Clarks' Bank Deposits and Payments Monthly : Mealey's : Legal News & Analysis

Clarks' Bank Deposits and Payments Monthly

July 15, 2022
Federal Reserve Issues Toolkit To Fight Synthetic Identity Fraud

Synthetic identity fraud (SIF) is believed to be the fastest growing payments fraud in the United States. The most recent work product by the Federal Reserve to support the payments industry in its battle against this particularly pernicious and sophisticated type of fraud is the release of the Synthetic Identity Fraud Mitigation Toolkit.
July 15, 2022
Mobile Remote Deposit Capture: How Restrictive Indorsements Can Protect Against Risk Of Duplicate Payments

Just under the space allocated on the back of paper check for the indorser to sign, oftentimes there is printed language stating, “For Mobile or Remote Deposit Only” followed by a space for the indorser to designate the name of the financial institution and the date.
June 23, 2022
Best Practices: A Banker’s Dozen For Reviewing Wire Transfer Agreements

Originally published in a prior edition of this newsletter, this story is reprinted here due to the heightened interest in and continued timeliness of this important topic.
June 23, 2022
Recent 10th Circuit Decision Read Broadly Brings Comfort To Banks Sticking With Overdraft Fees

A recent decision by the 10th Circuit is bringing some comfort to depositary institutions determined to maintain a significant income stream generated from overdraft fees despite increasing peer competition and heavy pressure from the federal banking regulators to walk away from the fees. The court’s holding narrowly refers to a particular form of overdraft fees, but the decision reasonably can be read more broadly.
June 09, 2022
Lender Liability: Talk Of Recession Highlights Significance Of Recent Texas Bankruptcy Decision

A recent decision from a Texas bankruptcy court involves a short-term financing arrangement that went “terribly wrong.” The issue is whether a venerable business enterprise was “dead on arrival” or just “walking wounded” and capable of reorganization. As determined by the bankruptcy court, the bridge lender acted in “bad faith” when it assumed control over the management of the business enterprise to protect its own interests, causing the business enterprise’s demise.
June 09, 2022
Congress Enacts LIBOR Transition Law; Fed Banking Regulators Deem LIBOR Issuances “Safety And Soundness” Concerns

The January 2022 issue of this newsletter is a Special Report on the cessation of the publication of the benchmark interest rate known as the LIBOR (London Interbank Rate) scheduled for June 30, 2023. The Special Report discusses the challenges during the transition period facing U.S. financial market participants who are stakeholders in so-called “tough legacy” (difficult to amend) financial contracts” lacking satisfactory “fallback provisions.”
June 09, 2022
The Tricky Role Of UCC “Good Faith” Provisions

A recurrent problem in bank deposit and collection and lending disputes is the appropriate role of “good faith” as an overarching principle in lender liability cases. Oftentimes, plaintiffs will look to the UCC as the statutory source for an independent duty of good faith, usually framed as the “implied duty of good faith and fair dealings” under tort law. This can lead to problems.
April 13, 2022
Freezing Funds And Other Key Provisions: Treasury Rule On Garnishment Of Deposit Accounts Containing Federal Benefits

For the financial institution, a garnishment order is a red flag signaling customer financial insecurity. There are certain federal benefits received by consumers administered by four federal agencies protected under federal law from garnishment by creditors. A threshold question for financial institution receiving a garnishment order is whether a federal exemption applies.
April 13, 2022
Expiration Of COVID Forbearance Programs Renews Use Of Garnishment: Review Of Deposit Account Key Principles

The COVID-19 pandemic seriously impaired the economic livelihood of large numbers of consumers beginning in 2020. Certain types of payments on consumer debt were suspended or reduced during the pandemic in 2020 and 2021. Some extensions carried over into 2022 but forbearance relief is ending. Many of the hardship programs were enacted through government initiatives. Individual creditors also offered COVID-related hardship programs, in some cases on a national level. The moratoriums and stays issued by state and local governments and the judiciary on creditor collection activity generally have expired or will expire in 2022.
April 13, 2022
Implications Of The California Federal District Court’s Decision Upholding OCC’s Interest Rate Exportation Final Rule

A federal district court sitting in the Northern District of California recently upheld the Office of the Comptroller of the Currency’s interest rate exportation rule. The Attorneys General from three states challenged the rule in a lawsuit filed on July 29, 2020. The decision released in early February 2022 is the latest development in the controversy over whether national banks have the authority to export interest rates in light of the uncertainty created by the Second Circuit’s much-discussed Madden decision.
February 16, 2022
What To Expect During The LIBOR Transition And When Libor Disappears?

U.S. market stakeholders with exposure to LIBOR have no choice but to prepare for the end of LIBOR. USD LIBOR is slated to disappear as of the end of publication on June 30, 2023. To the extent there are clear takeaways to be drawn from the myriad of actions taken so far by U.K. and U.S. banking regulators and two state legislatures, here is our working list:
February 16, 2022
SPECIAL REPORT: LANDMARK LIBOR BENCHMARK INTEREST RATE ENDING

The impending end of the use of LIBOR as benchmark interest rate for commercial contracts and securities is “a global phenomenon that has the financial industry mobilizing ahead of a looming deadline,” according to the financial services megabank J.P. Morgan. This Special Report reviews, form an historical perspective, the events leading to the demise of LIBOR as well as the major actions taken in response by the banking regulators and state lawmakers in the United States. This analysis serves as a lead in to discussing these two questions: What financial market participants tied to the U.S. Dollar LIBOR should expect in the coming months as the transition away from LIBOR proceeds? An even more prescient question is what financial market participants tied to the U.S. Dollar LIBOR should expect when LIBOR disappears? We offer insights and takeaways. Until Congress passes federal legislation preempting state law or 48 state legislatures join New York and Alabama in passing LIBOR transition laws, financial institutions and market stakeholders will be working their way through a patchwork of responses from Congress, the U.S. banking regulators and state legislators.
February 16, 2022
New Laws Passed In New York And Alabama Provide Trigger For LIBOR Replacement

