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Posts tagged "bank litigation"

CFPB Proposes Rule That Would Restore Consumer Right To Sue Banks

In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the United States Supreme Court ruled that the Federal Arbitration Act preempts state laws that prohibit consumer contracts from disallowing class-wide arbitration.  On May 5, 2016, however, the Federal Consumer Financial Protection Bureau (CFPB) proposed a new rule that would restore consumer's rights to bring class action lawsuits against banks and other certain financial firms.  

Eighth Circuit Holds No Recovery for Converted Checks in the Absence of Actual Loss

In a recent Minnesota case, the Eighth Circuit Court of Appeals held that where a bank accepted and paid two checks despite missing endorsements, the jilted payee had no viable claim because it ultimately suffered no loss.

Pennsylvania Federal Court Rejects Plaintiff's Attempt to Invoke Discovery Rule To Toll Statute of Limitations in UCC Check Fraud Case

Section 4-401 of the Uniform Commercial Code provides that a bank may charge the account of a customer if it is presented with a "properly payable" check or other item "authorized by the customer," and "in accordance with any agreement between the customer and the bank." Section 4-401 also provides the basis for forged check liability in the case in which a plaintiff alleges that a bank is liable for charging her for a check that was not properly payable to a third party. UCC Section 4-111 provides that "an obligation, duty, or right" stemming from Article 4 must be commenced within three years from the time the cause of action accrues.

MERS Requires No Authorization to Assign Mortgage

A Judge of the Massachusetts Superior Court, relying on earlier Massachusetts Appeals Court cases, has held that Mortgage Electronic Registration Systems, Inc. ("MERS") does not need authorization from the holder of the promissory note secured by a mortgage before assigning the mortgage to another entity.  O'Neil et al. v. The Bank of New York Mellon, 33 Mass. L. Rptr. 1, 8 (Mass. Super. July 20, 2015).

Section 35A Imposes No Time Limit on Completion of Foreclosures

The statute providing borrowers with a right to cure mortgage payment defaults before acceleration and foreclosure can occur imposes no deadline on completion of foreclosure proceedings once commenced, according to two very recent Massachusetts decisions.

First Circuit Examines Compliance Requirements Under Bank Secrecy Act

Federal law - specifically a section of the Bank Secrecy Act (31 U.S.C. § 5318(g)) (the "Act") and related regulations - requires financial institutions both "to report any suspicious transaction relevant to a possible violation of law or regulation" and forbids those institutions, government officials, and others from "notify[ing] any person involved in the transaction that the transaction has been reported."  31 U.S.C. § 5318(g).  

Fifth Circuit Court of Appeals Reaffirms MERS System Under Texas Law

The United States Court of Appeals for the 5th Circuit has held that recording Mortgage Electronic Registration Systems, Inc. ("MERS") as the holder or beneficiary of a mortgage comports with Texas law.  Harris County Texas, et al. v. MERSCORP Inc., et al., No. 14-10392, 2015 WL 3937927 (5th Cir. June 26, 2015).  This adds to the Court's prior holding in Welborn v. Bank of N.Y. Mellon Corp., 557 Fed.Appx. 383 (5th Cir. 2014), treated in this blog on April 11, 2014, that certain government entities could not recover from MERS on the basis of federal RICO statutes.

Two Appellate Courts Hold That Banks' Duty of Care to Non-Customers Is Extremely Limited

The United States Courts of Appeals for the Sixth and Eleventh Circuits have added to the significant body of law limiting a bank's duty to non-customers harmed or defrauded by one of the bank's actual customers.  The Sixth Circuit reaffirmed that, under Michigan law, a bank only owes a duty of care to its own customers.  The Eleventh Circuit found that, under Florida law, a bank has no fiduciary relationship with its customers and only owes a duty of ordinary care in arms-length transactions with its customers, and that any aiding and abetting liability for acts of a bank's customers is limited to cases where a bank has actual knowledge of the customer's bad actions.

