Topic: Article 4 – Uniform Commercial Code
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How should we handle returned mail for demand deposit accounts (DDAs), savings deposit accounts (SDAs), certificates of deposit (CDs) and individual retirement accounts (IRAs)? How many times should we try to contact the customer? Also, for how long should we keep the returned mail, and should we keep a log?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021.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 are unaware of any laws or regulations prescribing how many times a bank must…
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We received notice from ABC Bank that we owe it $1,000 on a $1,600 check that ABC Bank sent to our bank for payment over a year ago. We paid only $600 of the $1,600 check to ABC Bank, which now is requesting a cashier’s check for the remaining $1,000. We think that an encoding error on the MICR line caused the underpayment. Can ABC Bank seek payment on a check that is over one year old? Are we required to pay the balance of this check?
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We believe that your bank is liable to ABC Bank for the remaining $1,000 to be paid on the check, provided that your bank can withdraw that amount from your customer’s account. However, if your customer’s account does not contain sufficient funds to cover the remaining $1,000, your bank may be able to offset its…
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A business recently opened a deposit account and deposited what we later learned was a stolen check for over $150,000. Within two weeks, the customer withdrew most of the deposited money. We now have learned that the individual who opened the account used a forged ID, and the deposited check had been stolen from a lockbox owned by a legitimate business in Missouri. The check was a legitimate check made payable to the legitimate business; the fraudster forged the endorsement when depositing it at our bank. Are we liable to the payor bank for the entire loss?
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Yes, as the depository bank, your bank likely is liable to the payor bank for its entire loss. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing or unauthorized endorsement on the depository bank. Under the UCC, a depository bank warrants to the payor…
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We had a customer bring in a check payable to her deceased mother’s estate. She wanted to deposit the check into her parents’ family trust account. We advised the customer that she first must open an estate account to deposit the check before it can be transferred to another account. Are we correct that a check made out to an estate must be deposited into an estate account?
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Yes, you are correct that generally, a check made out to an estate only should be deposited into an estate account. Depositing a check made out to an estate into a family trust account could result in a breach of the Uniform Commercial Code (UCC) warranties. When delivering the check to the payor bank for…
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Is it legal for customers to write post-dated checks? Are we required to abide by the date on the check? A customer has called and informed us that she post-dated a check to another individual. Would we be in trouble if we cashed that check before the date written on it?
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Yes, customers may write post-dated checks, but they must provide notice of the post-dating to the bank on which a check is drawn — otherwise, the bank is not obligated to honor the date of the check. The general rule under the Uniform Commercial Code (UCC) is that a bank may pay a check and…
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We have a deposit account customer, XYZ Co., that ordered checks through a third-party vendor with the name “ABC Co.” printed on the checks. Our understanding is that both of these corporations share the same ownership. What is our bank’s liability for paying these checks? Should we refuse to pay checks printed with the incorrect drawer name? Does the drawer name on a check convey ownership?
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We do not recommend paying checks drawn on the account of a customer when the drawer identified on the check is not the account holder. Generally, a bank is required to pay an item that is properly payable, unless the payment would result in an overdraft. A check is properly payable if it is authorized…
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The daughter of a deceased customer has presented a small estate affidavit and a will naming her as the executor. The deceased customer was receiving monthly checks as part of a personal injury claim settlement that are supposed to continue for the next twelve months. The daughter would like to withdraw the funds in the account but keep the account open so that it may continue to receive the monthly checks. Can we allow the daughter to make a partial withdrawal from the account while keeping the account open for these deposits?
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Provided the combined future monthly settlement payments together with all other estate assets do not exceed $100,000, we believe your bank may rely on the small estate affidavit and honor withdrawals made from the decedent’s account by the executor of the small estate (the affiant). In our view, whether your bank should keep the decedent’s…
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We have a consumer account that has repeatedly been overdrawn. The customer does not seem interested in covering the overdraft. What notice must we provide to close this account? Our account disclosures do not specify a timeframe for closing an account.
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In general, we recommend providing at least thirty days’ notice before closing an account if neither your account disclosures nor account agreement specifies a timeframe to provide notice before closing an account. Given the risk of further overdrafts in this situation, your bank may wish to stem its losses by freezing the account until the…
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When a business customer informs our bank that it requires two signatures for check endorsement, we explain at the time the account is opened that we do not monitor for dual endorsements and advise the customer that it is their responsibility to review their checks for two signatures. However, the corporate authorization resolution form that we provide to our business customers when opening an account includes a field to list the number of signatures required to endorse a check. Even though we advise the customer that we do not monitor checks for multiple signatures, the customer can select a two-signature requirement in this field. Should we discontinue this practice of marking the customer’s request for dual endorsements when our policy is to not monitor for multiple endorsements?
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Yes, we recommend discontinuing the practice of accepting a customer’s request for a two-signature authorization on their corporate authorization resolution when your bank’s policy is to not monitor for multiple endorsements. The Uniform Commercial Code (UCC) provides that when an organization requires multiple signatures to endorse checks, and a check of the organization is endorsed…