Topic: Unauthorized Transactions
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A check-cashing company has been depositing out-of-state IRS tax refund checks in its account at our institution. One of the payees on the checks told us that he never cashed the check and that he will be filing a complaint with the IRS. What are the chargeback rights of the IRS and what is its look-back period?
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The general rule is that the IRS may reclaim the amount of a check payment from a guarantor of the check until the end of the one-year period beginning on the date that a check is processed for payment by a Federal Reserve Processing Center. If the IRS determines that a guarantor of the check…
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A deposit customer recently notified us of a large amount of forged checks paid over the past several months. Our account agreement requires the customer to notify the bank of any forgeries within 30 days. Are we liable for the forged checks?
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We do not believe that your institution will be liable for any forged checks that were not reported within the 30 days specified in your account agreement. Under the Uniform Commercial Code (UCC), a customer will be liable for any forged checks that are not reported with “reasonable promptness” (provided that the bank acted in…
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After a customer deposited a check in an account at our bank, the payor bank called to say that the check was forged. Which bank is liable for the loss?
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We do not believe that a bank that paid a forged check could hold the bank in which the check was deposited liable for its losses. In other words, the bank in which a forged check was deposited generally is not liable for the forgery. In general, a bank on which a check is drawn…
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A customer has asked that we reimburse her for several check forgeries on her account. If our account agreement requires customers to notify us of forgeries within thirty days, are we liable for any of the checks for which the thirty day notice period has passed?
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We do not believe that the bank would be liable for any forged checks if a customer failed to notify the bank of the forgeries within the thirty-day notification period. Under Section 4-406 of the Uniform Commercial Code (UCC), if a customer does not notify a bank about forged checks with “reasonable promptness,” the bank…
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A customer came with a check made out to an insurance company that was endorsed to the customer, but it has a red stamp stating “cancelled endorsement.” Can we accept this check?
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Because the check has two red flags — it’s a third party check, and the endorsement has apparently been cancelled — we recommend sending the item for collection.
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Are Illinois banks required to list the recipients of checks on deposit account statements?
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If a deposit agreement does not require a bank to identify check payees or to include copies of checks in periodic account statements, then the bank is not required to do so. The Uniform Commercial Code provides a safe harbor for banks’ liability for forged and altered checks if their account statements include information that…
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Do we have any defenses if a customer reports forgeries that are over a year old?
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The general rule as to forged checks is that the customer is not liable. 810 ILCS 5/3-401, 3-403