May 2025

• Lawsuits of interest
• Banker Q&As
  • Joint ownership, divorce, and death
  • Right of rescission, recording mortgage
  • TRID closing disclosure
  • Coming in the June 2025 OBA Legal Briefs – Uniform Consumer Credit Code Dollar amount changes

Lawsuits of interest

By Scott Thompson

One of the things I try to do is keep track of lawsuits that might have an impact on banks. While these cases are often in other states, it is not uncommon for Oklahoma litigants to cite such cases, particularly those in federal courts, when Oklahoma caselaw is bereft of precedent.  So, this month I wanted to discuss a few of the cases that have piqued my interest.

Illinois Bankers Assn, American Bankers Assn, America’s Credit Unions, and Illinois Credit Union League Kwame Raoul, in his official capacity as Illinois Attorney General (U.S. Dist. Ct. – Northern Dist. of Ill.)

Earlier this session, the OBA strongly opposed a bill which would have exempted taxes, tips and charitable donations from interchange fees (SB 1095). When a customer and merchant engage in a sale of goods or services using a credit card, the credit card networks, such as Visa or Mastercard, transmit data to the bank that issued the card, which either authorizes or declines the transaction. Networks also search data for signs of fraud based on pattern recognition and set compliance standards and the interchange fees that merchants pay per transaction. The credit card issuer – which is commonly the customer’s bank (the issuing bank) – pays the merchant’s bank (the acquiring bank) the transaction’s sale price minus the interchange fee. Merchants receive the sales price minus a merchant discount rate from the acquirer. The customer receives benefits from the issuing bank like extended warranties, purchase-protection insurance and rewards. The interchange fee is also used to offset the zero fraud liability that applies in a credit card transaction.

The fees associated with credit card transactions facilitate a globally connected network allowing consumers to make purchases almost anywhere in the world. Disruption to that system would have negative effects beyond inconvenience. It would weaken card issuers’ ability to protect consumer purchases and personal information. It could lead to decreases in economic activity and a net reduction in business activity and profitability. Additional costs in transactions would result in fewer rewards for card usage and reduced purchasing power. The overall result would be greater burdens and fewer benefits for all stakeholders across a global system of transactions.

Exempting parts of transactions from the interchange fee could include customers having to make two separate purchases at a time – the purchase itself and another card swipe, or perhaps cash transaction, to cover sales tax and tip – and would limit banks’ abilities to cover operating costs and protect against fraud. These costs would be passed on to consumers. It would also require merchants and processors to collect more information from cardholders, leading to privacy concerns.

While the bill in Oklahoma failed (but will likely return next year), these bills continue to be run in states across the country. However, only one state to date has actually enacted a bill to exempt certain items in a transaction from interchange fees. The Illinois Interchange Fee Prohibition Act (“IFPA”) was enacted in 2024 with an effective date of July 1, 2025. Shortly thereafter, a number of parties sued the State of Illinois in the U. S. District Court for the Northern District of Illinois. The Plaintiffs assert that a variety of federal statutes preempt the IFPA. First, the Plaintiffs claim that the IFPA is preempted by the National Banking Act (“NBA”). The NBA establishes multiple powers for nationally chartered banks. The IFPA prevents or interferes with the ability of national banks to exercise these powers. A comparable argument is made with respect to the Home Owners’ Loan Act (“HOLA”). Federal credit unions are similarly granted powers by the Federal Credit Union Act (“FCUA”).  Credit union plaintiffs have alleged that IFPA conflicts with the FCUA’s purpose and interferes with the powers granted to credit unions under the FCUA.

As for in-state and out-of-state banks with state charters, the Plaintiff’s assert that they too are protected from the IFPA. Plaintiff note that Illinois, like most states, have passed “wildcard” laws that allow state banks to engage in any activity in which a national bank may engage. In Oklahoma that language is found in Section 402 of Title 6 of the Oklahoma Statutes which lists the powers of Oklahoma state-chartered banks and includes the power:

[t]o exercise such incidental powers as may be necessary or desirable to carry on the banking business including, but not limited to, powers as may now or hereafter be conferred upon national banks by the laws of the United States and the regulations and policies of the United States Comptroller of the Currency, unless otherwise prohibited or limited by the State Banking Commissioner or the State Banking Board.

