Topic: Article 3 – Uniform Commercial Code
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Does the UCC acknowledge “FDO” as a substitute for “for deposit only?” We are seeing customers use “FDO” in lieu of “for deposit only” when endorsing checks, and we would like to know if this shortened version of a restrictive endorsement is acceptable.
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We believe that your bank should treat a check endorsed as “FDO” as endorsed with the words “for deposit only.” You may choose to return a check with the restrictive endorsement “FDO” as lacking a proper endorsement if you are directed to deposit the check into an account other than the endorser’s, as you would…
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We sent a breach of warranty claim to a depository bank for an altered item. We sent the claim via overnight mail, and the depository bank signed for it the next day. More than thirty days have passed, and we have not received a response to our claim. Is the depository bank required to respond within a certain amount of time? Also, what would the next step be in asserting our claim?
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We do not believe the Illinois Uniform Commercial Code (Illinois UCC) or any other state or federal law specifies any time by which depository banks must respond to a claim for the breach of a presentment warranty. Whether your bank decides to pursue this claim further (possibly in court) is a business decision to be…
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We paid five checks that turned out to be forgeries for a business customer. Our customer notified us of the forgeries shortly after receiving their account statement, and we returned them to the depository bank, but the returns were after the midnight deadline. Our account agreement provides that we are not responsible for any unauthorized signature or alteration that would not be identified by a reasonable inspection of the item. Our account agreement does not mention or offer specific fraud detection services. Can we avoid liability on this basis?
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We would not recommend relying on your account agreement to avoid liability to a customer for forged checks that your customer reported in a timely manner, but we note that we cannot provide legal advice. We recommend working with bank counsel to review and analyze your account agreement’s provisions with respect to the customer’s responsibility…
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We paid five checks for a customer in late December 2019 that turned out to be forgeries. Our account agreement provides customers with a 60-day period after receiving their account statements to report any unauthorized payments. This customer notified us that the checks were fraudulent on January 9, and we returned them on the same day — even though the midnight deadline for their returns had long passed. The bank of first deposit filed a claim of late return through the Fed’s adjustment process, and we filed a response. On January 31, the Fed reimbursed us for all five checks, and we credited our customer’s account. On May 18, we received letters from the bank of first deposit requesting that we credit them for three of the checks. Are we liable to the bank of first deposit for these checks? How long does the bank of first deposit have to request credit for the two remaining checks?
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Your bank likely is liable to the depository bank for all five forged checks, since your bank did not return them until after the midnight deadline had passed. Regarding the two remaining checks, the depository bank has up to three years to request credit and bring an action against your bank for failing to pay…
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Does the Uniform Commercial Code (UCC) require us to reimburse commercial customers when they report an unauthorized check within thirty days of receiving their account statement? Due to the availability of online banking, can we require commercial customers to report an unauthorized check no later than one day after it posts to their account?
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Generally, banks are liable under the UCC for the full amount of an unauthorized check reported by their customers (whether consumer or commercial) with “reasonable promptness” — a reporting period which by default is “within one year after the statement or items are made available to the customer,” but which can be reduced to a…
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We sold a personal money order to a customer who lost it before filling in the payee line and signing it. Can we place a stop payment on the money order?
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Yes, we believe you may place a stop payment on a personal money order that your bank did not sign. While the UCC does not define a personal “money order,” Illinois courts have interpreted this term to apply to checks that are not signed by an authorized representative of the issuing bank and are not obligations of…
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One of our customers mailed a check to a vendor that was intercepted by a rogue postal employee who then generated their own check and forged our customer’s signature. The forged check was used to open a fraudulent account at another bank and cleared our bank. Our customer notified us of the fraud outside of the Federal Reserve’s return window but within the thirty-day window for customer notifications under our account agreement. Are we liable for the full amount of the check? Do we have any recourse against the depository bank? We had advised the customer to pay this vendor electronically rather than mailing a check.
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We believe that your bank likely is liable for the full amount of the check since your customer reported the fraud within your account agreement’s reporting deadline. Whether your bank has any recourse for the check depends on whether the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed…