Topic: Unauthorized Transactions
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A consumer customer notified us of an unauthorized Visa debit card charge within 60 days of receiving her periodic statement. We notified Visa, but Visa denied the customer’s claim because the merchant used “Verified by Visa” to confirm the identity of purchaser. We are not familiar with the “Verified by Visa” program. Do we still have to reimburse the customer for the charge?
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In our view, you are required to reimburse the customer for debit transactions that you determine are unauthorized, regardless of whether the transaction was verified through the Verified by Visa program. Our understanding of the Verified by Visa program is that it is a free service for cardholders intended to verify customer identity during online…
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Currently, our new account disclosures state that business customers have sixty days from the statement date to report fraudulent transactions. We have seen a major increase in check fraud on our commercial accounts. Can we shorten that time frame? We are aware of a Wisconsin bank that shortened its reporting period to fourteen days.
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Yes, a bank may shorten the notification period for unauthorized check transactions. The UCC requires customers to notify a bank regarding an unauthorized check with “reasonable promptness” and permits banks to narrow the definition of “reasonable promptness” in their deposit account agreements. There are several court cases in Illinois and in other states in which…
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We have a customer who recently was the victim of check forgery. A fraudster forged the customers’ signature to write two different $6,000 checks drawn on that customer’s account. We plan to file a Suspicious Activity Report (SAR), and we also want the customer to fill out an affidavit of forgery to verify the fraud. The sample affidavit of forgery form that we found online includes a space to identify a state and county. In that space, should we list the county where the forged checks were presented, or the county where our main office is located? Also, should we contact local law enforcement? We believe we may have surveillance footage of the fraudster.
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Yes, we recommend contacting your local law enforcement regarding the forgeries, particularly if you may have information that could assist police in identifying the fraudster. In addition, we are not aware of any form requirements regarding affidavits of forgery for checks, although you should check for any clearinghouse rules that might require an affidavit or…
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One of our customers’ checks was stolen. Later, someone forged the customer’s signature on a check at a store. The store converted the paper check into an electronic check and was processed as an ACH debit transaction. Do we have to follow the Electronic Fund Transfer Act (EFTA) guidelines? Do we need the customer to complete a forgery affidavit? Do you have sample language for the affidavit?
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Yes, the EFTA would apply to an electronic check that is processed as an ACH transaction. The EFTA, as implemented by Regulation E, applies to “electronic fund transfers,” which are defined to include ACH transfers and, specifically, electronic check conversions (where a paper check is used “as a source of information to initiate a one-time…
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Two months ago, we learned that several forged checks had been drawn on a customer’s account (the depository bank alerted us that the checks were suspicious). We received the police report regarding the theft of the customer’s checkbook a few days later. Once we learned of the forgeries, we returned four checks to the depository bank. That bank has since sent those checks back to us stating that our return was untimely; we had returned the checks about three weeks after receiving them. How long do we have to return items once we are notified of a forgery?
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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). Regulation CC layers on additional requirements and exceptions to the UCC midnight deadline, which are designed to encourage banks to use expeditious means to return checks.…
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We have a customer with a deposit account titled “XYZ Farms,” which is for his sole proprietorship. He also owns an incorporated trucking company. Can he deposit checks made out to the trucking corporation into his sole proprietorship account? He has not opened a bank account with us for the incorporated trucking company.
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Whether you could face liability for allowing your customer to deposit a check made payable to the trucking company into his sole proprietorship account if he had no authority to do so would depend on additional facts. Generally, under the Illinois Fiduciary Obligations Act (FOA), a bank will not incur liability when a customer it…
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A fraudster sent one of our customers a cashier’s check and told the customer to return excess funds by wire (that cashier’s check subsequently was returned and charged back to the customer’s account). Our customer instead purchased a cashier’s check and sent it to the fraudster. The fraudster is using this check, including the signature of our teller, to create fake cashier’s checks, which are being sent all over the country. We have received dozens of calls from the recipients, and one recipient took the story to a local news channel (we declined to comment on the story). We also are returning several of these checks daily. So far, our bank has not suffered a loss, but is there anything else that we should be doing? Should we contact our local law enforcement?
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This is serious fraudulent activity, and we recommend consulting with your bank counsel immediately to discuss a strategy for safeguarding against potential monetary, regulatory and reputational risks. Meanwhile, we would recommend that you contact local law enforcement, as well as the FBI. In addition, you should contact your primary federal regulator (the FDIC) to report…
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What is the procedure to return an unauthorized remotely created check (RCC) drawn on a business customer’s account that is processed through the check collection system as a substitute check (not as an ACH transaction)? What return code should we use? Should we have the customer sign an affidavit? Do Rule 8 and Rule 9 apply to us?
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The procedure for returning an RCC processed through the check collection system is no different than for returning any other unauthorized check. If you discover that an RCC was unauthorized before the midnight deadline has passed (midnight on the next banking day following the banking day on which the check is presented), your bank may…
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One of our customers just notified us that several counterfeit checks have been drawn on her checking account, starting over six months ago, with the most recent check paid about a month ago. We have copies of the checks, which state “signature not required” and that “customer authorization was obtained using Quick Pay Office Pro.” Are we liable for paying these checks? Our account agreement requires customers to report unauthorized checks within 60 days.
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Based on the facts provided, we believe these checks are remotely created checks (defined in Regulation CC as a check “that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn”). We do not believe that your bank should be liable for the unauthorized…
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One of our customers is claiming that her daughter stole several checks from her checkbook and forged her signature on checks totaling $800. The customer lives with her daughter and told us that her daughter is a felon and a drug addict. Do we have to reimburse our customer? She notified us about the forgeries within the 30-day deadline established in our account agreement, but we believe that she failed to properly guard her checkbook. This is her second claim of fraud, with the first claim involving her grandson’s unauthorized use of her debit card. Also, can we contact the individual (a local businessman) who cashed the forged checks?
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You need to reimburse a customer for forged checks if the customer alerts you to the forgery with “reasonable promptness.” In this case, your customer fulfilled her notice obligation by alerting you about the forged checks within the 30-day notice period established in your account agreement. However, your bank is not obligated to reimburse the…