Answer:
Answer by Jim Bedsole:
FDIC also allows this, I believe. However, one point to consider is that I've heard there are some states that have passed legislation on this point. So you might need to check state law as well.
Answer:
Answer by Andy Zavoina:
Generally you may post them in any order you want, but you are advised to disclose that payment order in your agreement and to not change it without notice.
Answer:
Answer by Ken Golliher:
According to the UCC at 4-303(b) "…items may be accepted, paid, certified or charged to the indicated account of its customer in any order." (Check the parallel section of your state's UCC for variations in language.)
The Commentary to the UCC indicates, "Further, the drawer has drawn all the checks, the drawer should have funds available to meet all of them and has no basis for urging one should be paid before another…" Lawsuits filed on this issue have generally cited state consumer protection laws against unfair and deceptive practices. Because the UCC is clear on the point, those suits have generally been unsuccessful. See related Thread athttp://www.bankersonline.com/ubb/Forum1/HTML/001163.html
While an individual examiner may indicate personal agreement with one technique or another, I do not believe any of the regulatory agencies has issued anything official on the "order of payment." They might be a bit out of their depth to do so.
There are no federal requirements that a bank disclose the order of payment and no consensus that voluntary disclosure is a good idea. Those promising a specific order of payment commit themselves to "the law of the contract." Failure to follow their disclosed method, due to accident or otherwise, could subject them to a claim for "wrongful dishonor" that would exist only because they made the voluntary disclosure.
Answer:
Answer by Jim Bedsole:
Excellent commentary, Ken. I seem to recall, though, that one major forms and disclosure vendor told me a while back that New York had passed a state law requiring disclosure of payment order and that other states may be thinking about following suit. Did I misunderstand the vendor, or is this a reality?
Answer:
Answer by Andy Zavoina:
Obviously there can be variations from state to state. Although not specifically required here in Texas, it is "suggested" as denoted in this Texas Department of Banking Q&A.
"Question: Can a bank pay checks that I’ve written in any order it chooses? For example, if several checks are presented for payment in one day, only one of which is more than my balance, can the bank decide to post the larger item first and then the smaller items, even though this would result in more checks not clearing?
Answer: Banks have a right to establish their own policy concerning the order in which they process checks, as stated in the Texas Business & Commerce Code Section 4.303 (b). The Code states that a bank may pay "in any order" and is under no obligation to determine the time of day an item is received. If smaller items are paid first, then there are fewer overdrafts and fewer charges; however, mortgage and rent payments may be returned. Some banks feel that if larger items are paid first, then the most important items are not returned. Payment order should be noted in the deposit contract that customers sign when they open their account.
Answer:
Answer by Ken Golliher:
Sorry, Jim. I do not know what any specific requirements of New York law may on the subject. I am relatively new to BOL, but have noticed the frequency with which participants are referred to the law of their own state for an answer. I assume it is an occasional source of frustration to them, but this string illustrates why the referral is necessary.
While there is no federal law on order of payment, any state could have a law of its own which, depending on wording, could apply to both state and national banks. Andy has identified a source of guidance which he acknowledges as not having the force of law or regulation. While a state bank in Texas would do well to consider it, a national bank located there might blow it off.
However, a consumer doing her homework and finding that language on the Department of Banking's web site would certainly believe she had found a credible source indicating she was entitled to a disclosure and would come to the banker with a firmly established sense of righteousness.
Personal opinion: Make the disclosure only if required by state law.
First published on BankersOnline.com 12/3/01
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