Because of these wildcard laws, so the argument goes, the federal preemptions of the NBA, HOLA and NCUA extend to Illinois state-chartered banks. The line of argument continues that if the IFPA is preempted as to Illinois state-chartered banks, state-chartered banks from other states must also be exempted because the dormant Commerce Clause of the U.S. Constitution prohibits regulatory measures that benefit in-state economic interests by burdening out-of-state competitors. Similarly, 12 U.S.C. § 1831a(j)(1), often called “Riegle-Neal,” protects these out-of-state banks by requiring that “[t]he laws of a host State … shall apply to any branch in the host State of an out-of-State State bank to the same extent as such State laws apply to a branch in the host State of an out-of-State national bank.”

Plaintiffs sought an early preliminary injunction. The Court found that the IFPA would prevent or significantly interfere with the exercise of powers under the NBA by national banks. For example, federal law gives national banks the power to process card transactions and charge fees for doing so, and to use and process data—the very things that the IFPA expressly curtails or prohibits. The Court also determined that HOLA preempts the IFPA as to federal savings associations. The Court withheld ruling on some of the other affected types of institutions. After subsequent briefing and argument, the court held that 12 U.S.C. § 1831a(j) extends the preemptions of the NBA and HOLA to out-of-state banks and credit unions with state charters. However, the Court did not agree that the IFPA was preempted by the FCUA or that the dormant Commerce Clause and wild-card statute protected Illinois state-chartered banks and credit unions. Thus, at this time, Illinois state-chartered banks and credit unions, as well as federal credit unions, remain subject to the IFPA and its July 1, 2025, effective date.

More recently, the Plaintiffs filed a motion for summary judgment asking the Court to grant summary judgment in favor of the Plaintiffs and to issue a permanent injunction prohibiting the statute from going into effect. In doing so, they ask not only for the Court to uphold its previous ruling in favor of the Plaintiffs, but to revisit those decisions in which certain types of institutions were excluded from the preliminary injunction. Plaintiffs argue that the more developed—and undisputed—record shows, absent this relief, the IFPA would continue to indirectly and improperly restrict federally protected institutions in ways the Court has already determined the State cannot do directly. The State of Illinois filed its responsive brief and moved for summary judgment as well. It appears that the Illinois legislature intends to move the effective date out to give the court proceedings more time. Further briefing and oral arguments will occur before the Court makes its ruling.

If the Court affirms its previous decision, the State of Illinois will face operational chaos. Whether parts of transactions are exempt from interchange fees will not only depend on the type of transaction (e.g. tax or tip), but on whether the card issuer is an exempt or non-exempt financial institution. This outcome puts Illinois state-chartered banks at a disadvantage compared to national banks and state-state chartered banks from other states.

If Oklahoma passes SB 1095 or a similar bill, there is every reason to think the result would be the same. This is definitely a case we will continue to watch.

Studco Building Systems U.S., LLC v. 1st Advantage Federal Credit Union (4^th Ct. of Appeals)

In this case originating in the U.S. District Court for the Eastern District of Virginia, Studco (actually its name), received a fraudulent email, purportedly from a supplier, instructing it to redirect ACH payments to a new account at 1st Advantage Federal Credit Union. Unbeknownst to Studco, the email was part of a scam. Studco began ordering ACH funds transfers to be made to the purported supplier’s account at 1st Advantage. The transferred funds were deposited into an account bearing the number that Studco gave, even though that account was not held by the actual supplier, but instead by another customer of 1st Advantage.

1st Advantage had in place a system to monitor ACH transfers, which automatically generated and stored reports of each ACH transfer, including warnings if the identified payee on an ACH order did not exactly match the name on the receiving account. However, the system generated hundreds to thousands of warnings related to mismatched names on a daily basis, did not notify anyone when a warning was generated, and no one at 1st Advantage reviewed the reports as a matter of course.

Eventually, Studco discovered the fraud and filed suit seeking reimbursement from 1st Advantage. Studco alleged various claims, including negligence in failing to detect the misdescription of the account, liability under Article 4A-207 of the UCC, and common law bailment. Following a bench trial, the district court ruled in favor of Studco, awarding it $558,868.71 in damages (which included the amount of the misdirected ACH transfers), plus attorney fees and costs. The district court found that “1st Advantage failed to act ‘in a commercially reasonable manner or exercise ordinary care in allowing [the withdrawal of] six-figures over the course of a month.’” The district court explained that had 1st Advantage implemented reasonable routines, they “‘would have alerted 1st Advantage to the misdescription and possible fraud upon the posting of the first ACH transfer.’”

1^st Advantage appealed the decision to the Fourth Circuit Court of Appeals and that court rendered a decision in March of this year. The Fourth Circuit reversed the district court. On appeal, the Court found that the crux of the case involved the application of § 4A-207 of the UCC, which governs the rights and duties of parties involved in funds transfers that involve a misdescription. The Fourth Circuit held that the beneficiary bank (the bank that receives the funds transfer from the sending bank), 1st Advantage, was not liable under § 4A-207 because it did not have actual knowledge of the misdescription at the time funds were received via ACH transfer.

The Court found that Section 8.4A-207(b)(1) of the Virginia UCC provides that, “[i]f a payment order received by the beneficiary’s bank identifies the beneficiary both by name and by an identifying or bank account number and the name and number identify different persons” and if “the beneficiary’s bank does not know that the name and number refer to different persons,” the beneficiary’s bank “may rely on the number as the proper identification of the beneficiary of the order.” Va. Code Ann. § 8.4A-207(b)(1). Furthermore, “[t]he beneficiary’s bank need not determine whether the name and number refer to the same person.”  Thus, § 4A-207 of the UCC protects the beneficiary’s credit union or bank from any liability when it deposits funds into the account for which a number was provided in the payment order, even if the name does not match, so long as it does not know that the name and number refer to different persons. The Court went further and determined that 1st Advantage had no duty to verify the name and number match and even though the bank’s automated system generated internal alerts regarding the misdescription, this did not constitute knowledge.

In explaining why the system alerts did not constitute actual knowledge, the Court noted that “countless discrepancies can arise inadvertently and harmlessly. For instance, the inclusion or omission of a suffix such as Jr. or a middle initial could trigger an alert, as could the listing of a surname prior to the first name. Requiring individualized review for meaningless differences such as these would be most impractical, time-consuming, and expensive and would impede the efficient transfer of funds, imposing gridlock on the financial system.” The Fourth Circuit concluded that because 1st Advantage deposited the funds into the account number designated in the payment order, even though that account was not held by the depositor identified in the payment order, 1st Advantage had no liability given that there was no evidence in the record that it had “actual knowledge” of the misdescription.

Section 4A-207 of title 12A of the Oklahoma Statutes is the Oklahoma version of § 4A-207 of the UCC. It is essentially identical to the version of the Virginia UCC that is at issue in Studco. While Oklahoma courts could certainly reach a different conclusion, a circuit court decision on this issue could be persuasive precedent.

Bank Policy Institute, Ohio Chamber of Commerce, Ohio Bankers League, American Bankers Assoc., and Chamber of Commerce of the U.S. Board of Governors of the Federal Reserve System (U.S. Dist. Ct. – Southern Dist. of Ohio)

In December 2024, the Plaintiffs filed this lawsuit against the Federal Reserve (“Fed”) challenging the annual stress testing used by the Fed to establish certain bank capital requirements, specifically the “stress-capital buffer” imposed on individual banks. Plaintiffs assert that the Fed chooses a hypothetical set of economic conditions and other components known as “scenarios,” and then uses internal models to project how banks would fare under those scenarios.  However, the Fed largely keeps the standards it applies in these tests secret and it makes changes to the stress tests each year without giving the public any chance to comment.   While the Fed had previously indicated a willingness to open up the scenario designs to notice and comment, potentially resolving some or all of the issues raised in the suit, an impending February 2025 statute of limitations motivated the Plaintiffs to file the lawsuit.

