Summary Contents - NCLC Digital Library · Contents ix Chapter 1 First Considerations 1 Chapter 2...

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Summary Contents

Top Reasons to Use Your Digital Library Access iii

NCLC Digital Library: The Leading Resource for All Consumer Law iv

Contents ix

Chapter 1 First Considerations 1

Chapter 2 Deposit Accounts: Account Opening, Closing, Statements, Fees, and Interest 27

Chapter 3 The Consumer’s Payment by Personal Check 53

Chapter 4 Check Payments to Consumers 125

Chapter 5 Electronic Fund Transfers 163

Chapter 6 Payments Outside of Bank Accounts: Money Orders, Cashier’s Checks, Domestic and International Remittances 275

Chapter 7 Prepaid Accounts, Gift and Payroll Cards, Mobile Payments, and Other Stored Value Systems 301

Chapter 8 Electronic Benefit Transfer (EBT) 367

Chapter 9 Federal Benefit Payments 393

Chapter 10 Banker’s Setoff and Security Interests in Bank Accounts 405

Chapter 11 Electronic Transactions: Contracts, Disclosures, and Signatures 421

Appendix A Uniform Commercial Code Provisions on Consumer Checking 473

Appendix B Truth in Savings 529

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Consumer Banking and Payments Law

Appendix C Federal Check Regulation: Check 21, Funds Availability, and Check Collections 551

Appendix D Payments to Telemarketers 635

Appendix E Electronic Fund Transfers 645

Appendix F NACHA Rules, Guidelines, and Bulletins 733

Appendix G Stored Value and Prepaid Cards 737

Appendix H Federal Benefits Payments 859

Appendix I Electronic Signatures and Records 867

Index 895

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Contents

Top Reasons to Use Your Digital Library Access iii

NCLC Digital Library: The Leading Resource for All Consumer Law iv

Chapter 1 First Considerations 1 1 About This Treatise 1 1 1 1 All Subscribers Have Access to the Digital Version 1 1 1 2 Organization of This Treatise 1 1 1 2 1 The Chapters 1 1 1 2 2 The Appendices 2 1 1 2 3 Pleadings and Primary Sources Found on the Digital Version 2 1 1 3 Payment Issues Discussed in Other NCLC Treatises 2 1 1 4 Alphabet Soup and Jargon 3 1 2 Payment Systems in a Nutshell 4 1 2 1 Introduction 4 1 2 2 Transfers Directly Out of the Consumer’s Bank or Prepaid Account 4 1 2 3 Other Payments by Consumers 5 1 2 4 Payments to the Consumer 5 1 3 Primary Sources of Law 6 1.3.1 Uniform Commercial Code (UCC) 6 1 3 2 Electronic Fund Transfer Act 6 1 3 3 NACHA Rules 6 1 3 4 E- Sign Act and UETA 6 1 3 5 Truth in Lending Act 6 1 3 6 Other State Laws 6 1 3 7 Federal Bank Supervisor Guidance and Letters 6 1 4 The Players Involved in Payments and Accounts 7 1 4 1 Introduction 7 1 4 2 The Role of Depository Financial Institutions and Payment Processors

Beyond the Consumer’s Bank 7 1 4 3 Payment Processors 8 1 4 3 1 In General 8 1 4 3 2 The Role of Financial Institutions in Monitoring

Payment Processors 8 1 4 3 3 The Direct Regulation and Obligations of Payment Processors 10 1 4 4 The Players in Particular Payment Systems 12 1 4 4 1 The Check Clearing System and Remotely Created Checks and

Payment Orders 12 1 4 4 2 The ACH Payment System 12 1 4 4 3 The Card Payment Systems 13 1 4 4 4 The Players in Prepaid and Payroll Cards 13 1 4 4 5 Wire Transfers and Money Service Businesses 13 1 4 5 Other Players in Consumer Accounts and Payment Systems 14 1 5 State Laws and Preemption 14 1 5 1 In General 14

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1 5 2 Dodd- Frank, the NBA, and HOLA 15 1.5.3 Bank Subsidiaries, Affiliates, and Agents Are Not Entitled to Preemption 16 1 5 4 The Role of OCC Preemption Letters 16 1 5 5 OCC Preemption of State Laws Affecting Deposit- Taking 17 1 5 6 OCC Preemption of State Laws Governing Fees, Charges, and Interest 18 1 5 7 OCC Preemption of State Laws Governing Electronic Services 19 1 5 8 Preemption Rules Regarding Establishment of Bank Branches and Other

Facilities 19 1 5 9 NBA and OCC Preemption of Visitorial Activities 19 1.5.10 Preemption Rulings Regarding Overdraft and Nonsufficient Funds Fees 20 1 5 10 1 Challenges to the Amount of the Fee or the Right to Charge It 20 1 5 10 2 Challenges to Deception or Manipulation of Posting Order 20 1 5 10 3 Claims Involving Disclosures 21 1 5 10 4 The Ninth Circuit’s Decision in Gutierrez 22 1 5 10 5 Preemption Under the Former Rules for

Federal Savings Associations 23 1 5 11 Preemption of Challenges to Other Practices Relating to

Banking and Payments 23 1 5 11 1 Gift Card Inactivity Fees and Expiration Dates 23 1 5 11 2 Other Fees 23 1 5 11 3 Deception, Debt Collection, and Discrimination 24 1 5 12 Application of Preemption to State- Chartered Banks, Non- Bank Entities 24 1 5 13 Federal Credit Union Act Preemption of State Law 25

Chapter 2 Deposit Accounts: Account Opening, Closing, Statements, Fees, and Interest 2 1 Scope of This Chapter: Bank and Non- Bank Accounts Holding Consumer Funds 27 2 2 Account Opening 27 2 2 1 Barriers to Opening a Bank Account and Options for

Consumers with Blemished Histories 27 2 2 2 Account Opening Requirements for Minors 28 2 3 The Nature of the Bank- Customer Relationship 28 2 3 1 In General; Fiduciary Duty 28 2 3 2 Duty of Good Faith and Ordinary Care and

Other Common Law Principles 28 2 4 Withdrawals from Savings Accounts 28 2 5 Truth in Savings Act: Disclosures, Statements, and Interest 29 2 5 1 Overview and Scope 29 2 5 2 Account Opening Disclosures 29 2 5 2 1 Delivery of Account Disclosures 29 2 5 2 2 Interest Rate Disclosures 29 2 5 2 3 Fee Disclosures; Changes in Fees 30 2 5 2 4 Other Deposit Account Terms That Must Be Disclosed 30 2 5 3 Advertising Disclosures and “Free Checking” 30 2 5 4 Periodic Statements 31 2 5 5 Calculation of Interest to Be Paid 31 2 5 6 Enforceability 31 2 6 Other Disclosure Laws 32 2 7 Overdraft Loan Fees 32 2 7 1 This Section’s Scope 32 2 7 2 Overdraft Loan Fees Described 32 2 7 3 Truth in Savings Act Regulation of Overdraft Loan Fees 34 2 7 4 Regulation E Overdraft Fee Rules 35

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2 7 5 Supervisory Actions on Overdraft Loans 35 2 7 5 1 2005 Joint Guidance 35 2 7 5 2 2010 FDIC Guidance 35 2 7 5 3 OCC and OTS Guidance and Interpretive Letters 36 2 7 5 4 OCC, OTS, and CFPB Enforcement Actions 36 2 7 5 5 CFPB and Bank Regulator Overdraft Fee Data and Research 37 2 7 5 6 Department of Education Rule on Overdraft Fees for

Student Accounts 38 2 7 6 Does the Truth in Lending Act Apply to Overdraft Loan Charges? 38 2 7 7 Do State Credit Statutes Apply to Overdraft Loan Charges? 39 2 7 8 Other State Laws Governing Overdraft Fees 40 2 7 9 Transaction Processing Order Determines Overdraft and NSF Fees;

“Available” Versus “Actual” Balance 41 2 7 9 1 Nature of the Problem 41 2 7 9 2 Legal Standards: Reordering of Transactions 43 2 7 9 2 1 Introduction: checks versus debit card

transactions 43 2 7 9 2 2 The UCC and other state laws 43 2 7 9 2 3 Federal regulator guidance 46 2 7 9 3 Legal Claims: Use of Available Balance 47 2 8 Regulation of Other Fees 47 2 8 1 In General 47 2 8 2 Changes to Fees 47 2 8 3 NSF Fees 48 2 8 4 Other Bank Fees 49 2 9 Closing the Account 50 2 9 1 Overview 50 2 9 2 Laws Governing the Right to Close an Account 51

Chapter 3 The Consumer’s Payment by Personal Check 3 1 Scope of This Chapter 53 3 2 The Basics 53 3 2 1 What Is a Check? 53 3 2 1 1 UCC Articles 3 and 4: Checks As Negotiable

Instruments, Drafts, and Items 53 3 2 1 2 The Features of a Printed Check 54 3 2 2 Who Are the Parties to a Check? 54 3 2 3 Keeping Track of Who Is Who in the Life of a Check 55 3 3 Checklists of Common Consumer Check Problems When the Consumer Is the

Drawer 56 3 3 1 Forgery of the Drawer’s Name 56 3 3 2 Remotely Created Checks/Telechecks and Remotely Created

