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After reading this chapter, you should understand the following:
- Banks’ relationships with their customers for payment or nonpayment of checks;
- Electronic funds transfers and how the Electronic Fund Transfer Act affects the bank-consumer relationship;
- What a wholesale funds transfer is and the scope of Article 4A;
- What letters of credit are and how they are used.
To this point we have examined the general law of commercial paper as found in Article 3 of the UCC. Commercial paper—notwithstanding waves of digital innovation—still passes through bank collection processes by the ton every day, and Article 3 applies to this flow. But there is also a separate article in the UCC, Article 4, “Bank Deposits and Collections.” In case of conflict with Article 3 rules, those of Article 4 govern.
A discussion of government regulation of the financial services industry is beyond the scope of this book. Our focus is narrower: the laws that govern the operations of the banking system with respect to its depositors and customers. Although histories of banking dwell on the relationship between banks and the national government, the banking law that governs the daily operation of checking accounts is state based—Article 4 of the UCC. The enormous increase in noncheck banking has given rise to the Electronic Fund Transfer Act, a federal law.