Topic: Article 4 – Uniform Commercial Code
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After a customer deposited a check in an account at our bank, the payor bank called to say that the check was forged. Which bank is liable for the loss?
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We do not believe that a bank that paid a forged check could hold the bank in which the check was deposited liable for its losses. In other words, the bank in which a forged check was deposited generally is not liable for the forgery. In general, a bank on which a check is drawn…
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A customer has asked that we reimburse her for several check forgeries on her account. If our account agreement requires customers to notify us of forgeries within thirty days, are we liable for any of the checks for which the thirty day notice period has passed?
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We do not believe that the bank would be liable for any forged checks if a customer failed to notify the bank of the forgeries within the thirty-day notification period. Under Section 4-406 of the Uniform Commercial Code (UCC), if a customer does not notify a bank about forged checks with “reasonable promptness,” the bank…
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Are there any laws in Illinois that regulate how we post checks for payment?
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You are correct that federal law does not require any particular check posting order, and Illinois law is equally permissive (provided that the bank complies with its own deposit agreements). However, as we discuss below, the FDIC has issued guidance that seems to discourage the use of high-to-low posting orders (without explicitly condemning the practice).…
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Can we charge a fee to any non-customer who presents a check for cashing, particularly when the check is drawn on an account at our bank (for example, a payroll check for a business customer)?
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We are not aware of any limitations on check cashing fees in Illinois law. We do recommend that you review your account agreements to see if the fee is disclosed; this will ensure that you do not run into problems with non-accountholders who refuse to pay the check cashing fee when the check was written…
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Are Illinois banks required to list the recipients of checks on deposit account statements?
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If a deposit agreement does not require a bank to identify check payees or to include copies of checks in periodic account statements, then the bank is not required to do so. The Uniform Commercial Code provides a safe harbor for banks’ liability for forged and altered checks if their account statements include information that…
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Do we have any defenses if a customer reports forgeries that are over a year old?
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The general rule as to forged checks is that the customer is not liable. 810 ILCS 5/3-401, 3-403
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If an employee forges a check with the name of the authorized signer, would the bank be liable?
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The general rule as to forged checks is that the customer is not liable. 810 ILCS 5/3-401, 3-403
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What rules apply when a business customer seeks restitution from a bank after an employee of the customer stole money from the customer’s deposit account? In this case, an employee forged checks that were made out to “CASH.”
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Employees who make checks out to “CASH” present a special problem that has been addressed in several Illinois cases. These cases have held that banks are potentially liable for failing to detect forgeries when employees cash out checks drawn on his or her employer’s account that are made out to “CASH.” See, e.g., Mutual Service…
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We are installing new, deposit-capturing ATMs. Do deposited checks need to be endorsed? We are concerned because the machine does not check for or require endorsements before depositing checks.
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Deposited checks do not need to be endorsed under the UCC, though it may be a good policy to require endorsements. Under Section 4-205 of the UCC, a bank is entitled to enforce a check or item that the customer delivers to the bank, “whether or not the customer indorses the item.” 810 ILCS 5/4-205.