If You Provide Overdrafts You Will Want To Read Today’s Blog

May 3, 2017 at 9:16 am Leave a comment

The most useful advice that I can give you this week doesn’t deal with the CHOICE Act, a proposed regulation out for comment by the CFPB or the start of the tax reform debate, all of which would be worthy of a blog. Instead I have decided to give you a heads up on the latest legal developments regarding overdraft policies.

UCC4-303 (2) provides that items may be accepted, paid, certified or charged to the indicated account to its customer in any order convenient to the bank. As explained in the accompanying commentary, lenders are given wide flexibility when determining how to process checks “because of the impossibility of stating a rule that would be fair in all cases, having in mind the almost infinite number of combinations of large and small checks in relation to the available balance on hand in the drawer’s account; the possible methods of receipt; and other difficulties.” N.Y. U.C.C. Law § 4-303 (McKinney)

This flexibility has long bothered consumer groups. As readers of this blog will know, members must opt in before getting overdraft protections on ATM transactions, and the CFPB has signaled that it is taking a close look at overdraft practices generally.

With or without regulatory changes, a developing body of case law involves lawsuits generally claiming that lenders are engaging in unfair and deceptive practices when they do not adequately disclose the order in which checks will be drawn and the lenders engage in high to low positing. High to low posting is the practice of clearing checks not in the order in which they are received, but based on the amount of the check.

The latest case to examine is particularly helpful when read in conjunction with previous decisions, and it provides a clear guide post for your credit union to follow in implementing its overdraft policies. This is one area where there is no such thing as too much disclosure.

Last week, New York’s Appellate Division, First Department, ruled that a lawsuit against Popular Community Bank (Valle v. Popular Cmty. Bank, No. 3812, 2017 WL 1450128 (N.Y. App. Div. Apr. 25, 2017) could go forward. The lawsuit alleged that the bank’s policy of posting of high to low ATM transactions amounted to a deceptive and misleading consumer orientated policy that it did not disclose to consumers. What I find most useful about the decision is that the court contrasted its ruling (Feld v. Apple Bank for Sav., 116 A.D.3d 549, 984 N.Y.S.2d 319 [2014]) with a 2014 decision in which it dismissed similar claims brought against another bank that also engaged in high to low ordering. In this case the bank also engaged in high to low ordering, but its deposit slips and brochure put members on notice on how transactions were going to be processed.

Finally, since I am on a roll, there is a third case (Levin v HSBC Bank USA, N.A.) that I think you should take a look at.

Have a good day !

Entry filed under: General.

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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