the check before passing it along to the next party.451 This signature is what is required for the payee to pass good title to the check to the next party.452 The only exception to this rule is that a bank customer can deposit a check in their bank account without indorsing

Consumer Banking and Payments Law: 4.8.6.1 How Deposit Scams Work

Various check scams cause serious consumer harm because the consumers as payees may be liable to later parties under chargeback rules, on their indorser’s obligation, or under transfer warranties. Payment scams involving electronic payments or mobile applications are also starting to appear.498

Consumer Banking and Payments Law: 4.8.7.1 Introduction

If a check bounces, it is returned to the payee, either through chargeback by a depository bank515 or through the indorser’s obligation.516 The payee can then enforce the check against the drawer on the drawer’s obligation, or can pursue the drawer on the underlying obligation.

Consumer Banking and Payments Law: 4.9.1 Introduction

Once a check is finally paid by the drawee bank538 the life of the check is essentially over. The drawee bank cannot change its mind, dishonor the check, or return it. All obligations of the parties to the check, including the indorser’s obligation, are discharged and there is not a holder any more.539 All provisional settlements by the banks for the check become final.540

Consumer Banking and Payments Law: 4.9.2 Breach of Presentment Warranties to Drawee Bank

As discussed above, a transferee of a check receives six transfer warranties from the transferor and, sometimes, from remote transferors.542 In similar fashion, the drawee bank that accepts or pays a check receives four warranties—called presentment warranties—from the presenting party and from all prior transferors of the check.543 These presentment warranties are made by “(i) the person obtaining

Consumer Banking and Payments Law: 4.10.1 Accord and Satisfaction

The UCC’s accord and satisfaction rules govern situations where the drawer of the check attempts to condition the check on the payee’s acceptance of the check in satisfaction of a claim. The consumer may be the drawer of the check—i.e., attempting to require the payee to accept it as payment in full—or the payee, and may unwittingly relinquish legal rights by cashing the check.