Consumer Banking and Payments Law: 1.4.4.3 The Card Payment Systems
Bank account debit cards ordinarily involve four major players:
Bank account debit cards ordinarily involve four major players:
General-use prepaid cards and payroll cards are essentially a type of debit card without a traditional bank account attached.
The term “wire transfer” is used to refer to various types of systems to transfer money electronically.88
Beyond financial institutions, payment processors, and the other parties discussed in the previous sections, various other players have roles in the consumer accounts and payments systems process. Some companies play more than one role.
Federal banking law or regulations may preempt the application of state law to products or services offered by banks and credit unions. The law of preemption is summarized only briefly here as it relates to deposit taking and payments activities. It is addressed in detail in two other treatises in this series:
In 2007, the Supreme Court, in Watters v. Wachovia Bank, held that among national banks’ incidental powers is the power to conduct certain activities through operating subsidiaries, subject to the same terms and conditions as the bank.139 Thus, the Court held that state laws are preempted as to those subsidiaries to the same extent as to the bank itself.
In addition to OCC regulations that directly address preemption, the OCC has issued a number of interpretive letters and other materials that may have an impact on preemption.147 These letters discuss activities in which banks are allowed to engage and do not always address preemption or only do so indirectly.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (“Riegle-Neal Act”) gave states a role in determining how out-of-state banks can branch into the state, either through mergers or acquisitions of existing banks or through de novo branches.186
Some states and cities have considered using their own contracting powers to impose conditions on the financial institutions with which they do business. While in general state and local governments can set the terms of their own contracts and choose what institutions receive those contracts, preemption issues could arise if the contracting process is viewed as a broader attempt to regulate national banks or federal savings associations.
A number of cases have considered various practices in connection with overdraft and nonsufficient funds (NSF) fees.
Courts have generally held that the National Bank Act and the OCC regulations do not preempt a challenge to a bank’s deception regarding overdraft fees. They have generally reached the same conclusion regarding a bank’s manipulation of the order of posting charges and deposits in order to maximize overdraft fees, especially if deception is involved.201 Courts often contrast these claims with claims that challenge the amount of the fee or the bank’s right to impose it.
Claims that touch on disclosures or the failure to disclose present special issues. The OCC’s preemption regulation states that “a national bank may exercise its deposit-taking powers without regard to state law limitations concerning . . .
The Ninth Circuit’s decision in Gutierrez v. Wells Fargo Bank220 analyzes preemption of a variety of claims regarding the manipulation of posting order and is the only published Circuit decision to date on the topic.
Courts have split over challenges to gift card expiration dates and inactivity fees, some finding the claims preempted,237 others rejecting preemption challenges.238 Some of these decisions deal with the question of whether state law is preempted as to a non-bank entity that sells a gift card that has some connection with a bank—an issue mooted by the Dodd-Frank Act amendments that limit preemption to banks themselves, not to agents of banks.239 Mo
Courts have found that OCC regulations preempt state law claims against federally-chartered financial institutions challenging:
Claims primarily challenging deceptive conduct have withstood preemption challenges.247 However, state laws that impose notice or disclosure requirements beyond those required by federal law may be preempted.248 A court held that the National Bank Act preempts a state law that arguably required banks to produce signed receipts for all credit card purchases.249 The court concluded that this
The preemption standards that govern national banks can also have an impact on whether state laws apply to state-chartered institutions.
The National Credit Union Administration (NCUA) has been less aggressive than the OCC and the OTS in preempting state laws. Nonetheless, the Federal Credit Union Act (FCUA) and NCUA regulations under it preempt some state laws governing deposit accounts. The Dodd-Frank Act did not revise the preemption standard governing the FCUA, but the same Barnett Bank preemption standard should apply to state laws that apply to federal credit unions.259
In Eaton v. Federal National Mortgage Association,183 the Massachusetts Supreme Judicial Court looked at the related question of whether, at the time of foreclosure, the “mortgagee” must also have authority to enforce the promissory note that the mortgage secures.
Decisions from California typify how pleading issues can play out with regard to a complaint challenging authority to carry out a non-judicial foreclosure. Early in the 2008 foreclosure crisis, certain intermediate California appellate courts imposed onerous burdens on homeowners challenging non-judicial foreclosures.
Under certain state laws, a completed non-judicial sale is accorded a strong presumption of validity. Statutes and case law may limit the borrower’s ability to bring claims to set aside a sale and recover monetary damages related to conduct of a sale when the borrower did not challenge the sale before it took place.
Lenders have occasionally argued that borrowers lack standing to challenge the validity of preforeclosure transfers of mortgages, deeds of trust, and notes. According to the lenders, the validity of assignments and other transfers of loan documents is purely a matter between the parties to these transactions and borrowers have no stake in questions about their validity.302 Lenders have raised these standing objections most frequently in the context of non-judicial foreclosures, when borrowers file complaints to enjoin or set aside a sale.
A corporate officer with authority to assign the mortgage typically signs off on the assignment document.