Debit Card Transactions: UCC vs. EFTA

by Mercator Advisory Group 0

In an op-ed piece published in American Banker, a banking lawyer argues that incorporating debit card transactions into existing UCC rules will close a loophole that has allowed more class-action suits to be filed pertaining to how these transactions are processed. In the article, he writes:

These UCC Articles were intended to, among other things, set rules under which financial institutions would process debit transactions in customer accounts. For example, these Articles provide financial institutions discretion to set the order in which they process certain electronic transactions in an account. They also provide financial institutions discretion for the order in which they process checks. The UCC recognizes that financial institutions must have flexibility in processing transactions and courts have tended to reject class-action challenges that conflict with the UCC.

In other words, allow the banks to process debit card transactions in a discretionary manner, just like they do checks and thereby, protect them from needless lawsuits. The problem is this flexibility has been the issue for cardholders who have been burdened with excessive overdraft fees due to the manner in which transactions have been applied to their account in some cases. It is for this reason that the CFPB has taken up the issue of protecting consumers as stated in their February press release:

One such practice is commingling of all checks, bill payments, debit card transactions, and ATM withdrawals each day and processing the largest transactions first. This maximizes the number of transactions that will trigger an overdraft fee. The CFPB will examine how prevalent this practice is and how it impacts consumers.

Unnecessary litigation is a drag on the economy. Let’s hope the ULC and CFPB align themselves on this issue and close loopholes to the benefit of the market as a whole.

Click here to read more from American Banker.