We have an elderly customer who seems to be the victim of a home improvement scam. The scammers want her to wire money to a fake healthcare company. We refused to send the wire, but our customer withdrew a cashier’s check for the same amount from one of our tellers, who was unaware of the situation. I know that we cannot normally stop payment on a cashier’s check, but this is blatant fraud. Our customer is adamant that the transaction is legitimate. Is there any way that we can prevent this fraud from occurring?

You are correct that your bank cannot stop payment on the cashier’s check without risking liability for the check. We believe that you should instead file a suspicious activity report (SAR) and report the scam as potential elder financial exploitation to the Illinois Department of Aging.

As a general rule, once a cashier’s check enters the stream of commerce, the issuer (your bank) is liable under the Uniform Commercial Code (UCC) if it refuses to honor the cashier’s check when presented. We are not aware of any Illinois court cases that permit an exception to this general rule where a third party fraudulently induced a bank’s customer to purchase a cashier’s check.

Consequently, your customer has no right to stop payment of a cashier’s check after delivering or negotiating the check to the payee, and since your customer is adamant that this transaction is legitimate, they are unlikely to request a stop payment in any event. If the cashier’s check is presented for payment, your bank would be liable for damages if you wrongfully refuse payment — unless you can assert certain defenses, such as a claim that you believe is available against the person entitled to endorse the cashier’s check or that you have reasonable doubt whether the person demanding payment on the cashier’s check is entitled to enforce the cashier’s check.

Because your bank suspects financial exploitation of an elderly customer, we recommend reporting the activity to the Illinois Department of Aging, and federal law likely requires you to file a suspicious activity report (SAR). You are required to file a SAR for suspected elder financial exploitation when a transaction aggregates at least $5,000 and the bank knows, suspects, or has reason to suspect the transaction involved criminal activity.

We also note that both state and federal privacy laws provide safe harbors for banks when reporting suspected elder financial exploitation.

For resources related to our guidance, please see:

Uniform Commercial Code, 810 ILCS 5/4-403(a) (“A customer or any person authorized to draw on the account if there is more than one person may stop payment of any item drawn on the customer’s account . . . .”)

Official Comments, Uniform Commercial Code, Section 4-403, Comment 4 (“A cashier’s check or teller’s check purchased by a customer whose account is debited in payment for the check is not a check drawn on the customer’s account within the meaning of subsection (a); hence, a customer purchasing a cashier’s check or teller’s check has no right to stop payment of such a check under subsection (a). If a bank issuing a cashier’s check or teller’s check refuses to pay the check as an accommodation to its customer or for other reasons, its liability on the check is governed by Section 3-411. There is no right to stop payment after certification of a check or other acceptance of a draft, and this is true no matter who procures the certification. See Sections 3-411 and 4-403. The acceptance is the drawee’s own engagement to pay, and it is not required to impair its credit by refusing payment for the convenience of the drawer.”)

Uniform Commercial Code, 810 ILCS 5/3-411(b) (“If the obligated bank wrongfully (i) refuses to pay a cashier’s check or certified check . . . the person asserting the right to enforce the check is entitled to compensation for expenses and loss of interest resulting from the nonpayment and may recover consequential damages if the obligated bank refuses to pay after receiving notice of particular circumstances giving rise to the damages.”)

Uniform Commercial Code, 810 ILCS 5/3-411(c) (“Expenses or consequential damages under subsection (b) are not recoverable if the refusal of the obligated bank to pay occurs because (i) the bank suspends payments, (ii) the obligated bank asserts a claim or defense of the bank that it has reasonable grounds to believe is available against the person entitled to enforce the instrument, (iii) the obligated bank has a reasonable doubt whether the person demanding payment is the person entitled to enforce the instrument, or (iv) payment is prohibited by law.”)

Midamerica Bank, FSB. v. Charter One Bank, FSB, 905 N.E.2d 839, 844 (2009) (“A bank’s refusal to pay a cashier’s check based on its customer’s request to stop payment is ‘wrongful’ under section 3-411 because a customer has no right to stop payment on a cashier’s check under section 4-403. . . . Here, Charter One issued the cashier’s check at the request of Christelle. Christelle then delivered the cashier’s check to ETI, who deposited the cashier’s check in its MidAmerica account. The cashier’s check entered the stream of commerce when Christelle delivered it to ETI. Applying the holding in Gillespie to the facts of this case, Christelle had no right to stop payment on the cashier’s check after she delivered the check to ETI.”)

Adult Protective Services Act, 320 ILCS 20/4(a) (“Any person who suspects the abuse, neglect, financial exploitation, or self-neglect of an eligible adult may report this suspicion to an agency designated to receive such reports under this Act or to the Department.”)

FinCEN Rules, 31 CFR 1020.320(a)(2) (Requires banks to file SARs when a transaction involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that “(i) The transaction involves funds derived from illegal activities…(ii) The transaction is designed to evade any requirements of this chapter or of any other regulations promulgated under the Bank Secrecy Act; or (iii) The transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.”)

Regulation P, 12 CFR 1016.15 (Lists exceptions to opt-out requirements, including “[t]o comply with Federal, state, or local laws, rules and other applicable legal requirements.”)

FRB Suspicious Activity Reports Rules, 12 CFR 208.62(k) (Creates a safe harbor from liability for the disclosure of “reports of suspected or known criminal violations and suspicious activities to law enforcement and financial institution supervisory authorities, including supporting documentation, regardless of whether such reports are filed pursuant to this section or are filed on a voluntary basis.”)

Illinois Banking Act, 205 ILCS 5/48.1(b)(16) (Creates exemption from privacy requirements for furnishing information to law enforcement authorities, the Illinois Department on Aging and its regional administrative and provider agencies, the Department of Human Services Office of Inspector General, or public guardians “if there is suspicion by the bank that a customer who is an elderly or disabled person has been or may become the victim of financial exploitation.”)