Topic: Unauthorized Transactions
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Is a bank required to give business customers 14 days to report errors regarding electronic fund transfers, including ACH transactions? We have seen this 14-day deadline in business account disclosures at several other banks. We think those banks may be pulling the 14-day deadline from the Regulation E provision regarding a stop payment order on a preauthorized transfer. However, it is our understanding that Regulation E does not apply to businesses, and a bank may establish its own error notification deadlines for business accounts. Is that correct?
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You are correct that Regulation E — including its error resolution deadline — does not apply to businesses. Regulation E applies only to consumer accounts. The term “consumer” means a “natural person.” The term “account” is defined as “a demand deposit (checking), savings, or other consumer asset account . . . established primarily for personal,…
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We had a customer who wrote a check to a company for a large amount, and the check was deposited and cleared yesterday; however, while the check was made out to the company, an individual signed the check. Can we ask the depositing bank to guarantee the endorsement? If so, what is our deadline for making that request?
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Typically, if your bank suspects that an endorsement is forged or is otherwise unauthorized, you must send notice of dishonor to the depositing bank by the midnight deadline established in the Uniform Commercial Code. You also must return the check in an “expeditious manner” to the depositing bank using the two-day/four-day test established in Regulation…
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A customer’s son stole her checkbook and forged her signature to cash several checks. The customer notified us of the forgeries within 30 days from the date of her account statement, as required by our account agreement. Since the bank missed its 24-hour deadline for returning the checks, is the bank liable to the customer for the forged checks?
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In general, a bank on which a check is drawn that does not return a check before its midnight deadline is liable for the check, but your bank may have a few defenses against liability. In the context of a forgery, you will need to reimburse the customer for the amount of a forged check…
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We have been presented with a Bank Claim of Late Return from another bank for a check we rejected due to an unauthorized endorsement. Our customer made the check payable to a company. The customer informed us that the company did not authorize the endorsement on the check. The Claim of Late Return states that we must provide an affidavit within 20 business days if we dispute the claim. Should we obtain an affidavit from the payee company (who is not our customer)? Should we use the Federal Reserve Board’s Paying Bank’s Response to Claim of Late Return form to respond to the claim?
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Yes, we believe that you should obtain an affidavit from the payee company to contest the claim. In addition, you should use the Federal Reserve Board’s forms if the check was processed through the Federal Reserve check collection system. To dispute a claim of late return on an item processed through the Federal Reserve check…
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Can we accept corporate ACH deposits into a personal account? We are seeing ACH deposits for customers who are Uber and Lyft drivers that are coded CCD, with the payee listed as the accountholder’s personal name.
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We are not aware of a prohibition on accepting corporate ACH credit transactions into a personal deposit account, provided that the payee matches the accountholder’s name. In our view, these deposits should be treated as independent contractor or sole proprietor deposits into personal accounts, and it is the accountholder’s responsibility to track these payments for…
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We believe that Regulation E does not require us to reimburse customers for disputed transactions when a customer waits more than 60 days after the transmittal of the account statement to report the error. Is that true? Also, under Regulation E, what is the definition of “transmittal of the statement”? Is it the date that we generate the account statement containing the error or the date that the customer receives it?
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First, it is important to clarify that you may be required to reimburse customers for unauthorized transactions that occur within 60 days after you transmit the periodic statement containing the errors, even when customers fail to provide notice within that timeframe. Under Regulation E, when a customer fails to report an unauthorized transaction within 60…
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A few months ago, our system generated a fraud alert regarding the activity on one of our customer’s checking account. We contacted her about the suspicious activity, and she came into the bank, reviewed the transactions, and confirmed that she authorized them. However, now (a little over 60 days after we sent her the account statement containing those charges) she has submitted a formal dispute. What are our obligations under Regulation E at this point?
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We are not aware of any law, regulation, or guidance that clearly establishes your obligations under these circumstances. However, in our view, you may treat this as a reassertion of error, in which case you have no further obligations under Regulation E. Regulation E permits a customer who has withdrawn an allegation of error to…
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Over two years ago, we returned a remotely created check that our customer reported as unauthorized. Recently, the company that initiated the remotely created check contacted us and provided a signed copy of its agreement with the customer authorizing the check. The company is asking us to return the amount of the check and has threatened litigation. Can we offset the customer’s account for the amount of the check?
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First, because the company that initiated the electronic check has threatened litigation against your bank, we highly recommend consulting with bank counsel going forward. In your discussions with bank counsel, we would note that Illinois law does permit a bank to exercise its right of setoff against a customer’s deposit account in this situation. Under…
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What is our potential liability for a check with four payees that was deposited in a customer’s account? The check has four endorsements, but we did not see the endorsements happen and did not verify the signatures. Could we be liable for an unauthorized endorsement? What is the statute of limitations for a claim?
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Under the Uniform Commercial Code (UCC), your bank could be liable under its presentment warranties to the payor bank if one of the indorsements turns out to be unauthorized. When forwarding the check to the payor bank for payment, your bank is warranting that all of the check’s indorsements are authorized. In the event one…