Topic: Article 4 – Uniform Commercial Code
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When a depositary bank sends us a check issued by one of our customers with an improper endorsement — for example, a check made out to a business that is endorsed by an individual (John Smith) rather than by the business (ABC Company by John Smith) — should we pay the check?
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If the check is payable to a business, and the improper endorsement does not change the check’s payee (i.e., it is an endorsement in blank), your bank most likely could rely on the depositary bank’s presentment warranties, as discussed above. While your customer could argue that your bank should not have paid a check with…
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What is our liability for paying or permitting the deposit of unendorsed checks? Our current policy is to return checks that are missing the payee’s endorsement on the back, which upsets some of our customers. We’re considering a new policy of calling customers to ask if we should pay these checks.
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While there is some risk in allowing customers to deposit checks that are not endorsed by the payee, there is less risk when paying unendorsed checks that are drawn on customer accounts. Payment of Unendorsed Checks Drawn on Customer Accounts When a depositary bank sends your bank a check for collection, the depositary bank has…
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A customer made a loan payment to our bank with a check drawn on another bank. The check was returned NSF. Our loan officer knew that the customer was receiving a direct deposit at the other bank and presented the check to that bank and asked for a cashier’s check. The other bank refused to issue a cashier’s check, and said that we would have to represent the check through normal channels. Is the other bank correct for doing this and why?
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We are not aware of any law or rule that would require a financial institution as a payor bank to issue a cashier’s check for the amount of the check that was originally returned for insufficient funds. The Uniform Commercial Code (UCC) states that a bank may only charge a customer’s account for items that…
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We were told that banks can accept stop payment orders over the phone, without the customer’s signature, provided that we send the customer a copy of the stop payment order. How can a stop payment order be valid if it is not signed within fourteen calendar days of giving the order?
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We believe that you could alter your account agreements to eliminate the requirement that customers send written confirmations of oral stop payment orders. The Uniform Commercial Code (UCC) does not require a signature on stop payment orders, but you should check your existing account agreements and confirm that your policies do not require a signature…
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Are we required to provide check images to our customers? If we are required to provide them upon request, can we charge for the check images?
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You are not required to include check images in customers’ account statements, but you must retain check images and provide them to customers on request. You may charge a reasonable fee for such images, provided that your customers have agreed to the fee. Neither Regulation CC nor the Uniform Commercial Code require that you provide…
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We have a customer who wants to deposit a large check (for over $1 million) but is unavailable to endorse the check. Further complicating matters is that the check was made out to the customer individually and to two of the customer’s businesses (which are also our customers). Is there any way that we can deposit the check without the customer’s endorsement?
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It is possible to deposit the check without the customer’s endorsement. The Uniform Commercial Code (UCC) provides that your institution, the “depositary bank” in this situation, may deposit a check that a customer delivers to your institution without the customer’s endorsement. 810 ILCS 5/4-205(1). (The Official Comments to the UCC state that this rule applies…
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We often receive checks drawn on our business accounts that are endorsed with “for deposit only,” without a signature or the customer’s account number. Should we be paying those checks?
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Because you have the guarantee of the depositary bank, we do not believe it is necessary to require endorsements with signatures or account numbers. When a depositary bank sends a check written by one of your customers for collection, that bank is warranting to you (and to your customer) that it has paid the check…
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Is it a best practice to monitor obituaries in case we see that any customers have died?
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Whether your bank wishes to monitor obituaries is strictly a business decision, and we are not aware of any legal requirements to monitor for customer deaths. Note that an account holder’s death does not automatically revoke a bank’s authority to pay checks drawn on the account. The UCC provides that a bank may continue to…
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Will we be liable if we allow customers to deposit checks that are not endorsed? What if we pay checks drawn on our customers’ accounts that lack endorsements?
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While there are some risks in allowing customers to deposit checks that are not endorsed, there are far fewer risks in paying unendorsed checks that are drawn on customer accounts, as explained below. Payment of Unendorsed Checks Drawn on Customer Accounts When a depositary bank sends you a check written by one of your customers…