New York Imposes Check Order Requirements On “Banking Institutions”

August 23, 2021 at 9:51 am Leave a comment

In one of his last acts as Governor, on Thursday Governor Cuomo approved legislation imposing check order and disclosure requirements on “banking institutions.” The next step is for the Department of Financial Services to draft regulations before the law takes effect in January.

Senate Bill S1465 mandates that banking institutions pay checks in the order they are received or from smallest to largest dollar amount. It provides that in the event a check overdraws an account and the institution subsequently receives checks for which there are sufficient funds, the smaller checks must be honored. This new requirement just applies to consumer accounts and to checks so it wouldn’t affect debit card or ACH transactions.

Regulations will have to be promulgated before the law takes effect on January 1, 2022 but a very strong argument can be made that the bill does not apply to credit unions.  There are two basic ways the legislature includes credit unions within legislation.  First, it can simply apply legislation to “banking organizations”, a catch-all term in the banking law BNK § 2(11) which includes credit unions.  Another approach is to specifically define credit unions as banking institutions for purposes of a specific law.  For example, § 9-f specifically includes credit unions within the definition of a banking institution.  In contrast, when the term “banking institutions” is not defined it has not been interpreted as including credit unions.  For example, § 12-a of the Banking Law allows “banking institutions” to use Wildcard powers, but it wasn’t until this statute was specifically amended to include credit unions that credit unions had the authority to do so.   

Entry filed under: New York State. Tags: , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, 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. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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