Topic: Unauthorized Transactions
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If a bank customer reports a fraudulent check within the timeframe required in the account agreement (for example, within thirty days), does the Uniform Commercial Code require the bank to reimburse the customer for the loss?
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Yes, the Illinois Uniform Commercial Code (UCC) generally requires a bank to reimburse a customer for a fraudulent check when the customer notifies the bank of the unauthorized payment in the timeframe provided in the account agreement. However, there may be cases where a customer’s negligence precludes reimbursement, as discussed in more detail below. The…
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A customer is claiming that his brother initiated unauthorized electronic fund transfers (EFTs) from his account. We learned through our investigation that our customer executed a power of attorney (POA) for property naming his brother as agent a few years ago for purposes of selling a home they co-owned. We do not have a copy of the POA, but we have a written statement from the customer stating that he gave his brother a POA for property. He does not know whether the POA had a termination date. Can we conclude no error occurred based on the customer’s written statement? Or do we need to have the POA on file? If the transactions are considered unauthorized, can we take legal action against the brother?
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Completing Your Regulation E Error Investigation Based on the information you have so far, we do not believe you have satisfied your institution’s burden of proof to conclude that no error occurred. You may be able to complete your investigation and make a conclusion regarding whether an error occurred without obtaining a copy of the…
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We have a customer that is disputing several debits and credits to their account made through a mobile payment service going back three years. The customer claims they have never used the mobile payment service before. However, the customer’s account history shows that the mobile payment service has credited more money to their account than it has debited, and we have evidence that the customer benefitted from the credits and debits. If our investigation determines an error occurred, should we debit the customer’s account since they have gained more money than they lost from the mobile payment service? Can we deny the customer’s error claim based on previous credits and debits from the same mobile payment service?
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Reimbursing a Customer’s Account for Erroneous EFT Credits and Debits The CFPB’s FAQs on Electronic Fund Transfers (EFTs) confirm that Regulation E applies to any mobile payment transactions that meet the definition of EFT. Regulation E requires a bank to reimburse a customer for unauthorized EFTs that occurred during the first sixty days after it…
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A check was presented to us that was drawn on our customer’s account. Approximately three weeks after paying the check, we discovered the payee had been altered. We returned the check with a claim of alteration to the depository bank, which responded with a late return claim since the midnight deadline had passed. Does the depository bank have any liability for presenting us with the altered check? If so, what is the appropriate mechanism for seeking redress, and what language should we use in our correspondence to the depository bank?
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Yes, your bank may seek relief from the depository bank for breach of a presentment warranty because the check it presented for payment had been altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository…
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Are we required to reimburse a customer for an altered check claim on a check that appeared on their statement six months ago? The customer sent the check by mail and says that the payee was altered. Our account agreement requires customers to report their discovery of unauthorized signatures or alterations with “reasonable promptness” — defined as within sixty days of when the statement is first made available, after which time the customer cannot assert a claim against us for the loss, “without regard to whether we used ordinary care.” Shouldn’t the depository bank that breached a warranty bear the loss for the altered check?
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We do not believe you are required to reimburse your customer — provided your bank used ordinary care in paying the altered check. Whether the provision of your account agreement disclaiming liability within the first year after an item appears on your customer’s account statement, without regard to whether you used ordinary care in paying…
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If our customer attaches a debit card issued by our bank to a non-bank person-to-person (P2P) payment mobile application, and our customer temporarily loans their phone to a friend, who uses the P2P app to send themself money without permission, would the P2P app be considered the access device? Would the non-bank P2P provider be considered the “financial institution” for error resolution purposes, meaning we can refer the customer to the non-bank P2P provider if the customer notifies us of the fraudulent transaction? Would the answer to this change if the P2P app instead accessed our customer’s account directly rather than through a debit card? Would this even be considered an unauthorized electronic fund transfer (EFT) since the customer voluntarily loaned their phone to their friend? How would this answer change if the fraud was instead committed by an unknown third-party scammer who obtained our customer’s P2P app username and password?
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Yes, we believe the non-bank P2P payment mobile application would be the relevant “access device” in this scenario, as Regulation E defines “access device” as a “card, code, or other means of access to a consumer’s account, or any combination thereof, that may be used by the consumer to initiate electronic fund transfers.” Also, a…
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If our customer attaches a debit card issued by our bank to a non-bank person-to-person (P2P) payment mobile application, how would this affect what is considered an “accepted access device” under Regulation E? Would the P2P provider be considered the “financial institution” for the purposes of Regulation E’s dispute resolution provisions?
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We believe that an “accepted access device” under Regulation E could include a P2P payment app that your customer has attached to their bank-issued debit card. Under Regulation E, an access device is a “card, code, or other means of access to a consumer’s account, or any combination thereof, that may be used by the…
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The answer to this question indicates that if a customer waits two years before reporting recurring fraudulent charges on their account, their bank likely would be required to credit the customer for any unauthorized transactions that occurred during the first sixty days following the periodic statement reflecting the initial fraudulent transaction. Are we correct that such a customer also would be eligible for a refund of all fees and interest we charged for that sixty-day period, but not for any fees and interest we charged after the sixty-day period?
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No, we believe that such a customer would be entitled to a refund of all fees and interest imposed in relation to the fraudulent transactions — occurring during and after the initial sixty-day period. Regulation E requires a bank to credit a customer for the unauthorized transactions that occurred during the first sixty days after…
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Our customer claims that an individual forced them to make an ATM transaction and debit card purchases at three stores. Our customer said the individual claimed they had just been released from prison and lifted their shirt to reveal gunshot wounds. However, our customer did not mention that the individual had a weapon. Was our customer actually “forced” to make these transactions, and would they be considered unauthorized under Regulation E? Our customer said they were going to file a police report, but we have not seen it.
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In our view, the debit card transactions that occurred at the stores would not be considered “unauthorized transactions” under Regulation E, regardless of whether your customer was forced to make them. Conversely, an ATM transaction “induced by force” would be considered unauthorized under Regulation E. Whether your customer’s ATM transaction was “induced by force” is…