Topic: Unauthorized Transactions
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A customer just notified us that ACH fraud has occurred on their account for the last six months. Does Regulation E require that we credit the customer for unauthorized transactions made during the sixty-day period preceding the notification, or for the sixty-day period occurring after the first unauthorized transaction that occurred when the fraud first began?
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Your bank likely will be required to credit the customer for unauthorized transactions that occurred during the first sixty days after you transmitted a periodic statement showing an unauthorized transaction. Under Regulation E, when a customer fails to report an unauthorized transaction within sixty days after transmittal of the statement showing the unauthorized transaction, the…
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A customer notified us on a Saturday that on the preceding Wednesday, she became aware that she lost her wallet with her debit card inside. Two transactions at a retail store using the debit card PIN occurred before the customer discovered she lost the wallet. One transaction exceeded $300, and another transaction the following day exceeded $200. When we questioned the customer, she said that the PIN was written on a piece of paper kept in her wallet. Are we obligated to credit the customer for these transactions? The Visa rules state that a cardholder’s negligence can increase their liability for an unauthorized transaction, but the commentary to Regulation E states that negligence cannot be used as a basis for imposing greater liability than permissible under the regulation.
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Yes, we believe your bank may be required to provisionally credit and refund your customer for some of the unauthorized transactions. Regulation E Regulation E’s Official Interpretations state that a consumer’s liability for unauthorized electronic fund transfers (including debit card transactions) “is determined solely by the consumer’s promptness in reporting the loss or theft of…
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Does the Uniform Commercial Code (UCC) require us to reimburse commercial customers when they report an unauthorized check within thirty days of receiving their account statement? Due to the availability of online banking, can we require commercial customers to report an unauthorized check no later than one day after it posts to their account?
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Generally, banks are liable under the UCC for the full amount of an unauthorized check reported by their customers (whether consumer or commercial) with “reasonable promptness” — a reporting period which by default is “within one year after the statement or items are made available to the customer,” but which can be reduced to a…
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Under Regulation E, if a consumer provides a notice of error more than sixty days after the periodic statement was sent, do we have to provide provisional credit for the alleged error, including interest? Also, are we required to refund overdraft fees related to a notice of error provided more than sixty days after the periodic statement was sent?
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No, you are not required to provide provisional credit (or interest) to a consumer who provides a notice of error more than sixty days after the date the periodic statement was sent. However, you may be required to refund overdraft fees related to errors occurring before the close of the sixty-day period. Under Regulation E,…
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We have a deposit relationship with a farm LLC that defaulted on its loan with another bank (Creditor Bank). Before the default, Creditor Bank sent a notice of its security interest in the farm’s grain to various crop insurers and grain production facilities, and these companies issued checks for grain payments to the farm LLC and Creditor Bank as joint payees. A co-owner of the farm LLC deposited five of these checks into the LLC’s business checking account at our bank. The co-owner endorsed the checks with a stamp reading “credit to the account of the within named payee.” Creditor Bank did not receive any of the proceeds of these checks and is claiming that we are responsible for a portion of the farm LLC’s debt under Indiana law, since the deposits were made at our Indiana branch. Is this accurate? Isn’t the payor bank responsible for ensuring that both named payees agreed to the deposit?
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We believe that your bank may be liable to Creditor Bank for conversion of the checks that were payable to both Creditor Bank and your customer, and your bank also may be liable to the payor banks and the drawers of the checks, since the checks lacked Creditor Bank’s endorsement. The checks had a missing…
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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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A customer discovered that her daughter stole a box of checks and used them at a local grocery store. The checks were converted into back office conversion (BOC) ACH entries. Can we return these as unauthorized transactions, using NACHA reason code R10, since the grocery store did not validate the customer’s identification when accepting the checks? Do we have 60 days since settlement to return the transactions?
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Yes, we believe that the NACHA Operating Rules and Guidelines permit your institution to return the BOC transactions under Return Reason Code R10 as unauthorized entries. Your bank should follow the same procedures it would for other returns under code R10, such as obtaining a written statement of unauthorized debit (WSUD) from your customer. The…
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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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When we receive our daily cash letter from the Fed, we review all checks of $2,500 and above for an endorsement. If the checks are not endorsed by the payee or stamped “All Prior Endorsements Guaranteed” by the depositing bank, we return the check. Is it our responsibility as the payor bank to check the endorsements? Who is held liable when there is no endorsement or a fraudulent endorsement — the depository bank or the payor bank?
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A payor bank does not have a duty to review checks received from a depository bank for missing or unauthorized endorsements. 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…