Massachusetts Supreme Judicial Court Upholds Obsolete Mortgage Statute

The Massachusetts Supreme Judicial Court ("SJC") has held that the provisions of the "Obsolete Mortgage" statute, Mass. Gen. L. c. 260, § 33, as amended in 2006, comport with the Massachusetts and United States Constitutions.  Deutsche Bank National Trust Co. v. Fitchburg Capital, LLC, et al., No. SJC-11756, 2015 WL 1649160 (Mass. Apr. 15, 2015).  Further, the SJC held that for purposes of the statute, a reference to the maturity date of the underlying debt secured by the mortgage is sufficient to state the "term of maturity date of the mortgage," and thereby trigger a loss of enforceability of the mortgage.  Id.

Fifth Circuit Rules Amendment to Electronic Funds Transfer Act Not Retroactive

A three-judge panel of the Fifth Circuit has ruled that a 2012 amendment to the federal Electronic Funds Transfer Act ("EFTA"), which abolished the requirement that operators of automatic teller machines ("ATM") maintain exterior notices of fees, was not retroactive.  Prior to the amendment, the EFTA required fee notices to be located both externally, "in a prominent and conspicuous location on or at the automated teller machine" and also before the close of the customer's ATM transaction, either "on the screen of the automated teller machine, or on a paper notice issued . . . before the consumer is irrevocably committed to completing the transaction."  15 U.S.C. § 1693b(d)(3) (2011). 

Massachusetts Appeals Court Reaffirms MERS Mortgage System

The Massachusetts Appeals Court has reaffirmed its holding in Sullivan v. Kondaur Capital Corp., 85 Mass.App.Ct. 202 (2014), that mortgagors have standing only to challenge assignments of their mortgages that are void, not merely voidable, and that the Mortgage Electronic Registration Systems, Inc. ("MERS") system of mortgage assignments comports with Massachusetts law.  The Court in Shea v. Federal National Mortgage Association, et al., No. 13-P-1630, slip op. (Mass. App. Ct. Feb. 18, 2015), further reaffirmed that a mortgagee need not ever hold the note secured by the mortgage, and that Massachusetts law does not require authorization from the noteholder for a mortgagee to assign the mortgage to another party.

Alabama Supreme Court Holds Bank of First Deposit Must Bear Liability for Under-Encoded Check

On September 30, 2014, the Alabama Supreme Court issued an important decision with wide-ranging implications for depositary institutions.  In the case of Troy Bank and Trust Co. v. The Citizens Bank, 2014 WL 4851511 (Ala. 2014), the Court held that a bank that "under-encodes" a check is strictly liable for any loss caused by such an action under the Uniform Commercial Code.  

Fremont Investment's Mortgage Foreclosure Injunction Not Retroactive

A Massachusetts Superior Court judge has held that the 2008 injunction against foreclosure of certain Fremont Investment & Loan ("Fremont") mortgages did not apply to Fremont mortgages assigned to third parties prior to the entry of the injunction.  Moronta v. Nationstar Mortgage, LLC et al., 32 Mass. L. Rptr. No. 14, 339 (November 24, 2014) (Connors, J.).

UCC Section 4-406(f) Reporting Requirement Has Teeth

While Section 4-111 of the Uniform Commercial Code ("UCC") contains a three-year statute of limitations for filing claims against a bank for paying an unauthorized or altered item from an account, a more potent tool for banks can be found in UCC 4-406(f), a one-year statute of repose for reporting the disputed item to the bank.  Under UCC 4-406(f), a customer is required to report the disputed item to the bank within one year after the bank makes available the account statement or other documentation of the items paid, but what constitutes a "report" to the bank by the customer is not spelled out in the statute. Courts that have analyzed the issue have read UCC 4-406(f) as requiring such a report to specify the account, payment amount, check number, or other specific information identifying the unauthorized draft.  Among the methods which have failed to satisfy the reporting requirement:  Placing a blanket stop-payment order on an account and requesting copies of the account statements, Hatcher Cleaning Co. v. Comerica Bank - Texas, 995 S.W.2d 933 (Tex. App. 1999); requesting copies of potentially invalid checks from the bank, Watseka First National Bank v. Horney, 686 N.E.2d 1175 (Ill. App. 1997); reporting to the bank that a specific employee was suspected of check forgery on the company accounts, Villa Contracting Co., Inc. v. Summit Bancorporation, 695 A.2d 762 (N.J. Super. Ct. Law Div. 1996); discussing with a bank officer possible irregularities with single signatures on a dual-signature account, First Place Computers, Inc. v. Security Nat. Bank of Omaha, 558 N.W.2d 57 (Neb. 1997); reporting to the bank a belief of foul play or general notice of a possible theft, Simi Management Corp. v. Bank of America, N.A., 930 F. Supp. 2d 1082 (N.D. Calif. 2013).

