Topic: Article 4 – Uniform Commercial Code
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We have a customer who is claiming several checks paid from her account were forged. They are from two to six months old. I do not understand our account agreement, which provides 30, 60, or 120 days to report unauthorized checks. Some of the checks are less than 60 days old. In addition to the reporting deadline ambiguity, we are suspicious about her forgery claims for a number of reasons. What protections does the bank have against paying these claims?
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We recommend consulting with bank counsel to clarify the time period for reporting unauthorized transactions defined by your account statement and disclosures. Under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for the amount of a forged check if the customer alerts you to the forgery with “reasonable…
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We image our checks and retain them for at least seven years. Are we required to retain paper versions of those checks, and for how long? We use an image replacement document (IRD) printer for our check returns.
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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 are not aware of any required retention period for paper copies of checks, given…
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Are there any Illinois laws that require us to provide check images to our customers? We currently provide images of all checks paid in our periodic account statements, but we would like to eliminate the cost of printing check images.
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No, we are not aware of any Illinois laws that require banks to provide check images in deposit account statements. The Uniform Commercial Code (UCC) requires bank statements to include “information sufficient to allow the customer to identify the items paid.” However, that UCC requirement is met if a bank’s statements describe each check “by…
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One of our customers signed an affidavit of forgery relating to four checks that were drawn on her account (we believe this is related to elder abuse by her son). We paid two of the checks and returned two NSF. We are going to refund the two checks that were paid. Can we return these checks? The midnight deadline already has passed. Does Rule 9 apply?
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No, we do not believe that you may return the checks after the midnight deadline. Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC) (with certain limited extensions permitted under Regulation CC). In this…
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We have a customer that is a pension trust fund for a labor union. This customer issued a number of checks throughout this year to an individual who died more than two years ago. We have already paid the checks, which were cashed at a Walmart and a credit union by someone who must have forged the deceased payee’s endorsement. What can we do? We can’t have the payee fill out a fraudulent endorsement. Can we return the checks? The customer is not disputing the payments, but has asked for our assistance.
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No, we do not believe that you may return the checks. Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC) (with certain limited extensions permitted under Regulation CC). In this case, where several weeks…
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Currently, our new account disclosures state that business customers have sixty days from the statement date to report fraudulent transactions. We have seen a major increase in check fraud on our commercial accounts. Can we shorten that time frame? We are aware of a Wisconsin bank that shortened its reporting period to fourteen days.
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Yes, a bank may shorten the notification period for unauthorized check transactions. The UCC requires customers to notify a bank regarding an unauthorized check with “reasonable promptness” and permits banks to narrow the definition of “reasonable promptness” in their deposit account agreements. There are several court cases in Illinois and in other states in which…
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A former customer presented an “on-us” check (drawn on our bank) payable to him for cashing. This customer had a charged off account with us, which now is closed. Our deposit account agreement did provide for a right of setoff. Can we withhold some of the check proceeds to offset the charged-off account?
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No, we do not believe that your bank may exercise a right of setoff in this situation. While your deposit account agreement likely provides for a right of setoff relative to the deposit account, your former customer no longer has a deposit account or other funds held at your bank and is not attempting to…
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Two months ago, we learned that several forged checks had been drawn on a customer’s account (the depository bank alerted us that the checks were suspicious). We received the police report regarding the theft of the customer’s checkbook a few days later. Once we learned of the forgeries, we returned four checks to the depository bank. That bank has since sent those checks back to us stating that our return was untimely; we had returned the checks about three weeks after receiving them. How long do we have to return items once we are notified of a forgery?
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Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC). Regulation CC layers on additional requirements and exceptions to the UCC midnight deadline, which are designed to encourage banks to use expeditious means to return checks.…
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What is the procedure to return an unauthorized remotely created check (RCC) drawn on a business customer’s account that is processed through the check collection system as a substitute check (not as an ACH transaction)? What return code should we use? Should we have the customer sign an affidavit? Do Rule 8 and Rule 9 apply to us?
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The procedure for returning an RCC processed through the check collection system is no different than for returning any other unauthorized check. If you discover that an RCC was unauthorized before the midnight deadline has passed (midnight on the next banking day following the banking day on which the check is presented), your bank may…
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Under Uniform Commercial Code (UCC) Section 4-405, my understanding is that a bank is not required to restrict a deceased customer’s account until the bank “knows of the fact of death.” What constitutes knowledge? Does it have to be from a government source, or would an obituary or church bulletin count, or even attending a funeral? Also, Section 4-405 permits us to pay or certify “checks drawn on or before” the date of death for 10 days after the date of death. Is that referring to checks written by the deceased customer or checks made payable to the deceased customer?
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For UCC purposes, “knowledge” is actual knowledge of the customer’s death. The UCC and accompanying official comments do not define “actual knowledge.” We believe that obituaries, church bulletins and funerals all would constitute reliable knowledge of a customer’s death and should be treated as conferring actual knowledge. The provision in UCC Section 4-405(b) — permitting…