US Laws and Regulations Governing Demand Drafts

Web Commerce Today, Issue 12, July 15, 1998

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Disclaimer: We make no claim that this includes all the laws and regulations relating to online checks. Just all we could find.

Uniform Commercial Code

The Uniform Commercial Code is the basis of laws in many states. Here are some of the pertinent references: Uniform Commercial Code, Title 1, Sections 1-201 [39] and Title 3, Sections 3-103a, 3-104, 3-401, 3-402, and 3-403. The UCC may be found at http://www.law.cornell.edu/ucc/ucc.table.html

"Signed" includes any symbol executed or adopted by a party with present intention to authenticate a writing. (1 UCC 1-201 [39]) http://www.law.cornell.edu/ucc/1/1-201.html

Defines "Negotiable Instrument" as an "unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it: (1) is payable to bearer or to order at the time it is issued or first comes into possession of a holder; (2) is payable on demand or at a definite time; and (3) does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money...." Thus we find the phrase on most checks "Pay to the order of..." (3 UCC 1-103a) http://www.law.cornell.edu/ucc/3/3-103.html

It defines "check" as "(1) a draft, other than a documentary draft, payable on demand and drawn on a bank or (2) a cashier's check or teller's check." (3 UCC 3-104) http://www.law.cornell.edu/ucc/3/3-104.html

3 UCC 3-401 states that "a signature may be made (1) manually or by means of a device or machine, and (2) by the use of any name, including a trade or assumed name, or by a word, mark, or symbol executed or adopted by a person with present intention to authenticate a writing." http://www.law.cornell.edu/ucc/3/3-401.html

3 UCC 3-402 defines "signature by representative" http://www.law.cornell.edu/ucc/3/3-402.html

3 UCC 3-403 discusses "unauthorized signature" http://www.law.cornell.edu/ucc/3/3-403.html

FTC Telemarketing Sales Rule

Code of Federal Regulations Title 16, Section 310.3 (a)(3).

16 CFR 310.3 http://www.access.gpo.gov/nara/cfr/cfr-retrieve.html#page1

Prohibits "Obtaining or submitting for payment a check, draft, or other form of negotiable paper drawn on a person's checking, savings, share, or similar account, without that person's express verifiable authorization. Such authorization shall be deemed verifiable if any of the following means are employed:

(i) Express written authorization by the customer, which may include the customer's signature on the negotiable instrument; or

(ii) Express oral authorization which is tape recorded and made available upon request to the customer's bank and which evidences clearly both the customer's authorization of payment for the goods and services that are the subject of the sales offer and the customer's receipt of all of the following information: (A) The date of the draft(s); (B) The amount of the draft(s); (C) The payor's name; (D) The number of draft payments (if more than one); (E) A telephone number for customer inquiry that is answered during normal business hours; and (F) The date of the customer's oral authorization; or

(iii) Written confirmation of the transaction, sent to the customer prior to submission for payment of the customer's check, draft, or other form of negotiable paper, that includes: (A) All of the information contained in Secs. 310.3(a)(3)(ii)(A)-(F); and (B) The procedures by which the customer can obtain a refund from the seller or telemarketer in the event the confirmation is inaccurate...."

The FTC's interpretation of the Telemarketing Sales Rule states: "If a seller or a telemarketer opts for verifiable authorization by means of a written confirmation, the confirmation must be sent to the consumer before any check, draft, or other form of negotiable paper bearing that consumer's bank account information is submitted for payment. That does not mean that a seller or telemarketer must wait to submit this information until a consumer receives the confirmation; it must only be sent before the check, draft, or other form of negotiable paper is submitted for payment." http://www.ftc.gov/bcp/conline/pubs/buspubs/tsr/howdoes.htm

Federal Reserve Bank Regulations

Code of Federal Regulations Title 12 Chapter II, Part 210 (12 CFR 210.1 etc.) discusses transfers of checks to Federal Reserve Banks. These can be studied by entering 12 CFR 210.1 and successive sections at http://www.access.gpo.gov/nara/cfr/cfr-retrieve.html#page1

Federal Reserve Bank - Reference: Regulation J, Part 2, Sections 4a-201 to a-212. (I could not find the text online)

Court Precedent

Romani v. Harris, 255 Md. 389

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