Topic: Article 4 – Uniform Commercial Code
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One of our customers just notified us that several counterfeit checks have been drawn on her checking account, starting over six months ago, with the most recent check paid about a month ago. We have copies of the checks, which state “signature not required” and that “customer authorization was obtained using Quick Pay Office Pro.” Are we liable for paying these checks? Our account agreement requires customers to report unauthorized checks within 60 days.
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Based on the facts provided, we believe these checks are remotely created checks (defined in Regulation CC as a check “that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn”). We do not believe that your bank should be liable for the unauthorized…
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One of our customers is claiming that her daughter stole several checks from her checkbook and forged her signature on checks totaling $800. The customer lives with her daughter and told us that her daughter is a felon and a drug addict. Do we have to reimburse our customer? She notified us about the forgeries within the 30-day deadline established in our account agreement, but we believe that she failed to properly guard her checkbook. This is her second claim of fraud, with the first claim involving her grandson’s unauthorized use of her debit card. Also, can we contact the individual (a local businessman) who cashed the forged checks?
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You need to reimburse a customer for forged checks if the customer alerts you to the forgery with “reasonable promptness.” In this case, your customer fulfilled her notice obligation by alerting you about the forged checks within the 30-day notice period established in your account agreement. However, your bank is not obligated to reimburse the…
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We had a customer who wrote a check to a company for a large amount, and the check was deposited and cleared yesterday; however, while the check was made out to the company, an individual signed the check. Can we ask the depositing bank to guarantee the endorsement? If so, what is our deadline for making that request?
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Typically, if your bank suspects that an endorsement is forged or is otherwise unauthorized, you must send notice of dishonor to the depositing bank by the midnight deadline established in the Uniform Commercial Code. You also must return the check in an “expeditious manner” to the depositing bank using the two-day/four-day test established in Regulation…
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We have an ad hoc overdraft program. In which order should we pay overdrawn checks: High-to-low or low-to-high?
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This question does not have an easy answer. Illinois law has long granted banks the freedom to post checks in any order they choose, without regard to the order in which they were received. However, as discussed below, the federal banking agencies have issued guidances that discourage the use of high-to-low posting orders (without explicitly…
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A customer’s son stole her checkbook and forged her signature to cash several checks. The customer notified us of the forgeries within 30 days from the date of her account statement, as required by our account agreement. Since the bank missed its 24-hour deadline for returning the checks, is the bank liable to the customer for the forged checks?
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In general, a bank on which a check is drawn that does not return a check before its midnight deadline is liable for the check, but your bank may have a few defenses against liability. In the context of a forgery, you will need to reimburse the customer for the amount of a forged check…
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Is there any guidance regarding commercial customer liability for fraudulent checks, or do we just need to address liability in our terms and conditions?
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Commercial customer liability for check is addressed in the Uniform Commercial Code (UCC), as well as your account agreement. Articles 3 and 4 of the UCC, which outline customer liability for check fraud, apply to both individual and commercial customers. We have included several relevant provisions regarding liability in our resources section below. In addition,…
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An elderly customer purchased a $9,000 cashier’s check. She came in the next day to request a stop payment, as she now believes that she was defrauded — she had received a telephone call from someone claiming to be with Publisher’s Clearinghouse, who told her that she had won and needed to send in a $9,000 cashier’s check to withdraw her winnings. Can we stop payment?
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No, we do not believe that you should stop payment on the cashier’s check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. As a general rule, once a cashier’s check enters the stream of commerce, the issuer (your bank) is liable under the Uniform Commercial Code (UCC) if…
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A customer submitted a stop payment order using an incorrect check number. As a result, we paid the check. We are attempting a manual return today. What is our potential liability if the return is rejected?
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We cannot predict how a court would allocate liability between your bank and the customer without additional facts. It may be possible to argue that your bank should not be held liable due to the customer’s failure to provide the correct check number, but it will depend on the facts of the situation. The Uniform…
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One of our Interest on Lawyer Trust Account (IOLTA) customers has been depositing checks made out to the lawyer’s business clients into his IOLTA, without endorsements from the businesses. Do the IOLTA rules permit these deposits? Should we require that the checks be endorsed by the payees before depositing them?
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Yes, we recommend that you require IOLTA customers to obtain endorsements on checks made out to third parties before depositing them (as you would with any other customer). Otherwise, your bank is risking liability to the payor bank under your presentment warranties. When sending a check for payment to the payor bank, your bank is…