June 2024 OBA Legal Briefs

• Bankers’ FAQs
• Changes in UCCC amounts effective 7/1/24
• ATMs and the FDIC’s new Advertisement of Membership Rule

Bankers’ FAQs

By Pauli Loeffler

Some of the questions submitted to the OBA’s Compliance team are asked with some frequency by our members. We’ve gathered some of these questions and responses to assist you when similar situations present themselves.

Altered check, indorsement claim

Q. We had a large check ($40,275.60) on which the payee was altered from United Health Care to Lizabeth Zambrano when it was deposited into JP Morgan Chase Bank. The payee, Lizabeth Zambrano endorsed the checked with her initials L.Z. instead of her full name. Can this check be returned because it was not endorsed correctly?

A. Your opportunity to return the check ended at midnight on the banking day after the check posted to your customer’s account. However, your customer, the check issuer, can have the intended payee (United Health Care) provide an affidavit that it did not receive, indorse, or receive the proceeds of the check, and the check issuer can provide an affidavit that the check was payable to United Health Care, the payee name was altered by person unknown to Lizabeth Zambrano, who appears to have indorsed the check and deposited it with JPMorgan Chase Bank (JPMCB).

Your bank then sends copies of the affidavits and a copy of the original check to JPMCB with a claim that JPMCB breached its Presentment Warranty under UCC 4-208 that the check was not altered.

Given the dollar amount involved, you may want to consider getting legal counsel involved. Time is of the essence — JPMCB’s liability to your bank under the presentment warranty can be reduced if you fail to notify them of the breach of warranty claim within 30 calendar days of learning of the alteration and of JPMCB’s involvement as the depositary bank. That includes obtaining the affidavits I mentioned above.

And, for whatever it is worth, “E.Z.” could be Elizabeth Zambrano’s actual signature. It does not have to contain all the letters of her given name.

Multiple payees, who must indorse

Q. When “and” appears on a check, I know both parties need to sign, but when one name appears below the other is that also the case? I have always assumed the answer is “no.” Am I wrong? What about when there is a “/”?
A. If there is an “and” or “&” between payee names, all payees must indorse or deposit the check into an account owned by all payees. If there is an “and/or,” “&/or,” “/,” or no conjunction between the names, any payee may indorse or deposit the check into an account s/he owns.
UCC Section 3-110 – Identification of Person to Whom Instrument is Payable
(d) If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.
Oklahoma Code Comment
Sections 3-109 and 3-110 rewrote pre-revision Sections 3-110, 3-111, 3-116 and 3-117, for clarity and to modernize the language. Subsection 3-110(d) clarifies pre-revision Section 3-116 by seeking out guidelines for determining when an instrument payable to two or more payees must be indorsed by all of them. Essentially, in order to require indorsement by all the payees, their names must be joined in the conjunctive, as in “Jane Doe and John Doe” or “Jane Doe & John Doe.” Any other formulation will permit indorsement by only one payee, as with “Jane Doe or John Doe,” “Jane Doe/John Doe,” or “Jane Doe, John Doe.”

Payee is named as “Life Tenant”

Q. We were presented with a check payable to “John Doe, Life Tenant.” How do we handle this check?

A. As long as the life tenant payee is alive, the bank can deposit the check into his account. About a decade ago, oil and gas royalty checks started to include “Life Estate” after the name of the payee when the interest of the mineral owner would transfer on death to remaindermen.

If the life tenant is alive and kicking, the bank can deposit the check to any account he owns or cash it and totally ignore any persons named as remaindermen.

It is a different situation when the life tenant is deceased and name or names of the person(s) entitled to the funds are listed below the life tenant. “How do we handle the check?” Even if all remaindermen are present to indorse the check, I would suggest that the bank refuse to deposit the check or cash the check if it is not an “on-us” item. Why do I make this recommendation?

In order to get the deceased life tenant’s name from being the payee of future checks, a new division order for each remaindermen is required. The remaindermen need to notify the purchaser of the oil and gas of the death of the life tenant so 1099s are issued correctly to the remaindermen. I suggest that you tell the remaindermen to return the check along with a copy of the deceased’s death certificate to the purchaser so it will provide new Division Orders for them to execute, as well as a W-9. The royalties will be held in suspense pending receipt of those forms, at which point the payor will release any funds currently held and will issue separate checks to the remaindermen going forward.