Payment Orders 56 3 3 3 Check Is Stolen from the Payee 56 3 3 3 1 Check Stolen Before Payee Signs It 56 3 3 3 2 Check Stolen After Payee Specially Indorses It 57 3 3 3 3 Check Stolen After Payee Indorses It in Blank 57 3 3 4 Stop Payment Order or Drawer’s Closure of Bank Account 57 3 3 4 1 When Drawee Bank Obeys Drawer’s Directions 57 3 3 4 2 When Drawee Bank Does Not Obey Drawer’s Directions 58 3.3.5 Dishonor of Check for Insufficient Funds 58

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3 3 6 Check Amount Alteration to Evade Stop Payment Order on Re- Presentment 59

3 3 7 Nigerian Check and Mystery Shopper Scams 59 3 4 Rules That Govern Payment by Check 59 3 4 1 Paper Checks, Check Images, and Electronic Check Conversions 59 3 4 2 Overview of the Rules That Govern Paper Checks 59 3 4 3 The UCC’s General Obligation of Good Faith and Ordinary Care 60 3 4 4 Variation of UCC Rules by Agreement 62 3 4 5 The Role of Common Law 63 3 4 6 The UCC Statute of Limitations 65 3 5 Holder and Holder- in- Due- Course Status 66 3 5 1 Introduction 66 3 5 2 Becoming a Holder 67 3 5 2 1 Tracing Good Title to the Check— Issuance and Negotiation 67 3 5 2 2 Tracing Good Title to the Check— Holder Status 68 3 5 3 Holder- in- Due- Course Status 68 3 5 3 1 Introduction 68 3 5 3 2 Holder 69 3 5 3 3 Value 69 3 5 3 4 Good Faith 70 3 5 3 5 Notice 70 3 5 3 5 1 General 70 3 5 3 5 2 Notice that the check is overdue or

has been dishonored 70 3 5 3 5 3 Notice of a claim to the instrument 70 3 5 3 5 4 Notice of a defense or recoupment claim 71 3 5 4 Payee As Holder in Due Course 71 3 5 5 Attaining Holder- in- Due- Course Rights Through the Shelter Rule 71 3 5 6 Burden of Proving Holder- in- Due- Course Status 71 3 5 7 Rights of a Holder in Due Course 72 3 5 7 1 Introduction 72 3 5 7 2 Defenses Assertable Against a Holder in Due Course 72 3 6 Obligations of the Parties to a Check 73 3 6 1 Introduction 73 3 6 2 Effect of Giving a Check on the Underlying Obligation 73 3 6 3 Signatures on a Check 74 3 6 3 1 Actual Signatures 74 3 6 3 2 “Signatures” on Remotely Created Checks 75 3 6 4 The Drawer’s Obligation 75 3 6 4 1 General Rules 75 3 6 4 2 Incomplete and Altered Checks 75 3 6 4 3 Forgery of the Drawer’s Name 76 3 6 4 4 Effect of Forgery of the Payee’s Name or a Special Indorsee’s

Name on the Drawer’s Obligation 76 3 6 5 The Indorser’s Obligation 77 3 6 6 The Acceptor’s Obligation 77 3 7 The Bank- Customer Relationship 77 3 7 1 The Check Writing Aspect of the Bank- Customer Relationship 77 3 7 2 The Properly Payable Rule 77 3 7 2 1 Introduction 77 3 7 2 2 Missing or Forged Drawer’s Signatures 78 3 7 2 2 1 In general 78

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3 7 2 2 2 Consequences if drawer’s signature is missing or forged 78

3 7 2 3 Forgery of the Payee’s Name or a Special Indorsee’s Name 79 3 7 2 4 Stopped Payments 80 3 7 2 5 Closed Accounts 81 3 7 2 6 Death or Incompetence of the Depositor 82 3 7 2 7 Post- Dated Checks 82 3 7 2 7 1 Obligations of bank regarding post- dated checks 82 3 7 2 7 2 Obligations of debt collector and other payees

regarding post- dated checks and other payment instruments 83

3.7.2.8 Checks Older than Six Months (Stale Checks) 83 3.7.2.9 Insufficient Funds and Overdrafts 83 3 7 2 10 Altered and Incomplete Instruments 84 3 7 3 Wrongful Dishonor 84 3 7 4 Access to Cancelled Checks 86 3 8 How a Check Gets Paid or Bounced 87 3 8 1 Introduction 87 3 8 2 Automation and Truncation 87 3 8 2 1 Automated Check Collection 87 3 8 2 2 Conversion of Check to an

Electronic Image of the Check— Check 21 Act 87 3 8 3 Forward Check Collection 88 3 8 3 1 Issuance of Checks 88 3 8 3 2 Transfer 88 3 8 3 3 Presentment 88 3 8 4 Final Payment/Dishonor 89 3 8 4 1 Timing and Method of Final Payment 89 3 8 4 2 The Effect of Final Payment 90 3 8 4 3 The Effect of Dishonor/Nonpayment 90 3 8 4 4 When Must Drawee Bank Determine If the

Account Contains Sufficient Funds 90 3 8 4 5 Rules Governing Which Checks Will Bounce for

Insufficient Funds 91 3 8 4 6 An Example of Check Return After the Check Is Dishonored 91 3 8 5 Re- Presentment of Bounced Checks and Collection of

Bounced Check Fees 92 3 9 Rights of the Drawee Bank If It Finally Pays a Check That Was Not

Properly Payable 93 3 9 1 Subrogation 93 3 9 2 Undoing Final Payment 94 3 9 3 Presentment Warranties 95 3 10 Drawer’s Conduct That Can Shift Liability 95 3 10 1 The Bank Statement Rule 95 3 10 1 1 Introduction 95 3 10 1 2 The Bank’s Duty If It Provides the Customer with a

Bank Statement 96 3 10 1 3 Customer’s Duty to Examine Bank Statement 97 3 10 1 3 1 General 97 3 10 1 3 2 Rules for single forgeries or alterations or

for first forgeries or alterations in a series 98 3 10 1 3 3 Rules concerning multiple forged or altered checks 98

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3 10 1 3 4 Variation of bank statement rule time limits by agreement 99

3 10 1 4 Effect on Result If Bank Does Not Observe Ordinary Care or Good Faith 99

3 10 1 5 Issue Preclusion If No Notice by Bank Customer in One Year 100 3 10 1 6 Duty to Examine the Bank Statement for Other Inaccuracies 101 3 10 2 The Negligence Rule 101 3 10 3 The Imposter Rule 102 3.10.4 Common Law Ratification of a Forged Signature 103 3 11 Accord and Satisfaction 104 3 12 Check 21 and Substitute Checks 105 3 12 1 Introduction 105 3 12 1 1 Generally 105 3.12.1.2 Justification for Check 21 and Implications for Consumers 105 3 12 2 Entities That Can Create Electronic Images of Original Paper Checks 106 3 12 3 The Substitute Check 106 3 12 3 1 When a Bank Refuses to Accept an Electronic Version 106 3 12 3 2 Substitute Check Requirements 106 3 12 3 3 Legal Equivalency of the Substitute Check 106 3 12 4 Consumer Awareness Notices 107 3 12 5 The Expedited Re- Credit 107 3 12 5 1 Right to Require Bank to Reinvestigate 107 3 12 5 2 Receipt of the Substitute Check 108 3 12 5 3 Time Frame for Submitting a Claim 108 3 12 5 4 Banks Can Require Written Claim Submissions 108 3 12 5 5 When Consumer Has Right to

Re- Credit 109 3 12 5 6 Reversing the Re- Credit 110 3 12 5 7 Model Notices to Consumer of

Re- Credit Rights 110 3 12 5 8 Bank That Re- Credits Still May Be Liable for

Additional Damages 110 3 12 6 Private Remedies 110 3 12 6 1 Generally 110 3 12 6 2 Damages 110 3 12 6 3 Substitute Check Warranties 111 3 12 6 3 1 Generally 111 3 12 6 3 2 The legal equivalence warranty 111 3 12 6 3 3 The duplicative payment warranty 111 3 12 6 4 Breach of Substitute Check Warranty Allows Certain Parties

to Fully Recover Any Injury from Certain Banks 112 3 12 6 5 Certain Banks Have Limited Liability to Certain Parties

Even When No Warranty Is Breached 113 3 12 6 6 Any Person Can Sue Any Person for Breach of Warranty

or an Act Violation 113 3 12 6 7 Impact of Consumer’s Negligence on Recovery 113 3 12 6 8 Relationship to Other Law and Other Remedies 113 3 13 Remotely Created Checks and Remotely Created Payment Orders 114 3 13 1 The Use and Risks of Remotely Created Checks 114 3 13 2 Authorized Signatures and Remotely Created Checks 116 3 13 2 1 In General 116 3 13 2 2 Authorization in Telephone Transactions 117

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3 13 3 The Role of Depository Banks and Payment Processors 118 3 13 4 Laws Applicable to Remotely Created Checks 120 3 13 5 Remotely Created Payment Orders 122

Chapter 4 Check Payments to Consumers 4 1 Introduction 125 4 2 Issuance and Delivery of Check to Payee 125 4 2 1 Issuance of the Check 125 4 2 2 What Constitutes Delivery of the Check to the Payee? 125 4 3 Checks Lost or Stolen Before Delivery to the Payee 126 4 4 Checks Lost or Stolen After Delivery to the Payee 126 4 4 1 Check’s Bearer or Order Status Determines Rights 126 4 4 1 1 Introduction 126 4 4 1 2 Determining If a Check Is Bearer or Order Paper at Issuance 126 4 4 1 3 Determining If a Check Is Bearer or Order Paper When Lost

or Stolen 127 4 4 2 Rights If Check Was Bearer Paper When Lost or Stolen 127 4 4 3 Rights If Check Was Order Paper When Lost or Stolen 127 4 4 3 1 General 127 4 4 3 2 Payee Can Request New Check from the Drawer 128 4 4 3 3 Payee Can Recover the Physical Check and Send It

