Duty Issues in the Ever-Changing World of Payments Processing: Is It Time for New Rules?

As payments systems proliferate and become increasingly dependent on the electronic transmission of data or images to the bank that represents the obligor, obligors have lost control over the systems of laws that govern their payments transactions. This article forecasts a trend away from the common law approaches of measuring the behaviors of payments intermediaries—depositary banks and payor banks as well as systems such as the automated clearing houses—by means of the concepts of "good faith" and "ordinary care," long staples of payments under the Uniform Commercial Code, in favor of brighter-line standards such as those that the National Automated Clearing House Association (NACHA) and the Electronic Check Clearing House Organization (ECCHO) adopted in their operating rules. It also argues for retention of the good faith and ordinary care standards where appropriate. The article suggests that four organizing principles should guide the norms for payment systems rules going forward: transparency (the ability of a consumer or small business to appreciate which set of payment rules will govern disputes about a payment transaction), consistency (the current wide variation in rules governing dispute resolution), proof (the difficulty, particularly for consumers and small businesses, of proving who, among many intermediaries, caused a particular problem), and privity (the problems faced in court actions by obligors who are not in privity with the person(s) who caused the problem). It also urges that harmonization of the rules would assist consumers and small businesses in managing problems arising out of payments.