Authorized signers on revocable trust accounts

Q. Can we add an authorized signer who isn’t a current trustee to a revocable trust?

A. If the settlor/trustee of a revocable trust wants to add a person who isn’t a trustee as an authorized signer, Sec. 175.57 of Title 60 applies:

E.

3. Except as otherwise provided by the terms of a trust, while the trust is revocable and the settlor has capacity to revoke, the rights of the beneficiaries are held by, and the duties of the trustee are owed exclusively to the settlor; the rights to be held by and owed to the beneficiaries arise only upon the settlor’s death or incapacity. The trustee may follow a written direction of the settlor, even if contrary to the terms of the trust. The holder of a presently exercisable power of withdrawal or a testamentary general power of appointment has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power.

While the settlor is alive and competent, he can add whomever he wants an authorized signer, and since the settlor is the only one who can claim a breach of fiduciary duty, and as the sole current beneficiary of the funds, he is estopped from making such claim. This is also the reason we allow the trustee/grantor of a revocable trust with an account at your bank to deposit checks payable to the trust or to himself as trustee to cash or deposit checks to his personal account.

I do like a “belt and suspenders” approach even in this situation, and you will find templates on the OBA’s Legal Links web page to use to add an authorized signer to a trust account as well one to add a deputy to a safe deposit box.

Joint tenants without right of survivorship, PODs

Q. Could you please clarify if there are any provisions that prevent each tenant from electing their own PODs? This would allow each elected POD to collect their equal share of the account funds upon the death of the signers.
Example: John Doe or Mary Doe, Joint Tenants in Common Without Rights of Survivorship
John Doe, POD Sally Doe and Bob Doe, in equal shares
Mary Doe, POD Sam Smith

A. Sec. 901 of the Banking Code covers PODs. This section has no provisions for tenants in common allowing them to independently name their own PODs, nor is this allowed for purposes of determining FDIC deposit insurance. The tenancy in common is terminated upon death of a tenant in common, and unless they designate some other proportion at the time the account is opened, 50% of the funds will be paid to the surviving tenant and the rest will be paid to the estate of deceased tenant.

Reg E

Q. We’ve had a situation where our customer is disputing some Cash App charges on his account, and I want to make sure what we’re responsible for. Any advice you have is greatly appreciated!

On 08/08/2023, our customer came into a branch location to question some Cash App charges on his account that he said were not his. The names associated with those posted transactions were his ex-wife and stepson. Being family, he was hesitant on how he wanted to handle the situation. Our employee suggested that he file a police report and get back to us. At that time, the employee shut down his current debit card, and issued a new card. He never signed any dispute forms, never brought in a police report, and we never heard back from him. Fast forward almost a year later, on 05/17/2024, he came to our main bank location and said he was advised by a lawyer to seek the full amount of these Cash App charges that occurred in the amount of $38K, and he did present a police report that he actually filed on 08/11/2023 that he never told us about. The first fraudulent charge happened on 03/09/2023. His next bank statement cycle was on 04/04/2023. And his last Cash App charge was on 08/09/2024. He was also notified by Fiserv Fraud Alert on 04/23/2023 of potentially fraudulent activity on his account, and he did confirm that to be legit. However, it was not a Cash App transaction, and he apparently didn’t review his statements at that time for other fraudulent charges.

Per Reg E, even though he didn’t actually sign any dispute forms, but verbally gave notice those wasn’t his transactions, would that bank be responsible for all transactions from the first unauthorized charge, up to 60 days after the next statement cycle, 03/09/23 through 06/04/23?

Due to untimely notice, the bank should not be liable for any transactions after that since we could have shut down his card and stopped all further transactions?
Due to untimely notice, would the bank also have been relieved from giving him any provisional credit on 08/08/2023 and had the right to investigate first?

Do you see any ground the bank has to stand on due to customer negligence, or since the customer didn’t follow through with our dispute procedures?