Through the Check Collection System 128 4 4 3 4 Payee Can Enforce the Instrument Against the Drawer 128 4 4 3 5 Payee’s Conversion Claim 129 4 4 3 5 1 General 129 4 4 3 5 2 Defense that forger is payee’s agent 131 4 4 3 5 3 The negligence defense 131 4 4 3 5 4 Employee indorsement rule 132 4 4 3 6 Payee’s Claim Against Drawer on the Drawer’s Obligation 132 4 4 3 7 Payee Cannot Sue the Drawer on the Underlying Obligation 133 4 4 4 Restrictive Indorsements and Lost or Stolen Checks 133 4 4 5 Special Rules for Indorsement by a Trustee or Other Fiduciary 134 4 5 Payee’s Access to a Deposited Check and Other Deposits:

Funds Availability and Account Holds 134 4 5 1 Introduction 134 4 5 2 Scope of the EFAA and Regulation CC; Accounts and Deposits Covered 135 4 5 3 Cash Deposits 136 4 5 4 Electronic Deposits 137 4 5 5 General Issues Affecting Regulation CC’s Funds Availability Schedule:

Local Checks, Timing 137 4 5 6 Next- Day Availability 138 4 5 6 1 Next- Day Availability for Certain Types of Deposits 138 4 5 6 2 Limited- Dollar Next- Day Availability for Any Type of Deposit 138 4 5 7 Second- Day and Fifth- Day Availability 139 4 5 8 One- Day Extension for Certain Withdrawals 139 4 5 9 Exceptions 139 4 5 9 1 New Accounts 139 4 5 9 2 Doubtful Collectability 140 4 5 9 3 Repeated Overdrafts 140 4 5 9 4 Emergency Cases 140 4 5 9 5 Large Deposits and Re- Deposited Checks 140

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4 5 9 6 Extra Time Granted for Exceptions; Notice Requirement 141 4 5 10 Deposits Not Made in Person to Bank Employee 141 4 5 10 1 Fund Availability Schedule 141 4 5 10 2 ATM Deposits: Time of Deposit and Disclosure Requirements 142 4 5 11 Disclosure Requirements 142 4 5 12 Remedies for Violation of the Availability Rules 142 4 5 13 Account Holds and Impediments to Accessing Funds 143 4 6 Deposit Errors 144 4.7 Payee’s Collection from the Drawee Bank (“On Us” Checks) 145 4 7 1 Introduction 145 4 7 2 Drawee Bank’s Obligation to Pay the Payee 145 4.7.3 Drawee Bank Can Require Payee Identification 146 4 7 4 Drawee Bank Fees for Cashing “On Us” Checks over the Counter 146 4 7 4 1 General 146 4 7 4 2 State Labor Law May Limit Charges When Employees Cash

Pay Checks at Employer’s Bank 147 4 8 Payee’s Liability If the Check Bounces 148 4 8 1 Overview 148 4 8 2 Determining If the Check Has Actually Bounced 148 4 8 3 The Payee’s Bank’s Right of Chargeback or Refund 148 4 8 4 The Indorser’s Obligation 150 4 8 5 Transfer Warranties 152 4 8 6 Check and Other Payment Scams and Payee Liability If a

Payment Bounces 153 4 8 7 Payee’s Rights If a Check Bounces 155 4 8 7 1 Introduction 155 4 8 7 2 Pursuing the Drawer on the Drawer’s Obligation 155 4 8 7 3 Pursuing the Drawer on the Underlying Obligation 155 4 9 Payee’s Liability to the Drawee Bank 155 4 9 1 Introduction 155 4 9 2 Breach of Presentment Warranties 156 4 9 3 Undoing Final Payment 157 4 10 Cashing a Check As Accord and Satisfaction or Acceptance of an Offer 157 4 10 1 Accord and Satisfaction 157 4 10 2 When Cashing a Check Results in a Contract for Goods or Services 158 4 11 Regulation of Check- Cashers 159 4 11 1 General 159 4 11 2 State Regulation 159 4 11 2 1 Types of Regulation 159 4 11 2 2 Scope of State Regulation 160 4 11 2 3 Substantive Requirements 160 4 11 2 4 Private Remedies for Violation of Check- Cashing Statutes 161 4 11 3 Gramm- Leach- Bliley and USA Patriot Acts 161

Chapter 5 Electronic Fund Transfers 5 1 Getting Started 163 5 1 1 Topics Covered in This Chapter 163 5 1 2 The EFTA and Regulation E 163 5 1 3 No Waiver of EFTA Rights 164 5 1 4 Treatment of State Law 165 5 1 5 Scope of the EFTA 166 5 1 5 1 Key Terms that Determine the Act’s Scope 166

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5 1 5 2 “Accounts” Covered by the EFTA 166 5.1.5.2.1 Basic definition 166 5 1 5 2 2 Payroll card accounts 167 5.1.5.2.3 Prepaid cards used for government benefits 167 5 1 5 2 4 Coverage of other prepaid card accounts 167 5 1 5 2 5 Multi- function cards; hybrid credit/debit cards

and mobile payment systems 168 5.1.5.3 Definition of “Electronic Fund Transfer” 168 5.1.5.3.1 Basic definition and exclusions 168 5 1 5 3 2 Exclusion for certain automatic bank transfers 169 5 1 5 3 3 Check- related transactions covered and

not covered by the EFTA 170 5 1 5 3 3 1 Overview 170 5.1.5.3.3.2 Electronic check conversion (ECC

or ECK); how to distinguish from checks 171

5 1 5 3 3 3 Electronic re- presentment of insufficient- funds checks 171

5 1 5 3 3 4 Remotely created checks and payment orders processed through the check system 172

5 1 5 3 4 Exclusion for Fedwire and similar wire transfer systems 172

5 1 5 3 5 Transfers initiated by telephone call 173 5 1 5 4 Financial Institutions and Other Persons Subject to the Act 173 5 1 5 4 1 In general 173 5.1.5.4.2 Are digital- wallet providers “financial institutions”? 174 5 1 5 4 3 Account aggregators and other service providers 175 5 1 6 The ACH System and NACHA Rules 176 5 1 6 1 General 176 5 1 6 2 How the ACH System Operates, Parties Involved 176 5 1 6 3 Types of ACH Entries 178 5 1 6 4 NACHA Distinctions Among Types of Electronic Check

Conversions 179 5.1.6.5 Re- Presented Check Entries (RCK) 179 5 1 6 6 Electronic Signatures and Records 180 5 2 Account Opening, Issuance of Access Devices, Disclosures 180 5 2 1 Types of Access Devices 180 5 2 1 1 General 180 5 2 1 2 Checks As Source Documents for ECC Are Not Access

Devices 181 5 2 2 Account Opening and Issuance or Cancellation of Card or Other Access

Device 181 5 2 2 1 Unsolicited Access Devices 181 5 2 2 2 Access Devices Requested by the Consumer 182 5 2 2 3 Opening Prepaid and Campus Accounts and Issuance of

Prepaid, Payroll, Government Benefit, and Campus Cards 182 5 2 2 4 Replacement Access Devices and Access to Account Pending

Replacement 183 5 2 3 Initial Disclosures 183 5 2 3 1 Entities that Must Make Disclosures 183 5 2 3 2 Form of Disclosures 183

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5 2 3 3 When Initial Disclosures Must Be Made 184 5 2 3 4 Content of Initial Disclosures 185 5 2 4 Subsequent Disclosures 185 5 2 4 1 Change in Terms 185 5 2 4 2 Error Resolution Notices 186 5 2 4 3 Disclosures Regarding Recurring Direct Deposits 186 5 2 5 Periodic Statements 187 5 2 6 When EFTA Disclosures and Other Writings May Be Provided

Electronically 187 5 3 Authorization for Electronic Fund Transfer from Consumer’s Account 188 5 3 1 General Authorization Requirements 188 5 3 1 1 Regulation E Authorization Requirements 188 5 3 1 2 NACHA Authorization Requirements for ACH Transactions 188 5 3 1 3 The Role of Financial Institutions and Payment Processors

Beyond the Consumer’s Bank in Ensuring the Integrity of Consumer Authorizations for Electronic Payments 190

5 3 1 3 1 Overview 190 5 3 1 3 2 NACHA and regulatory requirements for

originating and receiving depository financial institutions processing debits against consumer accounts 190

5 3 1 3 3 Rules governing ACH debits processed through payment processors 192

5 3 1 3 4 Authorizations for credit and debit card payments and the role of the acquiring bank 192

5 3 2 Authorization for Transfers Initiated by Telephone Call 193 5 3 2 1 Introduction 193 5 3 2 2 NACHA Authorization Requirements for Telephone Transfers 193 5 3 2 3 The FTC Telemarketing Sales Rule 194 5 3 2 3 1 Introduction 194 5 3 2 3 2 Scope of the FTC rule 194 5 3 2 3 3 Authorization requirements 195 5 3 2 3 4 Remedies for rule violations 196 5 3 3 NACHA Authorization Rules for Internet- and

