Banking Law Prof Blog

FDIC Tells Congress: Garnishment of Consumer Bank Accounts Containing Social Security Funds Is A Problem

FDIC General Counsel Sara Kelsey addressed the Senate Finance Committee on "The Impact of Garnishment on Social Security Benefits."  FDIC recognizes that Federal benefit payments are an important -- and often the sole -- source of income for many Americans.  Actions that limit access to these funds can result in hardship and expense for the benefit recipients.  Banks usually freeze deposit accounts when they receive a garnishment order, even if the account contains Federal benefit payments.

Under federal law, the following types of federal benefit payments are protected from garnishment or attachment by creditors: Social Security benefits, Supplemental Social Security benefits, Veterans Administration (VA) benefits, civil service retirement benefits, military retirement annuities, and railroad retirement benefits.  Many state laws conflict with this protection.  Banks, out of caution, freeze the funds and wait for a hearing to sort out the legal status of the funds.

Most benefit payment recipients are unaware of this legal protection from garnishment.  FDIC is engaged in an awareness campaign on this issue. 

FDIC also suggests that Congress might address this problem by amending the Social Security Act to spell out the extent to which protections for federal benefit payments extend to freezes as well as garnishment, and whether these protections operate as a bar to banks or merely a defense for benefit recipients. Congress could also address the problems that arise from commingling federal benefit payments with other funds.

Link to Testimony:  http://www.fdic.gov/news/news/speeches/chairman/spsept2007.html

(ag) Sept. 24, 2007, in Consumer Protection, Deposit Regulation, FDIC

Overdraft Protection Plan Survey

Overdraft Protection Plans have supporters and detractors.  Some consumers welcome the fact that they will not bounce significant checks.  Some complain about the number of overdraft fees that may result, especially if the bank employs high-to-low check processing (which every good UCC scholar knows is the bank's choice - low-to-high, high-to-low, order received -- just have a policy & follow it!). 

Earlier this year, FDIC proposed to conduct a survey of overdraft protection plan practices, directed to 500 state-chartered, non-member banks.  Here's a link to the Independent Community Bankers Association comment letter to FDIC about that proposal:  http://www.icba.org/files/ICBASites/PDFs/cl022807.pdf

(ag) Mar. 6, 2007, in Deposit Regulation

No Class Action for TILA Rescission

In a Jan. 29, 2007 Opinion, the First Circuit Court of Appeals agrees with the Fifth Circuit that "class certification is unavailable as a matter of law for TILA [Truth in Lending Act] rescission claims."

Link to McKenna v. First Horizon Home Loan Corp.: http://www.aba.com/aba/documents/GeneralCounsel/BankingDocket/mckenna.pdf

(ag) Jan. 31, 2007, in Deposit Regulation

Overdraft Fee Legislation in 2007?

U.S. House Financial Services Committee member Carolyn Maloney (D-NY) announced her plans to reintroduce Overdraft Fee legislation.  Her principal focus is increased disclosure and consumer choice to opt out of overdraft fees.

The Center for Responsible Lending issued a Report last week indicating that debit card overdrafts generate a sizeable percentage of overdraft fees.

Link to Maloney Press Release:  http://maloney.house.gov/index.php?option=content&task=view&id=1273&Itemid=61

Link to Center for Responsible Lending Report:  http://www.responsiblelending.org/issues/overdraft/reports/page.jsp?itemID=31469347

(ag) Jan. 29, 2007, in Deposit Regulation/Congress

Cashier's Checks & Fraud

Here's an issue bank lawyers may want to incorporate into client newsletters or one of those "thinking of you" letters good lawyers periodically send their bank clients.  If you are a banking or commercial law prof, you may use this information as a real-life application of the legal interplay between Funds Availability and UCC provisions relating to charge-back in the event of Cashier's Check Fraud.

The OCC has posted an informative bulletin on Cashier's Check Fraud.  Banks should review the recommendations for policies, procedures and training to avoid becoming victims of Cashier's Check Fraud.  The OCC also includes advice for consumers to help them avoid succombing to increasingly common scams involving fraudulent cashier's checks.

Link: http://www.occ.treas.gov/ftp/bulletin/2007-2.html

(ag) Jan. 20, 2007, in Deposit Regulation 

Comment Period is Open on Large Bank Deposit Account System Modification Requirements

FDIC seeks comments through March 13, 2007, on an Advance Notice of Proposed Rulemaking ("ANPR") that would require the very largest banks to track the insured status of depositors -- information that could speed analysis and disposition in the event of a bank failure.  The ANPR would apply only to the 152 insured institutions with more than 250,000 deposit accounts and more than $2 billion in domestic deposits, plus seven additional institutions with less than 250,000 deposit accounts but more than $20 billion in total assets and more than $2 billion in domestic deposits.

(ag) Dec. 18, 2006, in Deposit Regulation

A New California Decision on Bank Accounts Containing Social Security Payments

A California State Court of Appeals has rendered an opinion in Miller v. Bank of America that allows banks to recoup overdrafts and fees from accounts containing social security payments.  This case distinguishes the prior California Supreme Court case of Kruger v. Wells Fargo Bank, which prohibits banks from paying delinquent amounts on a separate credit card account by means of offsetting funds from a distinct deposit account containing social security funds.

This opinion reverses the trial court.  The Court of Appeals did not address federal preemption arguments in its opinion.

Link:  http://www.aba.com/aba/documents/GeneralCounsel/Decisions/MillerAppellateDecision.pdf

(ag) Dec. 4, 2006, in Deposit Accounts

It's Beginning to Look a Lot Like Christmas: What Banks Need to Know About Gift Cards

Just a review about GIFT CARDS: 

OCC Bulletin 2006-84 (Aug. 14, 2006), provides Guidance on Disclosure & Marketing Issues concerning Bank-Issued Gift Cards (not retail gift cards).  Some key issues include:  Which disclosures should go on the card itself & which should accompany the card?  This guidance notes that banks should not advertise a gift card as having no expiration date if maintenance or dormancy fees can consume the card balance.

  www.occ.treas.gov/ftp/bulletin/2006-34.doc

(ag) Nov. 14, 2006, in Deposit Regulation

Can You Hear Me Now? -- Banking By Cell Phone

Checkfree Corporation and Firethorn Holdings, LLC, announced yesterday that they will partner to deliver mobile banking and bill payment services via cell phone to financial institutions.

Link to Press Release:  http://ir.checkfreecorp.com/phoenix.zhtml?c=94799&p=irol-newsArticle&ID=929176&highlight=

(ag) Nov. 10, 2006, in Deposit Regulation

"Stored Value Cards: Opportunities, Risks"

Lyn Haralson, Community Affairs Specialist with the Federal Reserve Bank of St. Louis, has authored an informative paper entitled "Stored Value Cards:  Opportunities, Risks".  This article provides a succinct explanation of the workings of two types of stored value cards:  closed loop (can only be used for the issuer's products or certain limited purposes) and open loop (can be used to pay bills or make purchases anywhere that branded card is accepted). 

This article also lists and summarizes applicable laws and regulations, including:

Regulation D - Reserve Requirements of Depository Institutions

Regulation E - Electronic Funds Transfer Act

Regulation BB - Community Reinvestment Act

Regulation DD - Truth in Savings Act

FDIC Insurance Coverage

USA PATRIOT Act/Bank Secrecy Act/Anti-Money Laundering Laws

State payroll laws

The article also discusses consumer issues with stored value cards.

Link to Article:  http://www.stlouisfed.org/publications/br/2006/c/pages/1-article.html

(ag) Oct. 11, 2006, in Deposit Regulation