Topic: Article 3 – Uniform Commercial Code
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Our customer notified us of four forged checks posted to its account. The checks were purchased from a check printing company and were printed with the name and address of an out-of-state business, as well as our customer’s account number and our routing number. The checks were processed on December 31, and we returned them as “altered/fictitious” on January 13. We obtained an affidavit of forgery from our customer but did not attach it to the return. On February 28, the depository bank sent a claim of late return, and our account was debited for the checks. We have twenty days to contest the depository bank’s claim of late return, and we thought the depository bank only had twenty days to make their claim. Can we contest the depository bank’s claim of late return on the basis that it was untimely? If not, we believe we would be liable for the checks, since our customer reported the fraud within two weeks after the checks were processed. What are our options for recovering these funds?
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The depository bank had two months to file a claim of late return — not twenty days. Additionally, a paying bank may only dispute a claim of late return with evidence that the return was not late. Consequently, it does not appear that your bank has a valid basis to contest the claim of late…
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Our business customer mailed a rent check that was stolen in transit, altered to change the payee, and deposited or cashed at another bank. Our customer notified us approximately two weeks after this occurred, when they discovered the check payee line had been altered. We returned the check as an “altered/fictitious item.” Approximately one month later, the depository bank filed a claim of late return and put an adjustment through the Federal Reserve Bank to debit us for the item. Can the depository bank file a claim of late return in relation to a fraudulent or altered check? We have twenty days to respond.
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Yes, the depository bank can file a claim of late return in relation to a fraudulent or altered check that was not returned before the midnight deadline. However, your bank may be able to seek relief from the depository bank for breach of a presentment warranty due to the altered check. Under the Federal Reserve…
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We have a business customer that deposited a fraudulent $100K cashier’s check at our bank. The customer waited two days for the funds to become available, then wired out $70K. After sending the wire, we received the $100K check as a chargeback with the notation that the check was an “altered fictitious check,” but we rejected the return as late (past the midnight deadline). Our customer later notified us that the $100K check they deposited appeared to involve a fraud scheme. We placed a hold on the remaining $30K in our customer’s account. After waiting thirty days, we have not heard from the paying bank, which apparently has a $100K loss. Is our customer entitled to keep the $30K from the fraud, or does the paying bank have a right to claim the remaining funds?
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Whether the paying bank has a right to claim the remaining funds from your customer depends on the facts and circumstances of the fraud. If your customer was an innocent victim of the fraud and took the cashier’s check in good faith as payment for goods or services (or took certain actions in reliance on…
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How long should we retain commercial and real estate loan documents that have been scanned electronically? What about those that have not been scanned electronically? If we scan loan documents at the time the loan is originated, how long must we retain the paper copies?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. We recommend retaining loan agreements for a period of ten years after the loan is…
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We have a deposit relationship with a farm LLC that defaulted on its loan with another bank (Creditor Bank). Before the default, Creditor Bank sent a notice of its security interest in the farm’s grain to various crop insurers and grain production facilities, and these companies issued checks for grain payments to the farm LLC and Creditor Bank as joint payees. A co-owner of the farm LLC deposited five of these checks into the LLC’s business checking account at our bank. The co-owner endorsed the checks with a stamp reading “credit to the account of the within named payee.” Creditor Bank did not receive any of the proceeds of these checks and is claiming that we are responsible for a portion of the farm LLC’s debt under Indiana law, since the deposits were made at our Indiana branch. Is this accurate? Isn’t the payor bank responsible for ensuring that both named payees agreed to the deposit?
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We believe that your bank may be liable to Creditor Bank for conversion of the checks that were payable to both Creditor Bank and your customer, and your bank also may be liable to the payor banks and the drawers of the checks, since the checks lacked Creditor Bank’s endorsement. The checks had a missing…
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Our customer wrote a check from her checking account to her insurance company; however, the insurance company said it did not receive the check. Our customer’s signature is on the front of the check, and we have a copy of the check with an endorsement on the back. The insurance company says it is not their endorsement. Is the bank of first deposit responsible for resolving this matter? The insurance company has requested that we provide an affidavit of forgery, but our bank didn’t cash the check.
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Yes, we believe the depository bank that accepted the check with the forged endorsement is responsible for resolving this matter and is in the best position to provide the insurance company with any requested affidavits. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing…
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We offer remote deposit capture (RDC) for our business customers. When our customers scan the checks, a message is printed on the back of the checks stating that they are “For Remote Deposit at [Bank Name] Only.” Do we need to move that message up to the “Endorse Here” area on the back of the check? Should we require a business customer to stamp the remote deposit endorsement line as well as the “Endorse Here” line on the check? We have one business customer who sometimes deposits over 100,000 checks within a few months, and we are working with that customer to relieve them from having to stamp each individual check.
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Relocating Customer Indorsements Yes, we recommend moving the message stating “For Remote Deposit at [Bank Name] Only” in the middle of the back of the check to the “Endorse Here” section at the top. Relocating this indorsement line could help to prevent it from overlapping with subsequent indorsements applied to the middle of the back…
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Can we limit the amount of cash we will provide to a non-customer when they present an on-us check in person? We would pay the remainder with a cashier’s check. Our deposit account terms describe the check cashing fees and identification requirements for non-customers, but they do not indicate that we may refuse to cash a customer’s check for a non-customer.
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We recommend consulting with your bank counsel to amend your account agreements before setting a limit on cashing checks for noncustomers. By setting a limit on cashing checks, your bank would be refusing to cash (or fully cash) some checks issued by your customers to noncustomers. While it is unlikely that a noncustomer would have…
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Can we establish a limit over which we will not cash checks for non-customers? Also, can we refuse to cash our bank’s certified checks, cashier’s checks and money orders for non-customers?
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Checks Drawn on Your Customer’s Account Yes, we believe you may set a limit over which your bank will not cash checks for noncustomers. However, we recommend reviewing your account agreements to assess the possibility of liability under the Uniform Commercial Code (UCC) when refusing to honor your customer’s checks. Your bank’s refusal to cash…