Topic: Article 4 – Uniform Commercial Code
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One of our customers mailed a check to a vendor that was intercepted by a rogue postal employee who then generated their own check and forged our customer’s signature. The forged check was used to open a fraudulent account at another bank and cleared our bank. Our customer notified us of the fraud outside of the Federal Reserve’s return window but within the thirty-day window for customer notifications under our account agreement. Are we liable for the full amount of the check? Do we have any recourse against the depository bank? We had advised the customer to pay this vendor electronically rather than mailing a check.
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We believe that your bank likely is liable for the full amount of the check since your customer reported the fraud within your account agreement’s reporting deadline. Whether your bank has any recourse for the check depends on whether the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed…
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Our customer notified us of four forged checks posted to its account. The checks were purchased from a check printing company and were printed with the name and address of an out-of-state business, as well as our customer’s account number and our routing number. The checks were processed on December 31, and we returned them as “altered/fictitious” on January 13. We obtained an affidavit of forgery from our customer but did not attach it to the return. On February 28, the depository bank sent a claim of late return, and our account was debited for the checks. We have twenty days to contest the depository bank’s claim of late return, and we thought the depository bank only had twenty days to make their claim. Can we contest the depository bank’s claim of late return on the basis that it was untimely? If not, we believe we would be liable for the checks, since our customer reported the fraud within two weeks after the checks were processed. What are our options for recovering these funds?
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The depository bank had two months to file a claim of late return — not twenty days. Additionally, a paying bank may only dispute a claim of late return with evidence that the return was not late. Consequently, it does not appear that your bank has a valid basis to contest the claim of late…
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Our business customer mailed a rent check that was stolen in transit, altered to change the payee, and deposited or cashed at another bank. Our customer notified us approximately two weeks after this occurred, when they discovered the check payee line had been altered. We returned the check as an “altered/fictitious item.” Approximately one month later, the depository bank filed a claim of late return and put an adjustment through the Federal Reserve Bank to debit us for the item. Can the depository bank file a claim of late return in relation to a fraudulent or altered check? We have twenty days to respond.
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Yes, the depository bank can file a claim of late return in relation to a fraudulent or altered check that was not returned before the midnight deadline. However, your bank may be able to seek relief from the depository bank for breach of a presentment warranty due to the altered check. Under the Federal Reserve…
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We have a business customer that deposited a fraudulent $100K cashier’s check at our bank. The customer waited two days for the funds to become available, then wired out $70K. After sending the wire, we received the $100K check as a chargeback with the notation that the check was an “altered fictitious check,” but we rejected the return as late (past the midnight deadline). Our customer later notified us that the $100K check they deposited appeared to involve a fraud scheme. We placed a hold on the remaining $30K in our customer’s account. After waiting thirty days, we have not heard from the paying bank, which apparently has a $100K loss. Is our customer entitled to keep the $30K from the fraud, or does the paying bank have a right to claim the remaining funds?
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Whether the paying bank has a right to claim the remaining funds from your customer depends on the facts and circumstances of the fraud. If your customer was an innocent victim of the fraud and took the cashier’s check in good faith as payment for goods or services (or took certain actions in reliance on…
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We offer remote deposit capture (RDC) for our business customers. When our customers scan the checks, a message is printed on the back of the checks stating that they are “For Remote Deposit at [Bank Name] Only.” Do we need to move that message up to the “Endorse Here” area on the back of the check? Should we require a business customer to stamp the remote deposit endorsement line as well as the “Endorse Here” line on the check? We have one business customer who sometimes deposits over 100,000 checks within a few months, and we are working with that customer to relieve them from having to stamp each individual check.
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Relocating Customer Indorsements Yes, we recommend moving the message stating “For Remote Deposit at [Bank Name] Only” in the middle of the back of the check to the “Endorse Here” section at the top. Relocating this indorsement line could help to prevent it from overlapping with subsequent indorsements applied to the middle of the back…
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Our deposit account agreement requires a customer to report unauthorized signatures, alterations and forgeries discovered on an account statement within thirty days of receiving the statement and that failure to do so will result in the customer sharing its loss with us or bearing the loss entirely. However, our agreement also states that if a customer does not report an unauthorized signature, alteration or forgery within sixty days of receiving their statement, they cannot assert a claim against the bank and must bear any loss. The agreement adds that “[t]his 60-day limitation is without regard to whether we used ordinary care. The limitation in this paragraph is in addition to that contained in the first paragraph of this section.” What is the difference between the thirty-day and sixty-day timeframes?
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Your account agreement — using language that appears in hundreds of other financial institutions’ account agreements, as far as we can tell from internet search engine results — establishes three classes of claims for an unauthorized signature, alteration or forgery: (1) claims that the customer reported within thirty days, for which the customer will not…
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Can we limit the amount of cash we will provide to a non-customer when they present an on-us check in person? We would pay the remainder with a cashier’s check. Our deposit account terms describe the check cashing fees and identification requirements for non-customers, but they do not indicate that we may refuse to cash a customer’s check for a non-customer.
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We recommend consulting with your bank counsel to amend your account agreements before setting a limit on cashing checks for noncustomers. By setting a limit on cashing checks, your bank would be refusing to cash (or fully cash) some checks issued by your customers to noncustomers. While it is unlikely that a noncustomer would have…
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Can we establish a limit over which we will not cash checks for non-customers? Also, can we refuse to cash our bank’s certified checks, cashier’s checks and money orders for non-customers?
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Checks Drawn on Your Customer’s Account Yes, we believe you may set a limit over which your bank will not cash checks for noncustomers. However, we recommend reviewing your account agreements to assess the possibility of liability under the Uniform Commercial Code (UCC) when refusing to honor your customer’s checks. Your bank’s refusal to cash…
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We have husband and wife borrowers with a personal draw down line of credit to build their home. The husband is the contractor for the project and has an incorporated contracting company. The borrowers would like draws on their personal line of credit to be deposited directly into the business account for the contracting company. Both the husband and wife are authorized signers on the business account and will provide invoices and waivers to verify the use of the funds. Are there any problems with this arrangement? We are aware that depositing a customer’s personal check into their LLC’s account is not recommended.
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We believe your bank may deposit draws from a personal line of credit into a business deposit account. We are not aware of any Illinois or federal laws that would prohibit this practice. You are correct that depositing a customer’s personal check into their LLC’s account — without the proper indorsement — is not recommended,…
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Shortly after receiving his account statement, our customer notified us that some counterfeit checks had cleared his account. We sent the checks back through the Fed as fraudulent. We have received one of the checks back as a “late return” from the depository bank. Who is liable for these checks under the UCC, and does our bank have any recourse for these checks?
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We believe your bank likely is liable for these checks since they were returned after the midnight deadline. Whether your bank has any recourse for the checks depends on whether the depository bank breached a presentment warranty to your bank, or your customer’s negligence substantially contributed to the making of the fraudulent checks. Under…