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Payment Systems
University of Nebraska School of Law
Wilson, Catherine Lee

Introduction
1)     General Information
a.       Definitions
                                                               i.      Payment System: a means of satisfying obligations
b.       Four Concepts of any Payment System
                                                               i.      (1) How value actually gets transferred from one person to another
                                                              ii.      (2) How a person incurs an obligation to pay, when the person is obligated to pay, and how obligation is satisfied
                                                            iii.      (3) Who can enforce an obligation to pay and what defenses are available
                                                            iv.      (4) How the risk of errors and wrongdoing are allocated
2)     Basic Types of Payment
a.       (1) Cash
                                                               i.      Hand over cash; as long as money is not counterfeit, obligation is met and final payment satisfied. No further obligation exists between you and store
b.       (2) Negotiable Instruments (checks)
                                                               i.      You write check making a demand upon Bank of America to pay store the specified amount of money. Sore will deposit check in its bank account as WellsBank. WellsBank will then send check to Bank of America. Bank of America will pay WellsBank the funds represented by the check. Bank of America will then debit your account of the check
c.       (3) Electronic Funds Transfers (debit card)
                                                               i.      Using a POS terminal you do essentially the same thing as the check but its quicker and uses an automated clearing house to facilitate the process
d.       (4) Credit Cards
3)     Differences in Use of Payment Systems
a.       Theft
b.       Reserve Right for Satisfaction
c.        Delay/Quicker Payments
d.       Satisfy Customers
 
 
ASSIGNMENT 1: Basic Checking Relationship
1)     Overview
a.       The Basic Checking Relationship
b.       When is it proper for the bank to pay?
                                                               i.      Overdrafts
                                                              ii.      Stale Checks
                                                            iii.      Post-dated Checks
                                                            iv.      Stop Payments
                                                              v.      Death or Incompetence of drawer
c.        Remedies for Improper Payment
2)     The Basic Checking Relationship
a.       The Process
                                                               i.      (1) Payor Bank/Drawee
                                                              ii.      (2) Issue Check
                                                            iii.      (3) Collect Check
b.       Diagrams:
                                                               i.      The Basic Payments System
                                                              ii.      Payment by Third Party
                                                            iii.      Payment by Check
 
3)     Properly Payable
a.       UCC 4-401(a)
                                                               i.      For an item to be properly payable, the payment must be:
1.       (1) Authorized by the customer, AND
2.       (2) In accordance with any agreement between customer and bank
b.       When is it proper for the bank to pay in these situations:
                                                               i.      Stale Checks, UCC 4-404
1.       Checks are stale when they are presented “more than 6 months after its date”
a.       Note: but [bank] may charge its customer’s account for a payment made thereafter if it was in good faith (4-404)
                                                              ii.      Overdrafts, 4-401(a)
1.       As long as an item is properly payable, a bank can charge the account, even if it creates an overdraft
a.       Note: An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank (4-401(a))
                                                            iii.      Post Dated Checks, 4-401(c)
1.       A bank can charge for a check even if the payment was made BEFORE the date of check, UNLESS:
a.       The customer has given timely notice
                                                                                                                                        i.      Note: Notice is effective for the period stated in 4-403(b); AND if notice has been given, and bank charges, bank is liable for damages
                                                            iv.      Stopping Payments, 4-403
1.       A customer (or anyone authorized on the account) can stop payment if:
a.       (1) Notice is received within a timely manner, AND
b.       (2) Is describes the item with reasonable certainty
2.       Subrogation , 4-407
a.       Standing in the shoes of someone else
b.       If maker can object to the payment, to prevent unjust enrichment, bank can subrogate to the rights of three people:
                                                                                                                                       i.      (1) of any holder in due course on the item against the drawer or maker
                                                                                                                                      ii.      (2) of the payee or other holder of the item
                                     

account at the time of evaluation—when must a bank must make funds available
                                                              ii.      Obligation of Depository Bank to make funds available (Reg. CC 229.10, .12)
b.       Diagrams
                                                               i.      Basic Funds Availability Rules Diagram:
 
                                                              ii.      Low-Risk Items Availability Rules:
1.       ie: gov checks, electronic pmts, cash, cashier’s check
c.        Relationship between EFAA, Reg. CC and Article 4
                                                               i.      Article 4—contains very little about the timeline for making funds available to bank’s customers
                                                              ii.      Reg. CC 229.20—Allows Reg. CC to supersede EFAA and Article 4, in order to allow funds to be provided faster; contains extensive provisions on funds availability
1.       These rules govern when the depository bank must make funds available to you, the customer
                                                            iii.      Overview of Reg.
1.       Subpart B
a.       Definitions
b.       Availability Schedules (.10 and .12)
c.        Exceptions (.13)
d.       Liability Provisions (.21)
e.       Required Disclosures (.15-.18)
d.       Important Vocabulary
                                                               i.      Business Day: 229.2(g) provides that a business day is a calendar day other than Saturday or Sunday and certain holidays
1.       Holidays:
a.       January 1
b.       Third Mon in January
c.        Third Mon in Feb
d.       Last Mon in May
e.       July 4
f.         First Mon in Sept
g.       Second Mon in Oct
h.       Nov 11
i.         Fourth Thurs in Nov
j.         Dec 25
                                                                                                                                        i.      Note: If Jan 1, July 4, Nov 11, or Dec 25 fall on a Sun, the next Mon is NOT a business day
                                                              ii.      Banking Day: 220.2(f) provides that a banking day is a day when a bank is open to the public carrying on “substantially all its banking functions”