Topic: Article 4 – Uniform Commercial Code
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If a bank customer reports a fraudulent check within the timeframe required in the account agreement (for example, within thirty days), does the Uniform Commercial Code require the bank to reimburse the customer for the loss?
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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…
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Our customer had multiple forged checks drawn on their business checking account after they left their checkbook out at home and their housekeeper stole it. Our customer reported the forgeries to us within our required time frame for reporting fraudulent items. Can we assert under Article 4 of the Illinois Uniform Commercial Code (UCC) that our customer was negligent in safeguarding the checks and therefore responsible for the fraud?
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Whether you may hold your customer responsible for the fraud due to their negligence depends on the specific facts and circumstances of the theft and your bank’s check payment and fraud detection procedures. We recommend consulting and reviewing the facts with bank counsel before refusing to reimburse your customer. The Illinois UCC does not require…
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Our business customer had multiple checks drawn on their account that were forgeries. The customer noticed the forged checks and notified us within four days, and we returned the checks four days after paying them. We received a claim of late return from the depository bank for one of the checks. Is there anything we can do? Are we liable or can we debit our customer?
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We believe your bank likely is liable for the check since you returned it after the midnight deadline. Your bank would have a defense to liability for the check only if the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed to the making of the forged check. Under…
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Our customer mailed a check for approximately $7,000 to a payee who never received it. The check appears to have been stolen, altered, and copied onto the fraudster’s check stock. The payee’s name was changed, the amount of the check was increased by an extra digit, and the logo and border that appear on our customer’s check stock are not present. The check was deposited at a Texas branch of a nationwide bank and cleared. Today we returned the check to the depository bank, but the midnight deadline has passed. Do we have a claim for a breach of presentment warranty, and how should notice of such a claim be sent?
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Yes, we believe your bank may seek relief from the depository bank for breach of a presentment warranty since the check it presented was altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository bank…
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Our customer deposited a check on Wednesday. After 6:00 p.m. on Friday, when our bank was already closed, we received a fax from the paying bank stating that it would be returning the check. Is this considered a late return?
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Yes, we believe that the paying bank returned the check late and that your bank has a claim of late return against the paying bank. Under the Federal Reserve’s rules, a paying bank “may send . . . a returned check that a Reserve Bank did not handle for forward collection only if it sends…
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We learned from a webinar on check fraud liability that a customer generally is liable only for checks endorsed with a stamp (also known as a facsimile) signature if the customer authorized their bank to accept such signatures and was negligent in protecting their signature stamp. However, we were advised that large banks are updating their deposit agreements to provide that if a customer creates a signature stamp — even if they don’t intend to use it for checks — they may be liable for any checks endorsed with the stamp. Does Illinois law allow such account terms? What risks should we consider before adding this language to our deposit agreements?
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Yes, we believe Illinois law permits account terms limiting a bank’s liability for checks endorsed with a stamp or facsimile signature — provided the customer agrees to the terms. Based on the case law we reviewed, we believe this is a common and accepted practice, in addition to being authorized under the Illinois Uniform Commercial…
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Is there any Illinois law that addresses stop payment requests received orally?
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Yes, the Illinois Uniform Commercial Code (Illinois UCC) addresses stop payment requests received orally. The Illinois UCC generally provides that a stop payment order for any item drawn on a customer’s account is effective for six months. However, an oral stop payment order lapses after fourteen calendar days if it is not confirmed in writing…
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A customer with a payable on death (POD) checking account has died, and we have not yet closed the account. The POD beneficiary is waiting to receive insurance checks for storm damage to the deceased customer’s home that occurred while she was still alive. The insurance company said that the checks will be made payable to the deceased customer. Can the POD beneficiary deposit these checks into the POD account once she receives them, or will she need to provide us with a small estate affidavit?
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No, we do not believe that the beneficiary — and now owner — of a POD account may deposit checks made payable to the prior owner, and we do not believe a small estate affidavit would protect you from potential liability. Under the Illinois Trust and Payable on Death Accounts Act, unless otherwise agreed, the…