Mobile- Based (WEB) Transfers 196 5.3.4 Authorization Requirements for Electronic Check Conversions (ECCs) 196 5 3 4 1 Regulation E Requirements 196 5 3 4 2 NACHA Authorization Requirements for Electronic

Check Conversions 197 5.3.5 Authorization to Electronically Re- Present Insufficient Funds Checks

and Returned ACHs 198 5 3 6 Authorization for Merchant Collection of Return Fees for Dishonored

Checks and ACH Debits 198 5 3 6 1 Regulation E Requirements 198 5 3 6 2 NACHA Requirements 199 5 3 7 Stop Payment Orders and Revocation of Authorization 200 5 3 7 1 Regulation E 200 5 3 7 2 NACHA Rules and Contract Rights Under the Authorization

Agreement 200 5 3 7 2 1 Overview; NACHA rules may apply to orders to

stop payment of a check 200 5 3 7 2 2 NACHA stop payment rules; may apply to checks 200

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5 3 7 2 3 Right to revoke authorization under contract and NACHA rules 201

5 3 8 Authorization, Revocation, and Stopping Payment of Payday Loan EFTs 202

5 3 9 Authorization and Procedures for Payments to Debt Collectors 203 5 3 10 Compulsory Use of Electronic Payments 203 5 4 Posting of Debits and Credits to Consumers’ Bank and Merchant Accounts 204 5 5 Consumer Liability for Unauthorized Transfers 204 5 5 1 Introduction; EFTA Versus TILA Liability Rules 204 5.5.2 Definition of Unauthorized Transfer 204 5.5.2.1 EFTA Definition 204 5.5.2.1.1 Basic definition 204 5.5.2.1.2 Transfers that benefit the consumer 206 5 5 2 1 3 Transfers by person furnished with the access

device 206 5.5.2.1.4 Transfers initiated by the financial institution or its

employee 207 5 5 2 1 5 Transfers initiated using an access device from a

service provider that is not the account- holding institution 208

5.5.2.2 NACHA Definition of Unauthorized Debits 208 5 5 3 Burden of Proof; No Consumer Liability Based on Consumer

Negligence; Consumer Cannot Waive EFTA Rules 208 5 5 4 Limits on Liability for Initial Unauthorized Transfers 209 5 5 4 1 No Liability If Access Device Does Not Meet Preconditions 209 5 5 4 2 Maximum $50 or No Liability When Consumer Promptly

Reports the Loss 209 5 5 4 3 Liability Up to $500 When Loss or Theft of Access Device

Not Reported in Two Days 210 5 5 5 Duty to Report Unauthorized Charges Appearing on the

Consumer’s Statement 210 5 5 5 1 Introduction 210 5 5 5 2 No Liability for Initial Set of Unauthorized Charges in

First Sixty (or More) Days If No Loss or Theft of Access Device 211

5 5 5 3 Liability for Subsequent Unauthorized Charges When Initial Charges Not Reported in Sixty (or More) Days 211

5 5 5 3 1 Unlimited liability for subsequent purchases applies whether or not access device used 211

5 5 5 3 2 How liability is computed 211 5 5 5 3 3 Exception to sixty- day deadline and unlimited

liability rule 212 5 5 6 Consumer’s Notice to Institution of Unauthorized Use 212 5 5 6 1 In General 212 5 5 6 2 Notice When Unauthorized Transfer Is Initiated Through

Service Provider That Does Not Hold the Consumer’s Account 212 5 5 7 Bank’s Responsibility in Absence of Consumer Notice 213 5 5 8 Other Law Can Lessen Consumer Liability, Increase Bank’s Liability 213 5 5 9 Protection Under Card Network and Other Company Policies and

Agreements 214 5 5 10 Immediate Re- Credit for Unauthorized Transfers: EFTA and

NACHA Rules 214

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5 5 11 Consequential Damages from Unauthorized Transfers 215 5.5.12 State Law and NACHA Policy on Data Breach Notification 215 5 6 Procedures for Resolving Errors 216 5 6 1 Errors Covered 216 5 6 1 1 General 216 5 6 1 2 Disputes with Merchants and Third- Party Senders 216 5 6 2 Consumer’s Notice to Institution of Error 217 5 6 2 1 Timing of Notice 217 5 6 2 2 Form and Content of Notice 217 5 6 3 Institution’s Duty to Investigate 218 5 6 4 Limited Duty to Examine Information Held by Third Parties 219 5 6 5 Completion of Investigation 220 5 6 6 Extension of Investigation Period from Ten to Forty- Five Days;

Provisional Credit 220 5 6 7 Time Extension for Certain Transactions 220 5 6 8 Post- Investigatory Procedures; Report of Findings 221 5 6 9 Error Resolution by Service Providers That Offer Electronic Fund

Transfer Services for Accounts at Other Institutions 221 5 7 Protections When EFT Sent to Consumer 222 5 7 1 Availability of Deposits and Account Holds 222 5 7 2 Errors in Connection with Direct Deposits 222 5 7 3 Compulsory Use of Electronic Deposits 222 5 8 Fees in Connection with Electronic Fund Transfers 223 5 8 1 In General 223 5 8 2 Overdraft Fees for Electronic Fund Transfers Honored Despite

Insufficient Funds 223 5 8 2 1 Introduction 223 5 8 2 2 Consumer Opt- In Required for ATM and One- Time Debit

Card Overdrafts 224 5 8 2 3 Notice and Opt- In Procedure 224 5 8 2 4 Anti- Evasion Provisions 225 5 8 3 NSF and Other Fees 226 5 9 Preauthorized Electronic Fund Transfers 226 5.9.1 Definition and Scope of EFTA Protections 226 5 9 2 Authorization for Preauthorized Transfers 227 5 9 2 1 Regulation E Requirements 227 5 9 2 2 NACHA Requirements 230 5 9 3 Advance Notice When Transfer Is a Variable Amount 230 5 9 4 Right to Stop Payment and Revoke Authorization 231 5 9 4 1 Stopping Payment with the Bank 231 5 9 4 2 Revoking the Payee’s Authorization or Stopping Payment

by Notice to the Payee 232 5 9 5 Compulsory Preauthorized Electronic Transfers Required by a Creditor 233 5 9 5 1 In General 233 5 9 5 2 Persons to Whom the Ban on Compulsory Use Applies;

Overdraft Services and Lines of Credit 234 5 9 6 Payday Loan Evasion of Preauthorized EFT Rules 235 5 9 6 1 Background Concerning Use of EFTs to Repay Payday Loans 235 5 9 6 2 Do Preauthorized EFT Rules Apply? 235 5 9 6 3 NACHA Rules and Payday Loans 235 5 9 6 4 State Law Requirements 235 5 10 Debit Cards and Payments to Merchants 236

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5 10 1 Overview 236 5 10 2 Hold on Funds Pending Settlement of Restaurant, Gas,

and Other Transactions 236 5 10 3 Interchange Fees: Discounts, Surcharges, Acceptance of Cards 237 5 10 3 1 Overview of Interchange Fees 237 5 10 3 2 Durbin Amendment on Merchant Discounts, Surcharges,

and Acceptance of Cards 237 5 10 3 3 State Law on Merchant Discounts and Surcharges 238 5 10 3 4 Antitrust Litigation 238 5 10 4 Card Numbers on Debit Card Receipts 239 5 10 5 Merchants That Refuse Cash or Checks and Require Electronic

Payments 239 5 11 ATM Issues: Fees, Receipts, Errors, Accessibility 239 5 11 1 ATM Fees 239 5 11 1 1 Federal Law 239 5 11 1 2 State Law 240 5 11 2 Receipts at Electronic Terminals 240 5 11 2 1 General 240 5 11 2 2 Promotional Materials Placed on the Receipt 241 5 11 2 3 Defenses to Institution’s Failure to Provide a Receipt 241 5 11 2 4 Content of the Receipt 241 5 11 3 ATM Withdrawal and Deposit Errors 241 5 11 3 1 Introduction 241 5 11 3 2 Inadequacy of EFTA Error Resolution Procedure 242 5 11 3 3 Common Law Approaches to Withdrawal Errors 242 5 11 3 4 Bailment Law and Deposit Errors 242 5 12 Requirements for Electronic Payments Resulting from Check Payments 243 5 12 1 Overview 243 5 12 2 NACHA Rules on Creation of and Security and Record Retention

for Electronic Check Conversions 243 5.12.2.1 Accounts Receivable Entries (ARC) 243 5.12.2.2 Point- of- Purchase (POP) and Back Office Conversion (BOC)

Entries 244 5 12 3 NACHA Rules on Bank Warranties for Electronic Check Conversions 245 5 12 3 1 Introduction 245 5 12 3 2 ARC Bank Warranties 245 5 12 3 3 Bank Warranties in POP and BOC Entries 246 5.13 Electronic Re- Presentment of and Fees for Insufficient- Funds Checks and

Rejected ACH Transactions 246 5 13 1 NACHA Limits on Whether an Item May Be Re- Presented

Electronically 246 5 13 2 NACHA Limits on the Number of Times an Item May Be

Re- Presented 247 5 13 3 Re- Presenting Payments by Splitting Them into Smaller Payments 247 5 13 4 Return Fees for Bad Checks and Rejected ACH Transactions 248 5 13 4 1 Return Fees Cannot Be Added to the Electronic

Re- Presentment of the Original Payment 248 5 13 4 2 NACHA Rules for Return Item Fees 248 5 13 5 Bank Warranties Relating to Duplicate Presentments,