According to the Plaintiffs, the Fed’s stress-test regime is unlawful for three reasons. First, the scenarios and models are components of rules and therefore under the federal Administrative Procedures Act’s (“APA”) requirements for rule making, 5 U.S.C. § 553, the Fed is required to subject its models and scenarios to notice and comment. Second, Plaintiffs claim that the Fed cannot establish the legal obligations of the banks in secret, relying on  5 U.S.C. § 552(a)(1)(D), (E), of the APA. Finally, Plaintiffs assert the actions of the Fed in establishing the program which was used in 2024 and is set to be used in 2025 and 2026, is arbitrary and capricious.

In March of this year, Plaintiffs filed a motion for summary judgment asking the court to bar the Fed from using the current stress-test regime to impose capital requirements after the 2025 stress-testing cycle. Plaintiffs also requested that the court issue a permanent injunction that would block the Fed from enforcing the stress-capital buffer after October 2026, unless the Fed adopts the models and scenarios through a proper notice and comment process in compliance with the APA. The Fed’s response is due at the end of April.

These are not the only cases we are keeping an eye on, but they are some of the most interesting and potentially relevant to Oklahoma bankers down the road. If you are aware of a case that you think might be worth watching, feel free to send me the information at scott@oba.com.

Banker Qs & As

By Pauli Loeffler

Joint ownership, divorce, and death

Q. Two customers (husband and wife) owned a checking account with rights of survivorship. Their divorce was finalized in December 2024. The wife died in February 2025.

Neither husband nor wife came in before wife’s passing to close account to separate ownership of funds.

The son and daughter-in-law are now claiming in the final divorce decree it states this joint account at our bank goes to the (now deceased) wife.

The questions we have are:

In regards to this account, do we deal with the living/remaining joint owner husband and does he have all rights to the account?

Or, does the (supposed) divorce decree stating the deceased wife gets this account supersede the joint ownership rights of the living husband?  If that is the case, would we deal with the personal representative of the deceased wife’s estate?

A. If the Divorce Decree provided that the wife is to receive the account as her property, it would remove the ex-husband’s interest in the account. You will need to get a certified copy of the Divorce Decree to determine whether the deceased wife is the sole owner of the account. If she is, then the funds belong to her estate. If there is no will, the Banking Code Sec. 906 Affidavit of Heirs could be used by her children to claim the funds provided the amount does not exceed $50,000.  If she had a will, then it might be possible to use the Probate Code Sec. 393 Affidavit of Heirs even if there is a will provided the net value of her estate not passing by joint ownership, POD, TOD, or under a trust does not exceed $50,000, no probate has been filed in Oklahoma or any other state, and all debts have been paid, provided for, or are barred by statute of limitations.

I will note that if the owner of an account names the spouse as POD and the couple thereafter divorce, the POD designation is void as provided by Banking Code § 901:

No change in the designation of a named beneficiary shall be valid unless executed by the owner of the fund and in the form and manner prescribed by the bank; however, this section shall be subject to the provisions of §178 of Title 15.

§ 178 of Title 15 provides:

If, after entering into a written contract in which a beneficiary is designated or provision is made for the payment of any death benefit (including life insurance contracts, annuities, retirement arrangements, compensation agreements, depository agreements, security registrations, and other contracts designating a beneficiary of any right, property, or money in the form of a death benefit), the party to the contract with the power to designate the beneficiary or to make provision for payment of any death benefit dies after being divorced from the person designated as the beneficiary or named to receive such death benefit, all provisions in the contract in favor of the decedent’s former spouse are thereby revoked. Annulment of the marriage shall have the same effect as a divorce. In the event of either divorce or annulment, the decedent’s former spouse shall be treated for all purposes under the contract as having predeceased the decedent.

