Topic: Unauthorized Transactions
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If we obtain cell phone numbers from our customers, can our core processor send them fraud alerts via text message? Do we need any disclosures referencing text messages and fees the customer’s provider may charge to receive texts from our core processor?
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We do not recommend sending text messages to your customers without their prior written permission, which generally is required by the Telephone Consumer Protection Act (TCPA). The TCPA requires “prior express written consent” before texting a consumer’s cellular phone, with limited exceptions. The Federal Communications Commission (FCC) has carved out a narrow exception for texts…
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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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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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One of our customers recently reported unauthorized ACH transfers out of her deposit account. The unauthorized transactions started over five months ago. Are we liable for the last sixty days of unauthorized transactions, or for the first sixty days of unauthorized transactions?
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Your bank may be liable for the unauthorized transactions that occurred within sixty days after transmitting the first periodic statement containing the unauthorized transaction. Your customer is liable for the unauthorized transactions that occurred after the sixtieth day, due to her failure to notify your bank. Under Regulation E, when a customer fails to report…
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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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We have a customer who is claiming several checks paid from her account were forged. They are from two to six months old. I do not understand our account agreement, which provides 30, 60, or 120 days to report unauthorized checks. Some of the checks are less than 60 days old. In addition to the reporting deadline ambiguity, we are suspicious about her forgery claims for a number of reasons. What protections does the bank have against paying these claims?
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We recommend consulting with bank counsel to clarify the time period for reporting unauthorized transactions defined by your account statement and disclosures. Under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for the amount of a forged check if the customer alerts you to the forgery with “reasonable…
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We have a Visa Business Cardholder who has reported several unauthorized transactions. Does the Visa Zero Liability Rule apply to ATM transactions or other purchases that did not go through the Visa network, such as Pulse, Mac/Star? Can we deny reimbursement for such unauthorized transactions? We believe that our disclosure permits us to deny such reimbursement claims.
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No, according to Visa’s website, Visa’s Zero Liability does not apply to ATM transactions, or PIN transactions not processed by Visa, or certain commercial card transactions. In addition, because this is a business customer, Regulation E’s unauthorized transaction requirements do not apply. However, before denying reimbursement for the unauthorized transactions, we do recommend reviewing your…
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We have a customer that is a pension trust fund for a labor union. This customer issued a number of checks throughout this year to an individual who died more than two years ago. We have already paid the checks, which were cashed at a Walmart and a credit union by someone who must have forged the deceased payee’s endorsement. What can we do? We can’t have the payee fill out a fraudulent endorsement. Can we return the checks? The customer is not disputing the payments, but has asked for our assistance.
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No, we do not believe that you may return the checks. Generally, your bank must return a check, including a forged check, by midnight on the next banking day after receiving the check, as required by the Uniform Commercial Code (UCC) (with certain limited extensions permitted under Regulation CC). In this case, where several weeks…
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We have heard that Visa is changing its Zero Liability policy to reflect a different standard of care for zero liability protection for unauthorized transactions. Previously, a cardholder had zero liability for unauthorized transactions unless they were “grossly negligent.” Under the new policy, the cardholder will have zero liability for unauthorized transactions unless they were “negligent.” Does this change trigger a change in terms notice under Regulation E?
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Yes, we believe that this change to Visa’s Zero Liability policy triggers a change in terms notice under Regulation E. A Regulation E change in terms notice is required at least 21 days before the effective date of any change that will result in increased liability for the customer. In this case, Visa has changed…