Identity Theft Prevention Satisfies FCRA's Legitimate Business Need Requirement

The 6th U.S. Circuit Court of Appeals has held that identity theft prevention satisfies the Fair Credit Reporting Act's ("FCRA") Legitimate Business Need requirement for purposes of FCRA compliance.  The Court in Bickley v. Dish Network, LLC, 2014 WL 1887565 (6th Cir. May 13, 2014) upheld a grant of summary judgment in favor of the defendant, who had pulled a credit report in order to verify the identity of a consumer and determine his eligibility for service.

RICO Claims By Government Agencies Against MERS Fail

The United States Court of Appeals for the 5th Circuit has held that government land recording offices cannot state a claim under the federal RICO statutes for loss of revenue due to fewer filing fee revenues or for allegedly inaccurate records.  Welborn v. Bank of N.Y. Mellon Corp., No. 13-30103, 2014 WL 843262 (5th Cir. March 5, 2014).

A Primer on Bitcoin

Bitcoin is a relatively new 'cryptocurrency' in which in which encryption technology enables consumers and businesses to exchange goods for currency over the Internet without having to rely on the element of trust in order to ensure payment.  Users buy Bitcoins and load them onto a virtual wallet, which they can then use to transfer Bitcoins instantly and anonymously to other users anywhere in the world.  As such, there are significant cost savings and efficiency benefits associated with the use of Bitcoin as a method of currency.  As Venture Capitalist Marc Andreessen explained on the New York Times' Dealbook, "Bitcoin is the first Internetwide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies)."(1)  Many vendors are starting to consider Bitcoin in part to combat the large fees charged by credit card companies which cut into sales margins.  However, no central bank exists to regulate Bitcoin, and it entirely relies on peer-to-peer transactions and largely unregulated exchanges.

Washington and Colorado State Banking Associations Request Federal Guidance Regarding Banking Activities with Marijuana Producers

In the fall of 2012, voters in both Colorado and Washington introduced a new era in the United States when they voted to legalize the sale of marijuana.  In response to the landmark referenda, the Department of Justice issued a revised "Guidance Regarding Marijuana Enforcement" on August 29, 2013.  The DOJ Guidance noted that the federal Controlled Substances Act includes several important priorities with respect to marijuana, including preventing access of minors to marijuana, preventing revenue from the sale of marijuana going to criminal enterprises, preventing violence, and preventing drugged driving.  While the DOJ Guidance states that state and local law enforcement in jurisdictions that have legalized marijuana in some form should remain the "primary means" of addressing marijuana-related activity, the DOJ warns that the federal government may continue to "bring individual enforcement actions, including criminal prosecutions," focused on that activity.

Mortgage in Default Not Enough for Try Title Action

The First Circuit has held that, under Massachusetts law, a mortgagee's interest in a mortgage in default is inadequate to state a claim under the Massachusetts try title statute.  The Plaintiffs in Lemelson, et al. v. U.S. Bank, N.A. filed suit under the Massachusetts try title statute, asserting that U.S. Bank's interest in the property as mortgagee constituted a adverse claim on their record title to the property.

Bank's Duty to Non-Customers Limited to Actual Knowledge of Misappropriation

In a recent case, Bernkopf Goodman LLP v. Herbert, 2013 WL 803521 (March 21, 2013), Massachusetts Federal District Judge Zobel considered the scope of a bank's duty of care to non-customers in cases of alleged misappropriation by an account holder. The plaintiff, Bernkopf Goodman LLP (the "Firm"), alleged that its payroll company, Checkmaster Payroll Service ("Checkmaster"), had misappropriated funds that were supposed to be used to pay the Firm's taxes. In addition to naming Checkmaster as a defendant, the Firm sued the two banks that Checkmaster used to transfer the Firm's funds that were supposed to be paid to the I.R.S.  The Firm claimed that the banks were negligent in failing to prevent the alleged misappropriation.

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