A. First, you cannot require the customer to file a police report. When the bank investigates the claim of a series of unauthorized EFTs (UEFT), and cannot determine they were authorized, the bank must apply the timing and liability rules in Regulation E section 1005.6 to determine which UEFTs the consumer is to be reimbursed for and which UEFTs the consumer must bear responsibility for.

In this case, because there was no lost or stolen access device involved, the first and second tiers of liability in paragraphs 1005.6(b)(1) and (b)(2), don’t apply. You go straight to the third tier of liability, in paragraph 1005.6(b)(3). Determine when the bank sent the periodic statement showing the earliest UEFT and add 60 days to that date. This is the date after which any UEFT in the claim is the consumer’s responsibility. Any UEFT on or before that date should be reimbursed to the consumer.

Although you don’t have to provide provisional credit or adhere to the investigation timing rules under the section 1005.11 rules if the claim is for a UEFT appearing on a statement sent more than 60 days before the claim is received, you do need to determine whether the EFTs listed in the claim were or were not authorized, and you must comply with section 1005.6.

Changes in Uniform Consumer Credit Code Amounts effective 7/1/24

By Pauli Loeffler

Sec. 1-106 of the Oklahoma Uniform Consumer Credit Code in Title 14A (the “U3C”) makes certain dollar limits subject to change when there are changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers, compiled by the Bureau of Labor Statistics, U.S. Department of Labor. You can download and print the notification from the Oklahoma Department of Consumer Credit by clicking here. It is also accessible on the OBA’s Legal Links page under Resources once you create an account through the My OBA Member Portal. You can access the Oklahoma Consumer Credit Code with regard to changes in dollar amounts for prior years on that page as well.

Increased Late Fee

The maximum late fee that may be assessed on a consumer loan is the greater of (a) five percent of the unpaid amount of the installment or (b) the dollar amount provided by rule of the Administrator for this section pursuant to § 1-106. As of July 1, 2024, the amount provided under (b) will increase by $1.00 to $32.00.

Late fees for consumer loans must be disclosed under both the U3C and Reg Z, and the consumer must agree to the fee in writing. Any time a loan is originated, deferred, or renewed, the bank has the opportunity to obtain the borrower’s written consent to the increased late fee as set by the Administrator of the Oklahoma Department of Consumer Credit. However, if a loan is already outstanding and is not being modified or renewed, a bank has no way to unilaterally increase the late fee amount if it states a specific amount in the loan agreement.

On the other hand, the bank may take advantage of an increase in the dollar amount for late fees if the late-fee disclosure is properly worded, such as:

“If any installment is not paid in full within ten (10) days after its scheduled due date, a late fee in an amount which is the greater of five percent (5%) of the unpaid amount of the payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time may be imposed.”

§ 3-508A.

This section of the “U3C” sets the maximum annual percentage rate for certain loans. It provides three tiers with different rates based on unpaid principal balances that may be “blended” based on the amount of the loan under (a):

(a) the total of:

(i) thirty-two percent (32%) per year on that part of the unpaid balances of the principal which is Seven Thousand Dollars ($7,000.00) or less;

(ii) twenty-three percent (23%) per year on that part of the unpaid balances of the principal which is more than Seven Thousand Dollars ($7,000.00) but does not exceed Eleven Thousand Dollars ($11,000.00); and

(iii) twenty percent (20%) per year on that part of the unpaid balances of the principal which is more than Eleven Thousand Dollars ($11,000.00)…

It also has an alternative maximum rate that may be used rather than blending the rates under 2. (b): “twenty-five percent (25%) per year on the unpaid balances of the principal.

The amounts under each tier are NOT subject to annual adjustment by the Administrator of the Oklahoma Department of Consumer Credit under §1-106. However, subsection (4) added in 2022 allows the lender to charge a closing fee which IS subject to adjustment under § 1-106. The closing fee which was $178.87 has increased as follows:

(4) In addition to the loan finance charge permitted in this section and other charges permitted in this act, a supervised lender may assess a lender closing fee not to exceed One Hundred Eight-Four Dollars and Sixty-Four Cents ($184.64) upon consummation of the loan.