Defenses to Payment, and the Consumer’s Insolvency 249 5.13.6 Identification and Copies of Electronically Re- Presented Checks 249 5 14 Digital Wallets, Mobile Payments, and Other Emerging Payment Systems 249

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5 14 1 Overview 249 5 14 2 Warranty and Contract Claims Involving Mobile Payments 252 5 14 2 1 Introduction 252 5 14 2 2 Does UCC Article 2 Apply? 252 5 14 2 3 Contract Law 253 5 15 Account Aggregation 253 5 15 1 Overview 253 5 15 1 1 What Is Account Aggregation? 253 5 15 1 2 Entities Involved in Account Aggregation 254 5 15 2 How Aggregators Obtain a Consumer’s Data; Consumers’ Right to

Their Data 254 5 15 3 Security Issues and Unauthorized Transfers Involving Account

Aggregators 255 5 15 4 Other Potential Errors and Problems Involving Account Aggregators 255 5 15 5 EFTA Coverage of Account Aggregators 256 5 15 6 EFTA Responsibilities of Account- Holding Institutions 256 5 15 7 Regulation Z Protections When Unauthorized Use Relates to Credit

Card Account 257 5 15 8 CFPB Consumer Protection Principles for Consumer- Authorized

Financial Data Sharing and Aggregation 257 5 15 9 Breach of Contract or of Duty of Care; Bad Faith 258 5 15 10 Liability Disclaimers 258 5 15 11 Cross- Marketing and Privacy 259 5 15 11 1 Gramm- Leach- Bliley Act 259 5 15 11 2 Other Protections 259 5 16 Virtual Currencies 260 5 16 1 Overview 260 5 16 2 Federal Law Applicable to Virtual Currencies 261 5 16 3 State Law Applicable to Virtual Currencies 262 5 17 EFT Enforcement 263 5 17 1 Remedies for Any EFTA Violation— Section 1693m 263 5 17 2 Additional Remedy Provisions in the EFTA 264 5 17 2 1 Remedy When Institution Fails to Follow Consumer

Transfer Instructions— Section 1693h 264 5.17.2.2 Remedy Relating to Error Resolutions— Section 1693f(e) 265 5 17 3 Who Can Be Held Liable for EFTA Violations 265 5 17 4 EFTA Statute of Limitations 265 5 17 5 Private Enforceability of NACHA Rule Violations 266 5 17 6 Article III Standing to Bring EFTA Claims 267 5 17 6 1 Introduction 267 5 17 6 2 The Supreme Court’s 2015 Decision in Spokeo v Robins 268 5 17 6 3 Spokeo’s Analysis of the Requirement of Concreteness 268 5 17 6 4 Applying Spokeo’s Two Tests to EFTA Claims 269 5 17 6 5 Types of Harms Caused by EFTA Violations;

Procedural Versus Substantive 269 5 17 6 5 1 Violations of procedural rights 269 5 17 6 5 2 Informational injuries 270 5 17 6 5 3 Violations of substantive rights 270 5 17 6 6 Post- Spokeo EFTA Rulings 271 5 17 6 7 Pre- Spokeo Rulings on Standing for EFTA Claims 271 5 17 6 8 Steps to Determine Congressional or Agency Intent Behind

EFTA Provisions 273

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Contents

5 17 6 9 Other Steps to Prepare a Spokeo Argument 273 5 17 7 NACHA Enforcement of Consumer Complaints 273

Chapter 6 Payments Outside of Bank Accounts: Money Orders, Cashier’s Checks, Domestic and International Remittances

6 1 Introduction 275 6 2 Money Orders 275 6 2 1 Introduction 275 6 2 2 Distinguishing Bank from Personal Money Orders 276 6 2 3 Money Order Purchaser Remedies When a Money Order Is Lost

or Stolen 276 6 2 3 1 Lost or Stolen Personal Money Orders 276 6 2 3 1 1 Forgery of the payee’s name 276 6 2 3 1 2 Forgery of the purchaser’s name 277 6 2 3 2 Lost or Stolen Bank Money Orders 277 6 2 3 2 1 Forgery of the payee’s name 277 6 2 3 2 2 Replacing or getting a refund on a lost or stolen

bank money order 277 6 2 4 Stop Payment of Money Orders 278 6 2 4 1 Introduction 278 6 2 4 2 Stopping Payment on Personal Money Orders 278 6 2 4 3 Stopping Payment on Bank Money Orders 278 6 2 5 Drawee’s Obligation to Pay the Money Order and Wrongful Dishonor 279 6 2 6 Money Order Drawee’s Insolvency 279 6 2 7 Effect of Giving Money Order on the Money Order Purchaser’s

Underlying Debt or Obligation 280 6 2 8 State Regulation of Issuers of Money Orders 280 6 2 9 Bank Money Order Scams 280 6 2 10 Postal Money Orders 280 6 3 Cashier’s and Teller’s Checks 280 6 3 1 Introduction 280 6 3 2 Drawee’s Obligation to Pay Cashier’s and Teller’s Checks 281 6 3 3 Stop Payment of Cashier’s and Teller’s Checks 281 6 3 4 Forgery of the Payee’s Name 282 6 3 5 Replacing or Getting a Refund on a Lost or Stolen Cashier’s or

Teller’s Checks 282 6 3 6 Effect of Giving Cashier’s or Teller’s Check on the Purchaser’s

Underlying Debt or Obligation 282 6 3 7 Cashier’s and Teller’s Check Scams 283 6 4 Traveler’s Checks 283 6 5 International Remittances, Money Orders, and Wire Transfers 284 6 5 1 Introduction 284 6 5 1 1 The International Remittance Market and Forms of

Remittances 284 6 5 1 2 Issues Presented by Remittances 285 6 5 2 EFTA and Regulation E Require Enforceable Disclosures and

Substantive Protections for Remittances 285 6 5 2 1 Introduction to Federal Protections for Remittances 285 6.5.2.2 Scope of Regulation E Protections and Definitions 286 6 5 2 3 Disclosure Requirements for International Remittances 287 6 5 2 4 Error Resolution Requirements for Remittances 289 6 5 2 4 1 Errors covered 289

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6 5 2 4 2 Procedures required 290 6 5 2 5 Effective Date 290 6 5 3 Other Applicable Laws 291 6 5 3 1 Contract and UDAP Laws 291 6 5 3 2 State and Local Remittance Laws 291 6.6 Domestic Remittances and Person- to- Person (P2P) Transfer Services 292 6 6 1 Introduction 292 6 6 2 EFTA Application to Domestic Remittances 293 6 6 3 Payment Scams and FTC Restrictions for Telemarketing Transactions 293 6 6 4 State Money Transmitter Laws 293 6 6 4 1 Introduction and Scope 293 6 6 4 2 Licenses, Bonds, and Investments 295 6 6 4 3 Disclosures 296 6 6 4 4 Cancellations and Refunds of Funds Not Transmitted 296 6 6 4 5 Protections Against Theft or Insolvency of Money Transmitter 296 6 6 4 6 Enforcement 296 6 7 “Wire” Fund Transfers Covered by UCC Article 4A 297 6 7 1 Introduction 297 6 7 2 Wire Transfer Systems 297 6 7 3 Scope of Article 4A and Relation to EFTA and Money Transmitter Laws 297 6 7 4 The Wire Transfer Process 298 6 7 5 Unauthorized Transfers 299 6 7 6 Errors in the Payment Order or During the Transfer Process 299 6 7 7 Bank Statement Rule 300

Chapter 7 Prepaid Accounts, Gift and Payroll Cards, Mobile Payments, and Other Stored Value Systems

7 1 Overview of Types of Stored Value Systems 301 7 2 Prepaid Cards and Accounts 301 7 2 1 What Is a Prepaid Card or Prepaid Account? 301 7 2 2 Parties Involved in a Prepaid Card 302 7 2 3 CFPB Prepaid Accounts Rule Amendments to Regulation E 303 7 2 3 1 Overview, Effective Date, and Sources of Legal Guidance 303 7 2 3 1 1 Overview; fee limits 303 7 2 3 1 2 Effective date of Prepaid Rule 304 7 2 3 1 3 Sources of legal guidance 304 7 2 3 2 The Scope of the Prepaid Accounts Rule and

Relation to State Law 305 7 2 3 2 1 Financial institutions covered and overview

of prepaid accounts covered 305 7 2 3 2 2 Payroll card accounts 305 7.2.3.2.3 Government benefit cards 305 7 2 3 2 4 Prepaid accounts marketed or labeled as “prepaid”

and redeemable or usable 306 7 2 3 2 5 Issued or loaded and the primary function test 306 7 2 3 2 6 Exclusions 307 7 2 3 2 7 Relation to state law 307 7 2 3 3 Prepaid Account Agreements 307 7 2 3 4 Pre- Acquisition Disclosures 308 7 2 3 4 1 Overview 308 7 2 3 4 2 Electronic and oral disclosures 309

