Yes, the Illinois Uniform Commercial Code (UCC) generally requires a bank to reimburse a customer for a fraudulent check when the customer notifies the bank of the unauthorized payment in the timeframe provided in the account agreement. However, there may be cases where a customer’s negligence precludes reimbursement, as discussed in more detail below.

The UCC provides that a bank may charge a customer account for an item that is “properly payable,” meaning the customer authorized the payment in accordance with any agreement between the customer and bank. If a bank makes an improper payment, the customer can bring an action and have their account recredited.

The UCC requires customers to examine their account statements and notify their bank of any unauthorized or altered item with “reasonable promptness,” and if a customer fails to notify their bank regarding an unauthorized or altered item within a year, the customer is entirely precluded from asserting a claim against the bank “[w]ithout regard to care or lack of care of either the customer or the bank.” The UCC also permits banks to narrow the definition of “reasonable promptness” in their deposit account agreements, based on the general rule that the UCC’s provisions “may be varied by agreement,” and an Illinois court has upheld a deposit account agreement’s thirty-day requirement for customers to provide reasonably prompt notification of a fraudulent item. However, note that an agreement “cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure.”

Also, the UCC does not require a bank to reimburse a customer whose “failure to exercise ordinary care” substantially contributes to the alteration or forgery (provided the bank exercised ordinary care and acted in good faith in paying the check). Whether a customer’s conduct substantially contributed to the check fraud is a question of fact left to a court or jury to decide.

Consequently, we believe that a customer who notifies their bank of a fraudulent item within the thirty-day period set forth in the account agreement would be entitled to reimbursement — unless the customer’s negligence contributed to the fraudulent item.

For resources related to our guidance, please see:

• Illinois UCC, 810 ILCS 5/4-401(a) (“A bank may charge against the account of a customer an item that is properly payable from that account even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer and is in accordance with any agreement between the customer and bank.”)

• Continental Cas. Co., Inc. v. Am. Nat. Bank and Trust Co., 329 Ill.App.3d 686, 698 (1st Dist. 2002) (“[W]hen a bank makes an improper payment . . . the drawer can bring an action for improper payment under section 4-401(a) and have its account recredited.”)

• Illinois UCC, 810 ILCS 5/4-406(c) (“If a bank sends or makes available a statement of account or items pursuant to subsection (a), the customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized because of an alteration of an item or because a purported signature by or on behalf of the customer was not authorized. If, based on the statement or items provided, the customer should reasonably have discovered the unauthorized payment, the customer must promptly notify the bank of the relevant facts.”)

• Illinois UCC, 810 ILCS 5/4-406(d) (“If the bank proves that the customer failed, with respect to an item, to comply with the duties imposed on the customer by subsection (c), the customer is precluded from asserting against the bank:

(1) the customer’s unauthorized signature or any alteration on the item, if the bank also proves that it suffered a loss by reason of the failure;

(2) the customer’s unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.”)

• Illinois UCC, 810 ILCS 5/4-406(f) (“Without regard to care or lack of care of either the customer or the bank, a customer who does not within one year after the statement or items are made available to the customer (subsection (a)) discover and report the customer’s unauthorized signature on or any alteration on the item is precluded from asserting against the bank the unauthorized signature or alteration. If there is a preclusion under this subsection, the payor bank may not recover for breach of warranty under Section 4-208 with respect to the unauthorized signature or alteration to which the preclusion applies.”)

• Illinois UCC, 810 ILCS 5/4-103(a) (“The effect of the provisions of this Article may be varied by agreement, but the parties to the agreement cannot disclaim a bank’s responsibility for its lack of good faith or failure to exercise ordinary care or limit the measure of damages for the lack or failure. However, the parties may determine by agreement the standards by which the bank’s responsibility is to be measured if those standards are not manifestly unreasonable.”)

• Napleton v. Great Lakes Bank, N.A., 945 N.E.2d 115, 118–19 (1st Dist. 2011) (“Here, the parties agree that pursuant to the terms of the Account Agreement, the plaintiff’s duty to ‘promptly notify’ the bank of any unauthorized charges was modified to mean 30 days from the date the Monthly Statement was mailed to plaintiff. Although we did not find any Illinois cases directly addressing this issue, decisions from other jurisdictions indicate that such an alteration in the notification period is clearly permissible. . . . because plaintiff failed to notify the bank of the forgery within 30 days, the trial court did not err in finding that plaintiff had no claim against defendant.”)

• Illinois UCC, 810 ILCS 5/3-406(a) (“A person whose failure to exercise ordinary care substantially contributes to an alteration of an instrument or to the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument or takes it for value or for collection.”)

• Illinois UCC, 810 ILCS 5/3-406(b) (“Under subsection (a), if the person asserting the preclusion fails to exercise ordinary care in paying or taking the instrument and that failure substantially contributes to loss, the loss is allocated between the person precluded and the person asserting the preclusion according to the extent to which the failure of each to exercise ordinary care contributed to the loss.”)

• Chicago Heights Currency Exchange, Inc. v. Par Steel Products & Service Co., 123 Ill.App.3d 1054, 1055 (1st Dist. 1984) (“The Uniform Commercial Code does not define the negligence that will support the section 3-406 defense and instructs that this issue is left strictly to the fact finder on a case-by-case basis.”)

• Illinois UCC, 810 ILCS 5/3-103(a)(7) (“‘Ordinary care’ in the case of a person engaged in business means observance of reasonable commercial standards, prevailing in the area in which the person is located with respect to the business in which the person is engaged. In the case of a bank that takes an instrument for processing for collection or payment by automated means, reasonable commercial standards do not require the bank to examine the instrument if the failure to examine does not violate the bank’s prescribed procedures and the bank’s procedures do not vary unreasonably from general banking usage not disapproved by this Article or Article 4.”)

• Wilder Binding Co. v. Oak Park Trust & Sav. Bank, 135 Ill.2d 121, 129–130 (Ill. 1990) (“[C]ourts have held that the question of whether a bank exercised ordinary care in paying a check presents a genuine issue of material fact which should be answered by the trier of fact . . . We agree with the rationale of these cases.”)