Topic: Article 4 – Uniform Commercial Code
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Can a bank charge non-customers transaction fees when cashing an economic impact payment (EIP) Visa prepaid card or an EIP check?
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We do not believe that the Visa rules permit you to charge fees for manually cashing an EIP debit card, although you may be able to charge certain ATM fees if the card is cashed at an out-of-network ATM. As for cashing an EIP check, we believe that the same rules under the Uniform Commercial…
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For a business checking account designated as “two signatures required for withdrawal” on the signature card, who is responsible for ensuring transactions that are not “on-us” adhere to this designation?
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We believe that a court could conceive the “two signatures required for withdrawal” language on your signature cards as your bank assuming the responsibility to enforce a multiple signature requirement. However, the Uniform Commercial Code (UCC) also requires your customers to examine their banks statements and notify your bank of any unauthorized instruments within the…
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What are the record retention periods for deposit account statements and checks? Do these requirements vary between paper and electronic records?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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. Your bank should retain deposit account statements for at least five years and checks for…
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What documentation should we require before closing an account remotely? Are there different guidelines for accounts that have a zero balance and accounts that have remaining funds? For example, if we receive a request to close an account with a zero balance, are we still required to obtain a letter of direction with a signature, or is an email from the email address we have on file for the account sufficient?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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 believe that you may accept electronic signatures to close accounts. Both Illinois and federal…
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We paid five checks that turned out to be forgeries for a business customer. Our customer notified us of the forgeries shortly after receiving their account statement, and we returned them to the depository bank, but the returns were after the midnight deadline. Our account agreement provides that we are not responsible for any unauthorized signature or alteration that would not be identified by a reasonable inspection of the item. Our account agreement does not mention or offer specific fraud detection services. Can we avoid liability on this basis?
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We would not recommend relying on your account agreement to avoid liability to a customer for forged checks that your customer reported in a timely manner, but we note that we cannot provide legal advice. We recommend working with bank counsel to review and analyze your account agreement’s provisions with respect to the customer’s responsibility…
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Are depository banks required to mail an image replacement document (IRD) with a chargeback notice? When we, as a payor bank, have returned checks to depository banks, we have received calls from their customers requesting a copy of the item, since their bank (the depository bank) does not provide it.
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No, a depository bank is not required to send an image replacement document (also known as a substitute check) to its customers as part of the chargeback notice. Regulation CC provides that if a depository bank receives a returned check, “it shall send or give notice to its customer of the facts,” but it does…
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We paid five checks for a customer in late December 2019 that turned out to be forgeries. Our account agreement provides customers with a 60-day period after receiving their account statements to report any unauthorized payments. This customer notified us that the checks were fraudulent on January 9, and we returned them on the same day — even though the midnight deadline for their returns had long passed. The bank of first deposit filed a claim of late return through the Fed’s adjustment process, and we filed a response. On January 31, the Fed reimbursed us for all five checks, and we credited our customer’s account. On May 18, we received letters from the bank of first deposit requesting that we credit them for three of the checks. Are we liable to the bank of first deposit for these checks? How long does the bank of first deposit have to request credit for the two remaining checks?
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Your bank likely is liable to the depository bank for all five forged checks, since your bank did not return them until after the midnight deadline had passed. Regarding the two remaining checks, the depository bank has up to three years to request credit and bring an action against your bank for failing to pay…
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Does the Uniform Commercial Code (UCC) require us to reimburse commercial customers when they report an unauthorized check within thirty days of receiving their account statement? Due to the availability of online banking, can we require commercial customers to report an unauthorized check no later than one day after it posts to their account?
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Generally, banks are liable under the UCC for the full amount of an unauthorized check reported by their customers (whether consumer or commercial) with “reasonable promptness” — a reporting period which by default is “within one year after the statement or items are made available to the customer,” but which can be reduced to a…
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We sold a personal money order to a customer who lost it before filling in the payee line and signing it. Can we place a stop payment on the money order?
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Yes, we believe you may place a stop payment on a personal money order that your bank did not sign. While the UCC does not define a personal “money order,” Illinois courts have interpreted this term to apply to checks that are not signed by an authorized representative of the issuing bank and are not obligations of…