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Contents

7 2 3 4 3 Format, terminology, and foreign language requirements 309

7 2 3 4 4 Short form pre- acquisition disclosures 310 7 2 3 4 5 Disclosures required near short form disclosures 311 7 2 3 4 6 Long form disclosure 311 7 2 3 4 7 Disclosures on the prepaid card or other

access device 312 7 2 3 5 Initial Disclosures 312 7 2 3 6 Change- in- Terms Notices 312 7 2 3 7 Periodic Statements and the Periodic Statement Alternative 313 7 2 3 8 Error Resolution Procedures 313 7 2 3 9 Limitations on Liability for Unauthorized Charges 314 7 2 4 Regulation Z Provisions Governing Hybrid Prepaid- Credit Cards 314 7 2 4 1 Overview 314 7.2.4.2 Definitions; Scope 315 7 2 4 2 1 Prepaid cards that are credit cards: the “hybrid

prepaid- credit card” 315 7 2 4 2 2 “Prepaid card” and “prepaid card issuers” 315 7 2 4 2 3 What constitutes “credit” and a “credit feature” 316 7 2 4 2 4 When is a “credit feature” considered “covered”? 317 7 2 4 2 5 Separate credit account requirement for overdrafts 318 7.2.4.2.6 Affiliate or business partner 319 7 2 4 3 Exceptions for Incidental Overdrafts 320 7 2 4 3 1 Conditions for exception for incidental overdrafts 320 7 2 4 3 2 Types of incidental overdrafts 320 7 2 4 3 3 Fee restrictions 321 7 2 4 4 Thirty- Day Waiting Period Before Adding a Credit Feature 322 7 2 4 5 Finance Charge Rules for Hybrid Prepaid- Credit Cards 322 7 2 4 5 1 Overview; scope 322 7.2.4.5.2 Regular Regulation Z finance charges 323 7 2 4 5 3 Higher fees on the asset feature 324 7 2 4 5 4 Participation fees 325 7 2 4 5 5 Overdraft fees 325 7 2 4 6 Regulation Z Provisions Governing Hybrid

Prepaid- Credit Cards 325 7 2 4 6 1 Overview of special provisions 325 7 2 4 6 2 Application and solicitation disclosures 326 7 2 4 6 3 Account opening disclosures 327 7 2 4 6 4 Periodic statements 327 7.2.4.6.5 Application of the 25% cap on fees in the first year

of the account 328 7 2 4 6 6 Application of the penalty fee restrictions 329 7 2 4 6 7 Application of the limitations on interest rate or

fee increases 329 7 2 4 6 8 Special rules for offsets, voluntary automatic

periodic deductions, and security interests 329 7 2 4 6 9 Billing error resolution and relationship to

Regulation E error resolution 330 7 2 4 6 10 Right to withhold payment for claims and defenses

against a merchant 330 7 2 4 6 11 College student credit cards 330 7 2 5 Other Laws Covering Prepaid Cards 331

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7 2 5 1 Application of EFTA and Regulation E Before April 1, 2019 331 7 2 5 2 EFTA’s Regulation II on Prepaid Cards and Interchange Fees 331 7 2 5 2 1 Overview 331 7 2 5 2 2 General- use prepaid cards with limited features 332 7 2 5 2 3 Government- administered card programs 333 7 2 5 2 4 Conditions on exemption: overdraft, decline,

and ATM fees 334 7 2 5 3 Other Federal Laws Affecting Prepaid Cards 334 7 2 5 4 State Laws Affecting Prepaid Cards 335 7 2 6 Account Opening and Issuance of Prepaid Cards 335 7 2 7 Prepaid Card Disclosures 336 7.2.8 Consumer Identification to Activate a Card 336 7 2 9 Fees on Prepaid Cards 337 7 2 9 1 Overview 337 7 2 9 2 Overdraft Fees 338 7 2 9 3 ATM, Teller Withdrawal, Customer Service,

and Statement Fees 338 7 2 9 4 Limits on Other Types of Prepaid Card Fees 339 7 2 10 Loading or Depositing Funds to a Prepaid Card 339 7 2 11 Using the Prepaid Card and Accessing Funds 340 7 2 12 Holds Placed on Funds 341 7 2 13 Access to Statements and Account Information 342 7 2 14 Lost Cards, Unauthorized Charges, Disputes, and Error Resolution 342 7 2 15 Redemption of Unused Value; Card Expiration 342 7 2 16 Protection from Card Provider’s Insolvency 343 7 2 16 1 Overview 343 7 2 16 2 Deposit Insurance 343 7 2 17 Prepaid Cards with Credit Features 345 7 2 17 1 Overview 345 7 2 17 2 Other Federal Laws Regulating Credit on Prepaid Cards 345 7 2 17 3 Federal Regulator Actions Involving Credit on Prepaid Cards 345 7 2 17 4 Application of State Law to Credit on Prepaid Cards 346 7 2 18 Credit Reporting and Prepaid Cards 346 7 2 19 Savings Features on Prepaid Cards 346 7 3 Payroll Cards 346 7 3 1 Description; No Mandatory Use 346 7.3.2 EFTA/Regulation E Coverage and Modifications for Payroll Cards 347 7 3 3 Regulation II Restrictions on Fees and Functionality of Payroll Cards 348 7 3 4 OCC Advisory Letter 348 7 3 5 Fair Labor Standards Act 348 7 3 6 State Regulation 348 7 4 Government Issued Prepaid Cards 350 7 4 1 Overview 350 7 4 2 The EFTA Applies to Many Government Prepaid Cards 351 7 4 2 1 Scope of Regulation E’s Coverage of Government

Prepaid Cards 351 7.4.2.2 Regulation E’s Ban on Mandatory Use of Specific Accounts

for Government Benefits 352 7.4.2.3 EFTA Modifications for Government Benefits Prepaid

Cards; Fees 352 7 4 3 DOL Guidance on Unemployment Compensation Prepaid Cards 353 7 4 4 Other Federal Laws Governing Government Prepaid Cards 354

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Contents

7 4 5 State Laws Impacting Government Prepaid Cards 354 7 4 6 Pro- Consumer Card Terms That Governments Can Negotiate 354 7 5 Campus Prepaid Cards and Bank Accounts 355 7 5 1 Department of Education Rules Governing Campus Prepaid Cards

and Bank Accounts 355 7 5 1 1 Overview, Scope, and Requirements for Student Choice 355 7 5 1 2 Rules for T1 Student Accounts 356 7 5 1 3 Rules for T2 Student Accounts 356 7 5 1 4 Website Posting of Student Account Contracts and Costs 357 7 5 2 Other Laws Governing Campus Prepaid Cards and Bank Accounts 357 7 6 Other Types of Prepaid Cards 358 7 7 Gift Cards and Other One- Time Card Payments 359 7 7 1 What Is a Gift Card? 359 7 7 2 Applicable Law 359 7 7 2 1 The EFTA and Regulation E: Scope 359 7 7 2 2 Federal Regulator Guidance 360 7 7 2 3 Does Federal Law Preempt State Gift Card Law? 360 7 7 2 4 State Law Regulating Gift Cards 361 7 7 2 5 The Gift Card Agreement 361 7 7 3 Gift Card Disclosures 362 7 7 4 Limits on Gift Card Fees 362 7 7 4 1 The EFTA and Regulation E 362 7 7 4 2 State Law 362 7 7 5 Limit on Gift Card Expiration Dates and Redemption of Value 362 7 7 5 1 Regulation E 362 7 7 5 2 State Law 363 7 7 6 When the Card Does Not Function Properly 363 7 7 7 Lost and Stolen Cards; Unauthorized Use 363 7 7 8 Deceptive Gift Card Marketing Practices 364 7 7 9 State Escheat Laws 364 7 7 10 Card Issuer’s Insolvency 365 7 7 10 1 Does Merchant’s Acceptance of Card Payment Discharge

the Consumer’s Obligation to the Merchant? 365 7 7 10 2 Consumer Remedies If Card Issuer or Store Files for

Bankruptcy 365 7 8 Mobile Payment Systems 366

Chapter 8 Electronic Benefit Transfer (EBT) 8 1 Introduction 367 8 1 1 Overview 367 8.1.2 The Definition of “Electronic Benefit Transfer” 367 8 1 3 Congress’s EBT Mandates 367 8 1 4 How EBT Cards Work 368 8 1 5 Prepaid Cards Distinguished from EBT Cards 368 8 2 Sources of Legal Guidance and Applicable Law 369 8 2 1 General 369 8 2 2 Rights Based on State Agency Contract with Private Vendor 370 8 2 2 1 Standards Imposed by State on Private Vendor 370 8 2 2 2 Advocacy Before State Agencies Concerning Terms of

Vendor Contract 370 8 2 3 Electronic Fund Transfer Act: Does EFTA Apply to EBT? 370 8.2.4 Supplemental Nutrition Assistance Program (SNAP) Regulations 371

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8 2 5 Private Enforcement of EBT Statutes and Regulations 371 8 3 EBT Card Issuance, PIN Selection, and Replacement Cards 372 8 3 1 Card Issuance 372 8 3 2 Multiple Cards 373 8 3 2 1 Reasons for Issuance 373 8 3 2 2 Advantage of Distinguishing Between Primary and