I will add that Banking Code §1301.2 allowing the lessee of a safe deposit box to name an access on death has similar provisions:

The authorization also shall be revoked as a matter of law if the lessee is divorced from the person to whom the authorization was granted, and no subsequent written authorization to the former spouse is executed. A copy of any written authorization and any written revocation shall be provided to the financial institution at which the safe deposit box is located. In the event there is more than one lessee for a safe deposit box, all the lessees must authorize access in the manner provided by this subsection.

Right of rescission, recording mortgage

Q. Can we file our mortgage prior to the last date to cancel?

A. The bank can record the mortgage prior to expiration of the RoR period as indicated below. However, I would do so with extreme caution. If the consumer rescinds, you will need to immediately file the release and refund all fees which means that if you have contracted for preparation and recording the release of security interest, this prepaid finance charge will likewise have to be refunded.

1026.23(c) Delay of Creditor’s Performance

1. 1. General rule. Until the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded, the creditor must not, either directly or through a third party:

Disburse loan proceeds to the consumer.

Begin performing services for the consumer.

Deliver materials to the consumer.

1. 3. Escrow. The creditor may disburse loan proceeds during the rescission period in a valid escrow arrangement. The creditor may not, however, appoint the consumer as “trustee” or “escrow agent” and distribute funds to the consumer in that capacity during the delay period.
   4. Actions during the delay period. Section 1026.23(c) does not prevent the creditor from taking other steps during the delay, short of beginning actual performance. Unless otherwise prohibited, such as by state law, the creditor may, for example:

Prepare the loan check.

Perfect the security interest.

Prepare to discount or assign the contract to a third party.

Accrue finance charges during the delay period.

Response:  I don’t think we’ve ever had one rescinded so we may take the risk, however we have experienced a mortgage filed by another bank right before ours on a loan and the risk of that is bigger.

TRID closing disclosure

Q.  I understand that if the Purchase Agreement states certain Fees are being paid by the Seller or there is a Seller Credit, this must be reflected as such on the LE, however, more often than not, we do not list any Seller paid fees until we prepare the CD and this is based on what the Title Company tells us that the Seller is paying, usually customary fees. Did I miss something or is there a potential tolerance for Seller Fees that are not originally disclosed on the LE and not required to be? An example would be the sellers portion of the Closing Fee, which is usually split between Buyer and Seller, we do not disclose this on the LE but we do on the CD and does it matter if it is reflected in Section B or C if it is not disclosed to begin with?

A. Where a seller-paid fee is listed on the Closing Disclosure (CD) does matter, even if it doesn’t trigger a tolerance cure. If the fee was not disclosed on the Loan Estimate (LE), but is on the CD, and the same service provider is used, it should be listed in Section B (Fees You Can Shop For) and not Section C (Fees You Cannot Shop For). This is because Section B is for fees that were disclosed on the LE, even if the provider changed or the fee is now being paid by the seller. Section C is for fees that were not on the LE at all.

Section B (Fees You Can Shop For):

This section lists fees for services that the borrower was allowed to shop for and were disclosed on the LE. If a service provider is the same as the LE but the fee is now being paid by the seller, it still needs to be in Section B because it was originally disclosed on the LE.

Section C (Fees You Cannot Shop For):

This section lists fees for services that the borrower was not allowed to shop for and were not disclosed on the LE.

Even if a seller-paid fee does not create a tolerance cure (meaning the fee is not increased beyond the allowed tolerance compared to the LE), it’s important to accurately reflect the fees in the proper section of the CD. This helps ensure transparency and clarity for the buyer and seller about all costs associated with the loan, as required by regulations. For example, preliminary abstracting fees may fall under this category if they were not on the LE and the buyer doesn’t have the ability to shop for abstracting services.

Coming in the June 2025 OBA Legal Briefs:  The Oklahoma Department of Consumer Credit adjusts certain fees, tier amounts under § 3-508A, etc. for inflation. These changes become effective for loans consummated on and after July 1, 2025. You can access the new dollar amounts either on the Oklahoma Department of Consumer Credit or on the Legal Links web page where you can find all Dollar Changes from 2011 -2025 if you are interested.