Topic: Unauthorized Transactions
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If a customer willingly purchases a service from a merchant on their debit card, then decides they are dissatisfied with the service, do we need to provide a provisional credit to the customer if they cannot resolve their dispute with the merchant? Based on our investigation, we concluded that no fraudulent activity occurred.
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No, you are not required to provide a provisional credit to a customer if you have determined that an “error” (such as an unauthorized or incorrect electronic fund transfer) has not occurred on their account — and we do not believe a dispute over the quality of a merchant’s service constitutes an “error.” Under Regulation…
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A consumer customer recently discovered that one of their monthly bills was being automatically paid out of a business customer’s account for over a year. The billing company is at fault, as the ACH entries they generated used the wrong account number. The business customer found out about the unauthorized payments from the billing company and is now threatening to sue us. How should we handle this situation? The business customer is asking for more information about the consumer customer.
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Your bank may have a claim against the originating depository financial institution (ODFI) that transmitted entries with an incorrect account number — but we recommend consulting with bank counsel before pursuing those claims, particularly because the business customer is threatening litigation. As to the business customer whose account was mistakenly debited, we recommend reviewing your…
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We recently received a Regulation E claim from a customer regarding fraudulent charges to their account that first occurred two years ago and have continued since that time. Is there a time limit for how long a customer has to submit a claim? For overdraft fees and interest that may have been imposed due to the fraudulent charges, do we need to examine only the sixty-day period since the first fraudulent charge, or do we need to review the last two years and credit back any resulting fees and interest?
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No, we do not believe there is a time limit on filing a claim for unauthorized transactions under Regulation E. We believe your bank likely will 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. We also believe…
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Under Regulation E, would it be considered an unauthorized transaction if a consumer is fraudulently induced to send an electronic payment — as opposed to when a consumer is induced to a provide a fraudster with their account information or access device?
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No, we do not believe that an electronic payment initiated by a consumer — even if fraudulently induced — would be considered an unauthorized transaction under Regulation E. An “unauthorized electronic fund transfer” is defined as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority…
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A customer recently notified us of several unauthorized online debit card transactions that occurred during a four-month period earlier this year, and their debit card was not lost or stolen. We are aware that under Regulation E, customers face unlimited liability for unauthorized transactions that occur more than sixty days after transmission of a periodic statement showing an unauthorized transaction up to the date we are notified of the unauthorized transaction. However, is there a requirement that those subsequent unauthorized transactions be recurring or initiated from the same place as the first unauthorized transaction?
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No, we are not aware of any requirement under Regulation E that subsequent unauthorized transactions be recurring or from the same place as the first unauthorized transaction for a customer to be liable for them. Your bank likely will be required to credit the customer for any authorized transactions that occurred during the first sixty…
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Are there any age restrictions on issuing debit cards to minors? We have received a request to open two separate joint accounts with debit cards for minors aged ten and twelve, for which their parent would be a joint owner. Currently, we offer student checking accounts for individuals aged fifteen to twenty-one, and for those under eighteen, we require a parent or guardian to be a joint owner on the account. If we grant an exception to our usual policy and open these accounts, what legal issues should we be concerned about? Would the parent assume liability for overdrafts, and are there any concerns about unauthorized activity if the minor allows a friend to use the debit card and the parent claims the use was unauthorized?
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We are not aware of any age restrictions on issuing debit cards in Illinois or federal law, but we recommend contacting your debit card issuer and reviewing any agreements for age limitations. Additionally, we caution you against making individual exceptions to your policies and procedures. If you decide to open these accounts, you may wish…
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We sent an affidavit of altered check to a bank that cashed a check issued by our customer. The depository bank is now claiming under Regulation CC (12 CFR 229.38(i)(2)) that the presumption of alteration has been overcome because the check had an unauthorized signature of the drawer, making it a forgery and not an alteration. The signature on the check does not match the signature the drawer provided on the fraud affidavit, and the drawer cannot verify that the signature on the check is theirs. We believe this is because the customer’s signature was traced back onto the check after it was stolen from a U.S. postal box and washed, so it is not an exact match. Do we have grounds to sue the depository bank for violating the presentment warranties? Additionally, are there any time frames we should be aware of? We supplied an affidavit of alteration in August 2020 and did not get a response from the depository bank until April 2021.
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We cannot comment on whether you have grounds to sue the depository bank. If a court were to conclude that the disputed check was altered rather than forged, we believe that the depository bank could be held liable for violating its presentment warranties — but that outcome depends on whether you can prove that the…
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Should we ask for a personal endorsement when a customer deposits a check payable to themselves? Currently, we use an endorsement stamp that states the check was deposited to the account of the within named payee, unless it’s an insurance check or any other check that specifically requires a personal endorsement.
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Whether to require customers to personally endorse checks made payable to themselves is a business decision for your bank. Requiring your customers to make these endorsements would protect your bank from liability in certain situations, as discussed below; however, you may decide to waive endorsement requirements for customers who present a low risk of fraud…
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A business customer wrote a check to one of their vendors that was negotiated and cleared their account. One month later, the customer learned that their vendor did not receive the check. Apparently, a fraudster intercepted the check, created a business with the same name as the payee in another state, and used the check to open an account at another bank. The check was not altered. Who holds the liability for this check, can it still be returned, and do we need to credit our customer for the amount? Our customer notified us of this issue within sixty days of discovering it, as required by our account agreement.
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We believe you will need to credit your customer for the check. However, we believe your bank is entitled to demand repayment for the check from the depository bank, since it appears to have breached its warranty to you that the check did not have a missing or unauthorized endorsement. Under the Illinois Uniform Commercial…
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The answer to a prior question on GoToIBA.com related to Regulation E resolution claims states that a bank “may not require the customer to sign an affidavit or provide a proof of purchase, receipt, email, or cancellation number.” Could there ever be a situation where a customer has one of these items for an unauthorized transaction? Wouldn’t the fact that the transaction is unauthorized mean that the customer does not have access to such items? Also, can we inform a customer that we may press charges if we discover that their family member is the source of an unauthorized transaction, or must we research their claim before raising this possibility? We want to inform the customer of this possibility, but we don’t want to discourage error resolution claims.
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We believe there may be circumstances where a customer has a proof of purchase, receipt, email, or cancellation number relating to an unauthorized transaction. For example, a customer may be able to obtain these items by requesting them from the merchant with whom the unauthorized transaction was made. Or, in the case of a forced…