Alternative Cards 373 8.3.3 Personal Identification Numbers (PINs) 373 8 3 4 Replacement Cards and PINs 374 8 3 4 1 General 374 8 3 4 2 Deactivation of Existing Cards Prior to Replacement 374 8 3 4 3 Replacement Card Charges 374 8 4 Recipient EBT Training 374 8.5 Recipient Access to EBT Benefits 375 8.5.1 Access to SNAP Benefits 375 8 5 1 1 General 375 8 5 1 2 Farmers’ Markets 375 8 5 1 3 Photo EBT Cards 375 8.5.2 Access to Cash Benefits 376 8 5 2 1 General 376 8 5 2 2 Dedicated POS Devices 377 8 5 2 3 Electronic Fund Transfers 377 8 5 3 System Downtime and Back- Up Systems 377 8 5 3 1 General 377 8 5 3 2 Manual Vouchers for SNAP 377 8.5.3.3 Regulations Inapplicable to Cash Assistance Benefits 378 8 5 4 Disaster Recovery Plans 378 8 6 Recipient EBT Charges 378 8.6.1 No Charge for Access to SNAP Benefits 378 8.6.2 Recipients Typically Charged a Fee to Access EBT Cash Benefits 378 8 6 2 1 Federal and State Standards 378 8 6 2 2 Types of Charges 379 8 6 3 ATM Charges 379 8 6 4 POS Charges 379 8 6 4 1 Purchases Distinguished from Cash- Back Transactions 379 8 6 4 2 Access and Charges for Cash Back at

State- Owned POS Terminals 379 8 6 4 3 Access and Charges for Private POS Cash- Back Transactions 380 8 6 5 Balance Inquiry Charges 380 8 6 6 Merchant Assessment of Food- Stamp- Related Fees to EBT Contractor 380 8 6 7 Fees for Replacement Cards 380 8 7 Security and Privacy 380 8 7 1 Data and Account Security 380 8 7 2 Personal Security 380 8 7 3 Lost or Stolen EBT Cards and PINs 381 8 7 3 1 Introduction 381 8 7 3 2 SNAP 381 8.7.3.3 Cash Benefits 381 8 7 3 4 State Practices 381 8 7 4 Account Lock- Out After Consecutive Incorrect PIN Entries 381 8 7 5 Privacy Issues 381 8 8 Error Resolution and Hearings 382

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Contents

8 8 1 Sources of Standards: SNAP Rules, QUEST Operating Rules, and States 382

8 8 2 Food Stamp Error Resolution and Hearing Rights 382 8 8 2 1 When Agency Incorrectly Credits Recipient’s Account 382 8 8 2 2 Correcting System Errors 382 8.8.2.3 Insufficient Funds Payments 383 8.8.2.4 Benefit Adjustments Based on State Claims Against Recipients 383 8 8 2 5 Recipient Rights to Notice and Fair Hearing 384 8 8 3 Cash Assistance Error Resolution and Hearing Rights 384 8 8 4 Maintaining EBT Account Records: Transaction Histories 384 8 9 Meeting Recipients’ Special Needs; ATM Access for the Disabled 384 8 9 1 General 384 8 9 2 Americans with Disabilities Act 385 8 9 2 1 Applicability to EBT and Other ATM Transactions 385 8 9 2 2 Guidelines Dealing Directly with ATMs 385 8 9 2 3 Private ADA Litigation 386 8 9 3 Physical Disabilities and Home- Bound Recipients 386 8 9 4 Meeting the Needs of Blind and Visually Impaired Recipients 387 8 9 4 1 Introduction 387 8 9 4 2 Training and Written Materials for the Blind and

Visually Impaired 387 8 9 4 3 Mechanical Accommodations 387 8 9 4 3 1 Nature of the problem 387 8 9 4 3 2 ATM and POS equipment 387 8 9 4 3 3 Access to account balances 388 8 9 5 Deaf, Hard- of- Hearing, and Speech- Impaired Recipients 388 8 9 5 1 Training 388 8 9 5 2 EBT Phone Services for Deaf, Hard- of- Hearing, and Speech-

Impaired Recipients 389 8 9 6 Mentally Ill Recipients 389 8 9 7 Issuing Cards, PINs, and Training Materials to Homeless Recipients 390 8 9 7 1 Introduction 390 8 9 7 2 Mailing Address Cannot Be Eligibility Requirement for

Food Stamps 390 8 9 7 3 State Agency Is Required to Provide “Timely, Accurate, and

Fair Service” 390 8 9 7 4 State Must Provide Appropriate Assistance to Recipients 390 8.9.8 Obtaining Benefits Through Group Living Facilities and

Homeless Meal Providers 391 8 9 9 Functionally Illiterate Recipients 391 8 9 10 Meeting Non- English Speakers’ Special Needs 391

Chapter 9 Federal Benefit Payments 9 1 About This Chapter 393 9 2 Check Payments 393 9 2 1 Federal Elimination of the Check Option 393 9.2.2 Beneficiaries Still Entitled to Receive Paper Checks 394 9 2 2 1 Individuals Born Prior to May 1, 1921 394 9 2 2 2 When Direct Express Payments Are Not Available 394 9 2 2 3 Non- Recurring Transfers 394 9 2 2 4 Waivers for Mental Impairment and Remote Locations 394 9 2 2 5 Other Exceptions to Requirement for Electronic Transfer 394

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9 2 3 Disadvantages of Check Payments 394 9 3 Direct Deposit of Federal Payments to a Qualifying Financial Institution 394 9 3 1 Direct Deposit Described 394 9 3 2 Advantages and Disadvantages of Direct Deposit 395 9 3 3 Direct Deposits Fraudulently or Mistakenly Transmitted to a

Wrong Account 395 9.3.4 Freeze Protections for Directly Deposited Federal Benefits 396 9 3 4 1 General 396 9 3 4 2 How the Rule Operates 396 9 4 Payments to Master Accounts of Nursing Facilities and Religious Orders 397 9 5 The Direct Express Card 397 9 5 1 General 397 9 5 2 Direct Express Card Fees and Terms of Use 397 9 5 3 Unauthorized Charges Against Funds Deposited on the

Direct Express Card 398 9 5 4 Protection from Attachment or Garnishment 398 9 6 Deposits to Prepaid Cards Obtained on the Private Market 399 9.7 Electronic Transfer Accounts (ETAs) 399 9 7 1 General 399 9 7 2 Individuals Eligible for an ETA Account 400 9 7 3 How to Find an Institution That Offers ETAs 401 9 7 4 Funds Eligible to Be Deposited in an ETA Account at No Charge 401 9 7 5 Withdrawals, Balance Inquiries, Fees 402 9 7 6 Point- of- Sale Features 402 9 7 7 Closing of an ETA Account 403

Chapter 10 Banker’s Setoff and Security Interests in Bank Accounts 10 1 Overview 405 10 2 Banker’s Setoff 405 10 2 1 General 405 10 2 1 1 Types of Setoff 405 10 2 1 2 Avoiding Bank Setoff 406 10 2 2 Federal Limits on Bank Setoff 406 10 2 2 1 Federal Limitation on Bank’s Offset of Credit Card Debt

Against Deposit Account 406 10 2 2 2 Setoff After Consumer Files for Bankruptcy 407 10.2.2.3 Federal Benefits Deposited in ETA- Special Purpose

Accounts 408 10 2 3 State Law Limitations on Bank’s Right of Setoff 408 10 2 4 Can Bank Use Setoff If It Has a Security Interest in Other Property? 408 10 2 5 Notice of Setoff 408 10 2 6 Debts That May Be Set Off 409 10 2 6 1 Debts Must Be Mutual 409 10 2 6 2 Debt Must Have Matured 410 10 2 6 3 When Consumer Is Secondarily Liable on the Debt 411 10 2 7 Accounts That Can Be Set Off 411 10 2 7 1 Account Must Be in Debtor’s Name 411 10 2 7 2 Special Purpose Accounts 411 10 2 7 3 Accounts Held in Tenancy By the Entireties 412 10 2 7 4 Joint Accounts 412 10 2 7 5 Convenience Accounts 413 10 2 8 Sources of Funds Exempt from Setoff 414

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Contents

10 2 8 1 Introduction 414 10 2 8 2 Sources of Bank Account Funds Exempt from Garnishment 414 10 2 8 3 Commingling in Bank Accounts of Exempt and

Non- Exempt Funds 414 10.2.8.4 Are Deposited Benefits That Are Exempt from Garnishment

Also Exempt from Setoff? 415 10 2 8 5 Keffeler’s Implication for Setoff of Social Security and

SSI Benefits 416 10 2 8 6 Impact of U S Treasury Rule Protecting Exempt Funds

from Garnishment 417 10 2 9 Remedies for Wrongful Setoff 417 10 3 Security Interest in Deposit Accounts 418

Chapter 11 Electronic Transactions: Contracts, Disclosures, and Signatures 11 1 Getting Started 421 11 1 1 About This Chapter 421 11 1 2 What This Chapter Is Not About 421 11 1 3 E- Sign 421 11 1 4 UETA 422 11 1 5 Absence of a Writing Requirement Means Neither UETA

nor E-Sign Is Implicated 422 11 1 6 Agency Interpretations of E-Sign 422 11.2 Coverage, Definitions, and Relation to State Law 423 11.2.1 Definition of “Electronic Records” 423 11.2.2 Definition of “Electronic Signatures” 423 11.2.3 Definition of “Transaction” 424 11 2 4 E- Sign Only Applies to Transactions in Interstate Commerce 424 11.2.5 Definition of “Consumer” in E-Sign for Purposes of Consumer Consent 425 11 2 6 Exemptions from E-Sign and UETA 425 11 2 6 1 General 425 11 2 6 2 Court Documents and Government Filings 426 11 2 6 3 Exceptions for Essential Consumer Notices 426 11 2 7 When E-Sign Excludes Transactions Not Excluded by UETA 427 11 2 8 Relationship of E-Sign to UETA and Other State Law 427 11 2 8 1 E- Sign Preemption of UETA and Other State Law 427 11 2 8 2 State Law’s Reverse Preemption of E-Sign 428 11 3 General Rule as to Validity of Electronic Records and Signatures 428 11 3 1 The General Rule 428 11 3 2 Parties Must Have Agreed to Electronic Records or Signatures 430 11 3 2 1 General 430 11 3 2 2 Parties Cannot Be Required to Conduct Transaction

