Banks Providing Payday Loans

It seems at least Wells Fargo is now offering payday loans, though they call theirs a "direct deposit advance." (See Wells Fargo FAQ).  A large number of states prohibiting payday loans and an even larger number opposed to any federal charter for payday lenders.  (see Center for Responsible Lending).  It seems that some lenders are turning to setting up shop on the Internet, states that allow these loans or even in foreign countries.  (see Major Banks Aid in Payday Loans, New York Times).  While there is plenty to dislike about this product, how its marketed, the price, etc., there are also complaints against major banks that have been permitting withdrawals on these loans, even where the loans are illegal in the first place. 

Customers should be able to discontinue automatic withdrawals of any variety by a simple request to the bank.  Banks that don't comply with customer requests do so that their own peril.  Notice of a stop payment would seem to make any further transactions not properly payable under section 4-401 and prohibited under the Electronic Funds Transfer Act at the very least. There are some reports that the banks truly are attempting to increase overdraft fees by forcing customers on the edge to continue making auto-withdrawlas over a stop payment request.  While I am not surprised that banks might overreach at times, customer persistence may help to stomp this out.  Or at least an industrious attorney or law student who is able to remind banks of the rules of Article 4 and Regulation E under the Electronic Funds Transfer Act 205.10 (allowing customers to stop payment).

-JSM

Yet another entrustment case. Buyer wins.

It seems there with regularity appear cases that well illustrate the "entrustment" doctrine, often concerning artwork that falls into ownership by a buyer in the ordinary course.  UCC section 2-403 governs the rights of buyers in the ordinary course who receive the goods from a merchant dealing in goods of the kind, even where the merchant did not have authorization to sell from the actual owner of the goods.  Application of this section was at issue in the case of Joseph P.Carroll Ltd. v. Baker concerning ownership of the painting Untitled (1943)by John D. Graham (“the Painting”).  Craig Baker (“Baker”) purchased the Painting in a private sale, but later consigned the Painting with a third party gallery owned by Lawrence Salander (“SOG”) for sale.  In 2000, John P. Carroll Ltd. (“Carroll”) expressed an interest in the Painting but did not purchase it from SOG until 2007.  Four months after the sale, Baker discovered the sale and confronted SOG; however SOG had declared bankruptcy in the interim and, consequently, Baker was not paid for the painting.  Applying section 2-403, the court determined that Baker entrusted the painting to SOG, a merchant.  Because Carroll was a buyer in the ordinary course that purchased the Painting in good faith and without knowledge of the rights of Baker, SOG effectively transferred all of Baker’s rights to the painting to Carroll. Therefore, Carroll held title to the painting.  See also Lakes Gas Co. v. Clark Oil Trading Co., 875 F. Supp. 2d 1289, 1305–06 (D. Kan. 2012) (finding that summary judgment precluded where there were genuine issues of material fact as to whether Lakes effectively entrusted its propane to Stevenson to sell to third parties, as to whether Clark Oil comported with usual or customary practices in buying propane from Stevenson, and as to whether Clark Oil qualified as a buyer in the ordinary course within meaning of the section 2-403).

While indeed this is a harsh result to the former owner of the painting, the message is that those who entrust valuable objects to others should look into filing a Financing Statement in the proper office to protect the interest.

                                                                                                   -JSM