New York and Alabama are the first two states to pass legislation addressing LIBOR’s cessation with respect to the U.S. dollar. On March 5, 2021, LIBOR’s United Kingdom regulators officially announced the discontinuation of the U.S. Dollar LIBOR (USD LIBOR).
January 18, 2022
Fed Study Finds ACH Dominant While In-Person Cards And Checks Decline During The Pandemic

The payment system landscape in the United States significantly changed in 2020 due to the global pandemic. This was the major theme running through the December 2021 update to the last comprehensive Federal Reserve Payments Study from 2018. For the first time, the December 2021 update collected quarterly data for 2020.
January 18, 2022
Chapter 7 Trustee Challenges Lender’s Security Interest: Distinguishing “Securities Accounts” From “Deposit Accounts”

In handling a secured transaction under Article 9 of the UCC, the secured lender must make sure that it uses the correct categories of collateral. Different categories often require different methods of perfection. For example, a security interest in a “deposit account” may only be perfected by “control,” while a “securities account” may be perfected by either control or filing a financing statement.
January 18, 2022
Clever Plaintiff Acquires Holder In Due Course Status From Check-Cashiers Using UCC’s “Shelter Rule”

The holder in due course doctrine dates back centuries. The doctrine allows a bona fide purchaser of a negotiable instrument to take the instrument free of claims and defenses.
December 23, 2021
Reporting Suspicious Elder Financial Exploitation: An Overview Of The Law And Best Practices

A majority of the nation’s states now mandate financial institutions and or persons tied to the financial institution to report suspected financial exploitation against seniors and other vulnerable customers to law enforcement and social service agencies.
December 23, 2021
OCC And CFPB Ponder Bank Dependency On Overdraft Fees And Changes To Regulatory Overdraft Service Structure

On the horizon are changes to the existing federal regulatory structure for overdraft services as part of a new major reform initiative by the federal bank regulators to facilitate reform by the banking industry of its dependency on overdraft fees for profits.
November 05, 2021
Best Practices: A Banker’s Dozen For Reviewing Wire Transfer Agreements

Article 4A of the Uniform Commercial Code (UCC) sets out a comprehensive set of rules governing funds transfers. Even without a special agreement, parties to a funds transfer may look to Article 4A to understand their rights and obligations. Moreover, unlike the general freedom of contract principle that prevails under Article 4 dealing with checks, Article 4A contains numerous provisions that may not be varied by agreement.
November 05, 2021
Fraudsters Create “Fictional Persons”: Federal Reserve Adopts A Definition Of “Synthetic Identity Payments Fraud”

To help combat a particularly pernicious and sophisticated type of cyber payments fraud, the Federal Reserve recently adopted a definition of “Synthetic Identity Fraud” (SIF). SIF is used by fraudsters to purchase a house or use credit cards over long periods of time. SIF also is known to finance money laundering operations, drug cartels, human trafficking, and illegal arms sales.
November 05, 2021
Is Fifth Circuit’s Hold On CFPB Implementation Of Payday Loan Regs Only A Reprieve?

By way of a one paragraph Order, the Fifth Circuit recently stayed the CFPB’s ability to implement the payment provisions of its 2020 Final Rule on payday regulations, until 286 days after resolution of the appeal now pending before it.
October 22, 2021
More Than Repackaging: Primary Bank Regulators Coordinate Third-Party Risk Management

Banks engaging third parties to perform services and activities are held responsible for the third-party’s performance just as if the bank were to perform the service or activity itself. Moreover, engaging a third party does not diminish the bank’s own responsibility to operate in a safe and sound manner including compliance with applicable law. At least on paper, these principles are integral to modern day federal bank regulation and compliance.
October 22, 2021
Can Check Or Wire Fraud Trigger Bank Liability Under State Deceptive Trade Practices Laws?

Banks can be liable for fraud under state unfair and deceptive trade practices (UDAP) acts depending upon the nature of the fraud. State attorneys general are very aggressive in using UDAP statutes against financial institutions, as are consumers—often in class actions. One of the big attractions of proceeding under a state UDAP statute is the potential award of treble damages.
October 22, 2021
Heightened Focus On Climate Change Risk Expected From Federal And State Financial Regulators

Compared to their global peers, prudential federal financial regulators in the United States have been slow to focus on managing the risk of climate change to financial institutions and financial market stability. The laissez-fare attitude is changing. Regulated depository and non-depository banking organizations need to prepare for heightened scrutiny.
September 17, 2021
The Supreme Court’s Transunion Decision Raises “Standing” Threshold For Federal Court

On June 25, 2021, the United States Supreme Court released its opinion in TransUnion LLC v. Ramirez, 2021 U.S. LEXIS 3401 (TransUnion). At issue was whether several thousand putative class members who had information added to their credit report indicating that they might be terrorists, drug traffickers, or other serious criminals, even though they were none of these things, had standing to assert claims for statutory damages under the Fair Credit Reporting Act (FCRA). Building upon and extending the logic of Spokeo, Inc. v. Robins, 578 U.S. 330 (2016) (Spokeo), the Supreme Court held that Article III standing requires a federal court plaintiff to demonstrate that they have suffered a concrete harm: “No concrete harm, no standing.”