Note that the closing fee is NOT a finance charge under the OK U3C, and therefore not considered for purposes of usury. However, the fee IS a finance charge under Reg Z. Most banks use Reg Z disclosures. This means that it is possible that the fee under Reg Z disclosures will cause the APR to exceed the usury rate under § 3-508A. If that happens, document the file to show that the fee is excluded under the U3C in order to show the loan does not in fact violate Oklahoma’s usury provisions. Please note that the bank is NOT required to charge a closing fee at all, and banks may choose to not charge the fee at all or charge less than the amount permitted under the statute.
You can access the § 3-508A Table here.  (https://www.oba.com/wp-content/uploads/2022/11/3-508A-ABS-Chart.pdf)

§ 3-508B Loans

Some banks make small consumer loans based on a special finance-charge method that combines an initial “acquisition charge” with monthly “installment account handling charges,” rather than using the provisions of § 3-508A with regard to maximum annual percentage rate.

The permitted principal amounts for § 3-508B is adjusting from $3,450.00 to $3,540.00 for loans consummated on and after July 1, 2024.

Sec. 3-508B provides an alternative method of imposing a finance charge to that provided for Sec. 3-508A loans. Late or deferral fees and convenience fees as well as convenience fees for electronic payments under § 3-508C are permitted, but no other fees can be imposed. No insurance charges, application fees, documentation fees, processing fees, returned check fees, credit bureau fees, nor any other kind of fee is allowed. No credit insurance even if it is voluntary can be sold in connection with in § 3-508B loans. If a lender wants or needs to sell credit insurance or to impose other normal loan charges in connection with a loan, it will have to use § 3-508A instead. Existing loans made under § 3-508B cannot be refinanced as or consolidated with or into § 3-508A loans, nor vice versa.

As indicated above, § 3-508B can be utilized only for loans not exceeding $3,540.00. Further, substantially equal monthly payments are required. The first scheduled payment cannot be due less than one (1) calendar month after the loan is made, and subsequent installments due at not less than 30-day intervals thereafter. The minimum term for loans is 60 days. The maximum term of any loan made under this section shall be one (1) month for each Ten Dollars ($10.00) of principal up to a maximum term of eighteen (18) months. This would be loans not exceeding $621.00. Loans under subparagraphs e through i of paragraph 1 of this section ($621.01 up to $2,300.00) the maximum terms shall be one (1) month for each Twenty Dollars ($20.00) of principal up to a maximum term of eighteen (18) months, and under subparagraphs j and k of paragraph 1 of this section ($2,300.01 – $3,450), the maximum terms shall be one (1) month for each Twenty Dollars ($20.00) of principal to a maximum term of twenty-four (24) months.

Lenders making § 3-508B loans should be careful and promptly change to the new dollar amount brackets, as well as the new permissible fees within each bracket for loans originated on and after July 1st. Because of peculiarities in how the bracket amounts are adjusted, using a chart with the old rates after June 30 may result in excess charges for certain small loans and violations of the U3C provisions. Since §3-508B is “math intensive,” and the statute whether online or in a print version does NOT show updated acquisition fees and handling fees you must download and print the notification from the Oklahoma Department of Consumer Credit by clicking the link set out in the first paragraph of this article.

The acquisition charge authorized under this statute is deemed to be earned at the time a loan is made and shall not be subject to refund, but if the loan is prepaid in full, refinanced or consolidated within the first sixty (60) days, the acquisition charge will NOT be deemed fully earned and must be refunded pro rata at the rate of one-sixtieth (1/60) of the acquisition charge for each day from the date of the prepayment, refinancing or consolidation to the sixtieth day of the loan. The Department of Consumer Credit has published a Daily Acquisition Fee Refund Chart for prior years with links on this page, (https://www.ok.gov/okdocc/Licenses_We_Regulate/Supervised_Lender/index.html) but had not done so at the time this article was written. Note if a loan is prepaid, the installment account handling charge shall also be subject to refund. A Monthly Refund Chart for handling charges for prior years can be accessed on the page indicated above, as well as § 3-508B Loan Rate (APR) Table. I expect the charts and table for 2024 to be added shortly.