Electronically 430 11 3 2 3 Agreement to Conduct Transaction Electronically

Determined by Surrounding Circumstances 431 11 3 2 4 Electronic Records Used to Show Agreement to

Electronic Transaction 432 11 3 2 5 Electronic Records Can Show Intent to Form a Contract 433 11 3 2 6 Electronic Records Can Prove the Contract 434 11 4 Special Consent Required for Consumer Transactions 435 11 4 1 Reasons for Special Consumer Consent Requirements 435 11 4 2 Special Consent As Prerequisite for Electronic Records Provided to

Consumers 436

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11 4 3 Consent Must Reasonably Demonstrate Consumer’s Ability to Access the Electronic Information 436

11 4 4 No Oral Consent for Electronic Records to or from Consumers 437 11 4 5 Application of Consumer Consent Requirement to Authorization for

Recurring EFTs 438 11 4 6 Application of Consumer Consent Requirements to TCPA’s Written

Authorization Requirements 438 11 4 7 Consumer Withdrawal of Consent 439 11 4 8 New Consent When Business Changes Requirements to Access

Information 439 11 4 9 Federal Agency Rulemaking Can Alter Consumer Consent

Requirements 439 11 4 10 Consequences of Consumer Consent Not Meeting E-Sign’s

Requirements 440 11 5 Other Limits on the Validity of Electronic Records 440 11 5 1 Other Aspects of Law Still Apply to Electronic Transactions 440 11 5 2 Retention and Integrity Rules for Electronic Transactions 441 11 5 3 Does an Oral Record Qualify As an Electronic Record? 442 11 5 4 Timing, Format, and Conspicuousness of Disclosures 442 11 5 4 1 E- Sign and UETA Requirements 442 11 5 4 2 Standards for Conspicuousness Requirements 442 11 5 5 Manner of Transmission and Proof of Delivery 443 11 5 5 1 General 443 11 5 5 2 When the Underlying Law Does Not Specify Means of

Delivery 444 11.5.5.3 When Underlying Law Specifies the Nature of Transmission 445 11 5 5 4 Can Documents Be Sent Electronically When the

Underlying Law Requires U S Mail? 445 11 5 5 5 Proof of Delivery 445 11 6 Enforceability of Electronic Signatures 446 11 6 1 General 446 11 6 2 Examples of Electronic Signatures 449 11 6 3 Intent to Sign 450 11 6 3 1 Generally 450 11 6 3 2 Signatures in E-Mails 451 11 6 3 3 Clicked- Through Signature 452 11 6 4 Proof Issues Relating to Electronic Signatures 453 11 6 4 1 Important Distinctions Between Handwritten and

Electronic Signatures 453 11 6 4 2 Determining the Authenticity of Electronic

Signatures 454 11 6 5 Notarization, Acknowledgment, and Other State Law Signature

Requirements 456 11 7 Which Law Applies— E- Sign or UETA? 457 11 7 1 Why Do We Care? 457 11 7 2 Overview 457 11 7 3 How Extensive Is the Displacement? 458 11 7 3 1 General 458 11 7 3 2 Only State Law Applies If Transaction Is Not in Interstate

Commerce 458 11 7 3 3 E- Sign Fully Effective When Federal Law Requires a

Record 459

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Contents

11.7.4 Roadmap to Specific Preemption Sections of E-Sign 459 11 7 4 1 Introduction 459 11 7 4 2 Section 7001— General Rule of Validity 459 11 7 4 3 Section 7002— Exemption to Preemption

(“Reverse Preemption”) 459 11.7.4.4 Section 7003— Specific Exemptions from E-Sign 460 11 7 4 5 Section 7004— Applicability to Federal and State

Government 460 11 7 5 Categorization of States’ Displacement of E-Sign 460 11 7 5 1 Introduction 460 11 7 5 2 States That Have Never Enacted UETA 460 11 7 5 3 States That Enacted UETA Prior to E-Sign 461 11 7 5 3 1 E- Sign fully effective when UETA was enacted

before E-Sign 461 11 7 5 3 2 Uniform UETA enacted prior to E-Sign 461 11 7 5 3 3 Non- uniform UETA or other state law enacted

prior to E-Sign 462 11 7 5 4 Post- E- Sign UETA 462 11 7 5 4 1 General 462 11 7 5 4 2 Versions of UETA that include provisions

comparable to E-Sign 463 11 7 5 4 3 Post- E- Sign non- uniform UETA or

other state law 463 11 7 5 4 4 Uniform version of UETA without

consumer protections and without an intent to supersede 464

11 7 5 4 5 Uniform version of UETA enacted without consumer protections and with intent to displace E-Sign 465

11 7 6 When UETA Fails to Displace E-Sign, Does E-Sign Preempt UETA? 465 11 7 6 1 General 465 11 7 6 2 E- Sign Explicitly Preempts Certain Provisions 465 11 7 6 3 Implicit Preemption 466 11 7 6 4 Preemption When Specific UETA Provision Conflicts with

E-Sign 467 11 7 6 5 E- Sign Does Not Transform Non- Uniform UETAs into

Uniform Ones 467 11 7 7 State- by- State Analysis of E-Sign’s Consumer Consent Provision 468 11 8 Electronic Mortgages 469 11 8 1 Introduction 469 11 8 2 FHA Electronic Signature Requirements 470 11 8 3 Consumer Financial Protection Bureau eClosing Project 470

Appendix A Uniform Commercial Code Provisions on Consumer Checking 473

Appendix B Truth in Savings B 1 Truth in Savings Act 529 B 2 Regulation DD 532 B 3 Official Interpretations of Regulation DD 538

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Appendix C Federal Check Regulation: Check 21, Funds Availability, and Check Collections

C 1 Check 21 Act 551 C 2 Regulation CC 558 C 3 Regulation CC Commentary— 12 C F R Part 229, Appendix E 586 C 4 Other Federal Banking Regulations 634

Appendix D Payments to Telemarketers D 1 Selected Provisions of the Federal Trade Commission’s

Telemarketing Sales Rule 635 D 2 OCC Bulletin on Payment Processors 642

Appendix E Electronic Fund Transfers E 1 The Electronic Fund Transfer Act 645 E 2 Regulation E on Electronic Fund Transfers 659 E 3 Official Interpretations of Regulation E 687 E 4 CFPB Bulletin on Payroll Card Accounts 729

Appendix F NACHA Rules, Guidelines, and Bulletins F 1 Selected NACHA Operating Rules 733 F 2 Selected NACHA Operating Guidelines 733 F 3 Questionable ACH Debit Origination: Roles and

Responsibilities of ODFIs and RDFIs 736

Appendix G Stored Value and Prepaid Cards G 1 Future Changes to Regulation E Concerning Prepaid Card Accounts 737 G 1 1 Regulation E Changes 738 G 1 1 1 2016 Amendments to Regulation E Concerning

Prepaid Accounts 738 G 1 1 2 2018 Amendments to Regulation E Concerning

Prepaid Accounts 759 G 1 2 Changes to Official Interpretations of Regulation E 763 G 1 2 1 2016 Amendments to Regulation E Interpretations

Concerning Prepaid Accounts 763 G 1 2 2 2018 Amendments to Regulation E Interpretations

Concerning Prepaid Accounts 787 G 2 Future Changes to Regulation Z Concerning Prepaid Card Accounts 807 G 2 1 Regulation Z Changes 808 G 2 1 1 2016 Amendments to Regulation Z Concerning

Prepaid Accounts 808 G 2 1 2 2018 Amendments to Regulation Z Concerning

Prepaid Accounts 812 G 2 2 Changes to Official Interpretations of Regulation Z 814 G 2 2 1 2016 Amendments to Regulation Z Interpretations

Concerning Prepaid Accounts 814 G 2 2 2 2018 Amendments to Regulation Z Interpretations

Concerning Prepaid Accounts 831 G 3 FDIC Opinion on Stored Value Card Insurability 841 G 4 OCC Letter on FDIC Insurance for Prepaid Cards 843

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Contents

G 5 U S Department of Labor— Unemployment Insurance and Prepaid Cards 845 G 5 1 Labor Secretary’s Letter on Unemployment Insurance

Prepaid Card Usage and Issues 845 G 5 2 Department of Labor Guidance on Unemployment Insurance

Prepaid Cards 851 G 6 Model Stored Value Card Protection Act 856

Appendix H Federal Benefits Payments H 1 Direct Deposit of Federal Payments 859 H 2 Federal Use of the Automated Clearing House (ACH) 861

Appendix I Electronic Signatures and Records I 1 Electronic Signatures in Global and National Commerce Act 867 I 2 The Uniform Electronic Transactions Act (UETA) 871 I 2 1 State- by- State Analysis of UETA Enactments 871 I 2 2 The Uniform Electronic Transactions Act 875

Index 895

Summary Contents - NCLC Digital Library · Contents ix Chapter 1 First Considerations 1 Chapter 2...

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Transcript of Summary Contents - NCLC Digital Library · Contents ix Chapter 1 First Considerations 1 Chapter 2...