Topic: Article 4 – Uniform Commercial Code
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Our account agreement permits us to close an account “at any time upon reasonable notice” to the customer and tender of the account balance. We also may close accounts immediately in cases of suspected fraud. We would like to close one particular account due to a number of issues (excessive overdrafts, tax levies, etc.), but not due to suspected fraud. In that case, what is the definition of reasonable notice to the customer?
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We recommend providing at least thirty days’ notice before closing an account when your agreement requires “reasonable notice” without specifying a timeframe, unless you suspect fraudulent activity or otherwise are expressly permitted to do so with less or no notice by your account agreement. We are not aware of any laws or court decisions that…
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We are offering a new savings account where we disclose that we will automatically send electronic account statements unless the customer opts to pay a small fee for paper statements. Some customers have indicated that they don’t want either electronic or paper statements. Can we honor that request? The savings accounts can receive electronic funds transfers.
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No, we do not believe that it would be appropriate to honor a customer’s request to not send statements for a deposit account, due to federal and state laws pertaining to electronic fund transfers, as well as checks. For any account that allows electronic fund transfer (EFT) activity, Regulation E requires monthly periodic statements for…
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Our customers executed a small estate affidavit to settle the estate of their deceased son, who did not have an account with us. Subsequently, the parents received a tax refund check from the State of Illinois made payable to their son. Can the parents cash the check made out to their son?
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We believe that the appropriate course of action for your customers is to file a claim for the refund from the Illinois Department of Revenue (Illinois DOR) using Form-1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. We spoke with a representative from the Illinois DOR, who advised that submitting a Form-1310 would be…
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A customer deposited a large insurance proceeds check made payable to both our customer and his mortgagee bank (together, not alternatively). However, the check was missing the required mortgagee bank’s endorsement, and we are now concerned about fraud. Can we freeze the customer’s account while we investigate?
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Your bank may freeze the customer’s account to investigate suspected fraud associated with the account, provided your account agreement includes language effectively authorizing the bank to place a hold on the account’s funds when it is concerned about potential fraud. In general, your bank’s authority to freeze your customer’s account is governed by your account…
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What is our liability if we allow a non-customer to deposit a check into a customer’s account? One example of this situation occurs when a non-customer is a tenant of a customer and wishes to deposit a rent check into the customer’s account. In such a case, we would stamp the check and deposit it without the customer’s indorsement.
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We do not recommend depositing a check into your customer’s account without their knowledge and indorsement. Under the Uniform Commercial Code (UCC), your bank could be liable under its presentment warranties to the payor bank (the non-customer’s bank). When forwarding the check to the payor bank for payment, your bank is warranting that there are…
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Are there any Illinois or federal regulations that require us to cash checks drawn on our bank for noncustomers?
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No, we are not aware of any law that would require you to cash a check drawn on your bank when the check is presented by a noncustomer. However, you should review your account agreements to ensure that the bank has not directly or indirectly agreed to cash checks drawn by your customers and presented…
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When a customer withdraws funds by check, we require that the check be made payable to “cash” or to the individual who is withdrawing the funds, but we won’t cash a check made payable to our bank’s name (except for loan repayments and safe deposit box payments). Do you have any guidance to support why our policy is appropriate?
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Yes, Illinois law supports your bank’s policy regarding checks that are made payable to the bank. Under Illinois law, if a check is made payable to a bank and is presented to that bank, Illinois courts have found that the bank has a duty to negotiate the check according to the account owner’s wishes (because…
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We have a customer who purchased a number of cashier’s checks dating back to 2014 that he has not yet delivered to the payees. Can we request that he redeem those checks or allow us to reissue them with more current dates?
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We believe that you may request — but not require — the customer to surrender the checks to your bank and have them reissued. The Illinois Supreme Court has recognized that the remitter of a cashier’s check remains the owner of the check until it has been remitted to the payee, and therefore the remitter…
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Our client services department spends a significant amount of time monitoring for restrictive legends on checks (such as “must be presented within 90 days”). Our deposit account disclosures state that we are not required to honor restrictive legends unless we have agreed to them in writing. Does that language protect us from liability with respect to monitoring for “two signatures required” endorsements? Would a commercial customer’s corporate resolution indicating that two signatures are required on all checks constitute “an agreement in writing”? Or would a separate contract be necessary?
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The Uniform Commercial Code (UCC) states that when an organization requires multiple signatures on checks, and a check of the organization is signed by only one signatory, the signature is considered “unauthorized.” Consequently, such a check would not be properly payable. If a bank made payment on the check, the customer could sue to have…
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A customer deposited a check for over one million dollars and requested the check back after it clears so he can frame it. Can we give him the check? Should we stamp it “paid”?
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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. Yes, you may return the paper check to the customer, provided that you retain a…