§ 3-511 Loans

I frequently get calls when lenders receive a warning from their loan origination systems that a loan may exceed the maximum interest rate. Nearly always, the banker says the interest rate does not exceed the alternative non-blended 25% rate allowed under § 3-508A according to their calculations. Usually, the cause for the red flag on the system is § 3-511. This is another section for which loan amounts may adjust annually. Here is the section with the amounts as effective for loans made on and after July 1, 2024 in bold type.

Supervised loans, not made pursuant to a revolving loan account, in which the principal loan amount is $6,400.00 or less and the rate of the loan finance charge calculated according to the actuarial method exceeds eighteen percent (18%) on the unpaid balances of the principal, shall be scheduled to be payable in substantially equal installments at equal periodic intervals except to the extent that the schedule of payments is adjusted to the seasonal or irregular income of the debtor; and

(a) over a period of not more than forty-nine (49) months if the principal is more than $1,920.00, or

(b) over a period of not more than thirty-seven (37) months if the principal is $1,920 or less.

The reason the warning has popped up is due to the italicized language: The small dollar loan’s APR exceeds 18%, and it is either single pay or interest-only with a balloon.

Dealer Paper “No Deficiency” Amount

If dealer paper is consumer-purpose and is secured by goods having an original cash price less than a certain dollar amount, and those goods are later repossessed or surrendered, the creditor cannot obtain a deficiency judgment if the collateral sells for less than the balance outstanding. This is covered in Section 5-103(2) of the U3C. This dollar amount was previously $6,200.00 and increases to $6,400.00 on July 1, 2024.

ATMs (and like devices) and the FDIC’s new Advertisement of Membership Rule

By John S. Burnett

If your bank has ATMs or similar devices that accept deposits, someone in your organization should be working on making sure those ATMs will be in compliance with the FDIC’s revised Advertisement of Membership, False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC’s Name or Logo regulation (12 C.F.R. Part 328) which has a compliance date of January 1, 2025.

The FDIC has created a new “official digital sign” for use on some ATMs (details below) and on bank websites, online banking sites, and smartphone banking apps. In this article, I will review only the requirements for ATMs.
The official digital sign includes the FDIC initials in bold text, followed by “FDIC-Insured. Backed by the full faith and credit of the U.S. Government” in italics. You can see a reproduction of the sign on the BankersOnline webpage for section 328.5 of the FDIC’s regulation (https://www.bankersonline.com/regulations/12-328-005-new).

What do you need to do to ensure your deposit-accepting ATMs are in compliance after January 1, 2025? It depends on which of the following three groups your ATM falls into:

1. ATMs or like devices receiving deposits and offering access to non-deposit products, regardless of when they are placed into service
2. ATMs or like devices receiving deposit and NOT offering access to non-deposit products, placed into service after January 1, 2025.
3. ATMs or like devices receiving deposits and NOT offering access to non-deposit products placed into service before January 1, 2025.

Group 1

These machines must include the FDIC official digital sign displayed clearly, continuously, and conspicuously on their home page or screen and on each transaction page or screen relating to deposits. Presumably that includes screens used in making a deposit, withdrawal, or transfer to or from a deposit account and balance inquiries.
“Not, Not, May” disclosures. Each screen on each transaction page or screen relating to non-deposit products must display clearly, continuously, and conspicuously electronic disclosures indicating that such products : are not insured by the FDIC; are not deposits; and may lose value. This “Not, Not, May” disclosure may not be displayed in close proximity to the FDIC official digital sign.

Group 2

These machines that receive deposits for an insured depository institution and does not offer access to non-deposit products must display the FDIC official digital sign displayed clearly, continuously, and conspicuously on their home page or screen and on each transaction page or screen relating to deposits.

Group 3

If your bank has ATMs in this group, you can upgrade them at any time to conform to the requirements for Group 2 machines, or you can advertise your bank’s membership in the FDIC by affixing an FDIC’s physical official sign (similar to the sign used at each teller’s station, not the official digital sign) to the machine façade so that is displayed “clearly, continuously, and conspicuously.” If you elect this option for these “grandfathered” machines, you or your third-party ATM servicer must monitor the signage and promptly replace any FDIC physical official sign that is removed, defaced, or degraded by weather, vandalism, or otherwise. If the sign is no longer clear or conspicuous, it should be replaced.