January 10, 2022

To: New York State-Chartered Credit Unions

Re: Application of Banking Law § 9-y to Credit Unions

The Department has received several inquiries as to whether newly enacted Banking Law § 9-y applies to credit unions chartered by the Department. The short answer is yes.

The Department is issuing this industry letter to clarify the application of the new section.

Section 9-y of the Banking Law, which was signed into law on August 19, 2021, alters the order and manner in which consumer checks are to be paid and will go into effect on January 1, 2022. The text of the new section reads as follows:

Banking institutions to pay checks drawn therein [sic] in order of presentation.

  1. Notwithstanding any law, rule or regulation to the contrary, every banking institution that provides consumer checking accounts shall either pay checks in the order wherein they are received or pay checks from smallest to largest dollar amount for each business day’s transactions.
  2. If a check is dishonored for insufficient funds and thereafter smaller checks which could be paid are received, the smaller checks shall be honored within amounts on deposit in the subject account.
  3. The banking institution shall disclose to consumers in writing the order in which checks are drawn. The written disclosure shall be provided to the consumer at the time the account is opened and prior to any change in such policy. The superintendent shall promulgate rules and regulations necessary for the implementation of this section.
  4. As used in this section, “consumer checking accounts” means accounts established by natural persons primarily for personal, family or household purposes.

While the new section uses the term “banking institution” to describe the entities to which Banking Law § 9-y applies, this term is not defined in, or for the purposes of, the new section nor has the term been defined for the purposes of the Banking Law generally.[1] However, the Department notes that Banking Law § 9-y modifies the New York UCC provision that currently govern the order in which checks are posted – specifically, New York UCC § 4-303(2), which provides that “items may be accepted, paid, certified or charged to the indicated account of its customer in any order convenient to the bank.”

It is significant here that the term “bank,” as defined in New York UCC § 1-201(b)(4) and as used in UCC § 4-303(2) to prescribe the order of posting, encompasses any “person engaged in the business of banking and includes a savings bank, savings and loan association, credit union, and trust company.”[2] That Banking Law § 9-y modifies such prescribed order of posting compels the conclusion that the legislature intended that Banking Law § 9-y apply to all such financial institutions that offer consumer checking accounts.[3] Accordingly, the legislature’s use of the term “banking institution” in Banking Law § 9-y must be read coextensively with the term “bank,” as defined in New York UCC § 1-201(b)(4), to apply to all the banking institutions specified above that offer consumer checking accounts and that are currently subject to the requirements of UCC § 4-303(2).

[1] In certain cases, where the term “banking institution” is used in specific sections of the Banking Law, it has been defined for the purposes of those sections.  While the definitions vary, a number of these definitions include credit unions as a banking institution.  In Banking Law § 9-f(3), for example, the term is defined to include “all banks, trust companies, savings banks, savings and loan associations, credit unions, mortgage bankers….”  That definition of banking institution used in Banking Law § 9-f(3) is expressly incorporated by Banking Law §§ 9-g(4), 9-i, 9-m, 9-p.  In addition, Banking Law §§ 9-j, 9-k, 12-a, 14-f, 75-b(5) also define banking institution to include credit unions.  In contrast, Banking Law §§ 9-r, 141 and 222(12) omit credit unions from their definitions of a banking institution.  The interpretation of “banking institution” contained in this guidance solely applies to the use of that term in Banking Law Section 9-y and does not apply to any other use of the term “banking institution” contained in the Banking Law.

[2] The definitions in Article 1 of the New York UCC are incorporated into Article 4, Bank Deposits and Collections, by New York UCC 4-104(4).

[3] The term “banking institution” is not defined in the New York UCC.