Problems of Payment of Checks

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 What is Consumer Banking?

Consumer banking, which is also called personal banking, provides financial services to individuals. It is important to note that these services are provided to individuals as individuals and not as business owners.

Some examples of consumer banking services which can be provided include:

  • Credit card services;
  • Checking accounts; and
  • Savings accounts.

Consumer banks may also provide other services to individuals, such as:

  • Mortgage loans;
  • Personal loans; and
  • Certificates of deposit (CODs).

Do Banks Have an Obligation to Pay a Check, and Are They Liable for Damages if They Do Not?

Yes, a bank generally has an obligation to pay a check and will be liable for damages if they do note. An implied term of the contract between banks and depositors, or bank account holders, is that the bank will pay on a check which is drawn by the depositor if the depositor has, on deposit, sufficient funds to their credit.

If a bank wrongfully refuses to pay the depositor’s check, it will render that bank liable for the depositor for the damages which result from the refusal.

Does a Bank Have an Obligation to Pay a Check Held by Someone Who is Not an Account Holder at a Bank?

Although banks are obligated to the depositors, or account holders, as drawers of a check, to pay that check if it is properly payable from an account, banks do not have this obligation to holders of checks if the holder is a non-depositor, or not an account holder, at the bank.

In other words, banks are not obligated to pay checks which are presented for payment by non-account holders, even if the drawer has a sufficient balance and there is not a stop payment order or other reason for non-payment.

How do Banks Handle Checks Where There is a Dispute whether a Third Party is Entitled to Payment of the Check?

A bank is often placed in a difficult position when it receives notice of an adverse claim by a third party against the account of a depositor, or account holder. Numerous states deal with these situations with an adverse-claim statute.

These statutes provide notice to the bank of an adverse claim need not be recognized by the bank unless the claimant either:

  • Obtains an appropriate court order; or
  • Furnishes a satisfactory indemnity bond.

Can Banks Accept Post-Dated Checks, Also Known as Future-Dated Checks?

An individual may draw and issue their check bearing a future date. A check dated in this manner is a valid instrument.

Although these types of checks may pass validly from individual to individual prior to its date, it is not payable by the bank on which it is drawn until the marked date arrives. Banks, therefore, may be held liable for premature payments on post-dated checks.

If a bank pays a post-dated check prematurely and dishonors other checks from the same depositor due to a premature depletion of their account, that bank may be held liable for damages, including those resulting from the wrongful dishonor of the other checks.

What Happens if a Bank Processes a Lost, Stolen, or Fraudulently Obtained Check?

If a check is lost by the holder and is paid by the drawee bank to the finder or to some other individual, the liability of the bank will depend on the circumstances. If the check is collected using a forged endorsement, the bank is not permitted to charge it against the drawer’s account.

In these instances, however, a bank may recover the amount which is paid on the check, even if it is from a bona fide taker under a forged endorsement. if , however, the check was payable to a bearer or was endorsed in blank, a bank is protected if it paid in good faith and the payment is a proper charge against the account of the drawer.

How Do I Correct a Mistake on my Bank Account?

There are steps an individual can take if they need to correct a mistake on their bank account, including:

  • Notify their financial institution within 60 days of the discovery of the mistake and provide a description of the error;
  • The financial institution must then investigate and resolve the issue within 45 days; and
  • Following the investigation, the financial institution must explain the results whether or not an error was found.

It is important to be aware that if the financial institution takes more than 10 days to resolve the issue, it is usually required to put the amount in question back into the individual’s bank account. For some issues, such as an error when opening a new account or with an international transaction, a financial institution may be afforded 90 days to investigate the issue.

When Can I Sue a Bank?

There are some circumstances under which an individual may be able to sue a bank. Whether or not an individual can sue a bank depends on whether three specific laws apply to them, including:

  • The Truth in Lending Act (TILA);
  • The Fair Debt Collection Practices Act (FDCPA); and
  • The Fair Credit Reporting Act (FCRA).

TILA requires banks to provide consumers with accurate information regarding credit transactions. This means that a bank is required to provide accurate disclosures regarding certain issues, including:

  • The rate of interest;
  • Monthly payments; and
  • Other pertinent information related to mortgages and credit loans.

The FDCPA prohibits banks from engaging in harassing techniques or providing inaccurate information in an effort to collect a valid debt. The FRCA may allow an individual to sue a bank if the bank refuses to remove false information which it placed on their credit report.

How Do I File a Lawsuit Against a Bank?

Aside from the situations discussed previously, an individual is typically not permitted to sue a bank in civil court, unless there is a specific law which permits it. In some situations, however, individuals may be able to sue banks in small claims court.

Small claims courts are courts which only hear claims that involve limited monetary amounts, or damages up to a specific amount only. The small claims court systems in each state have their own filing procedures and damage limits.

In general, in order to file a claim in a small claims court, an individual is required to file a complaint and provide a copy to the bank. The bank then has an opportunity to file an answer.

Once the small claims court has copies of the complaint and answer, it will set a date for trial. At the trial, each side will present evidence in support of their arguments. Once this process is complete, the court will issue a decision.

The types of claims which may be filed against banks include claims when a bank owes an individual money and will not pay it. This may occur in cases where a bank issues an insufficient funds penalty at two times the rate it should and does not return the improperly drafted amount.

If this occurs, an individual may sue to recover the funds which were improperly drafted from their account.

Do I Need a Lawyer for a Problem with a Payment of a Check?

It is essential to have the assistance of a financial lawyer for any issues, questions, or concerns you may have related to a problem with a payment of a check. It is important to contact your lawyer as soon as you realize there is an issue.

Prior to contacting a lawyer, it will be helpful to gather information related to your claim which will help the lawyer understand your claim. This may include any financial or other documents related to your claim.

Your lawyer will review your case, advise you of the laws in your state, and determine whether you are eligible to file a lawsuit against the bank. If you are eligible, your lawyer will assist you throughout the process and represent you when you have to appear in court.

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