Topic: Fraud
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Is there a state law that allows us to freeze an account for suspected fraud, or do we have to rely on our deposit account agreement?
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No, we are not aware of a state law that expressly provides for freezing an account for suspected fraud. We believe your bank’s authority to freeze your customer’s account is governed by your account agreement. Most financial institutions have language in their deposit account agreements that authorize the placement of a hold on the funds…
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Some of our business customers refuse to use Positive Pay. We do not charge for this service, and it is effective in preventing some check fraud losses. What are our options for encouraging more business customers to adopt Positive Pay? Also, if we decide to require Positive Pay for business customers, can we make exceptions based on customer relationships?
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We believe that your bank can require or encourage your customers to use your Positive Pay services in your account agreements, and you may choose to implement this change going forward for new customers only or for existing customers as well by amending their account agreements. Under the Illinois Uniform Commercial Code (UCC), your bank…
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Are we required to accept a power of attorney (POA) that lists someone as an agent who we believe is dishonest? We are concerned that accepting the POA will open us up to liability, as this individual has attempted to pass fraudulent checks and has been involved in numerous scams in the past.
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In our view, the risk of refusing to accept a POA generally is higher than the risk of accepting a POA that turns out to be invalid, unless you have reasonable cause to refuse to comply with the agent’s direction or have actual knowledge that the agency is invalid. The Illinois Power of Attorney Act…
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Our customer had multiple forged checks drawn on their business checking account after they left their checkbook out at home and their housekeeper stole it. Our customer reported the forgeries to us within our required time frame for reporting fraudulent items. Can we assert under Article 4 of the Illinois Uniform Commercial Code (UCC) that our customer was negligent in safeguarding the checks and therefore responsible for the fraud?
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Whether you may hold your customer responsible for the fraud due to their negligence depends on the specific facts and circumstances of the theft and your bank’s check payment and fraud detection procedures. We recommend consulting and reviewing the facts with bank counsel before refusing to reimburse your customer. The Illinois UCC does not require…
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Our business customer had multiple checks drawn on their account that were forgeries. The customer noticed the forged checks and notified us within four days, and we returned the checks four days after paying them. We received a claim of late return from the depository bank for one of the checks. Is there anything we can do? Are we liable or can we debit our customer?
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We believe your bank likely is liable for the check since you returned it after the midnight deadline. Your bank would have a defense to liability for the check only if the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed to the making of the forged check. Under…
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Our customer mailed a check for approximately $7,000 to a payee who never received it. The check appears to have been stolen, altered, and copied onto the fraudster’s check stock. The payee’s name was changed, the amount of the check was increased by an extra digit, and the logo and border that appear on our customer’s check stock are not present. The check was deposited at a Texas branch of a nationwide bank and cleared. Today we returned the check to the depository bank, but the midnight deadline has passed. Do we have a claim for a breach of presentment warranty, and how should notice of such a claim be sent?
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Yes, we believe your bank may seek relief from the depository bank for breach of a presentment warranty since the check it presented was altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository bank…
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We believe a new customer may be involved in a fraud due to suspicious wire transactions, so we froze their account and placed an incoming wire on hold. We are working with an out-of-state bank that has requested a subpoena or 314(b) notice before it shares information with us, and our BSA officer is out tending to a family emergency. No one else at our bank has a login for FinCEN’s online 314(b) notice, and it will take five business days to obtain a new login. Is there any other way to access FinCEN’s 314(b) notice?
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Yes, a fillable PDF copy of FinCEN’s 314(b) notice is linked in the resources below. FinCEN’s regulations provide that financial institutions sharing information pursuant to Section 314(b) of the USA PATRIOT Act may submit the necessary notice to FinCEN through its website or “if a financial institution does not have Internet access, by mail to:…
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Can we place a hold on ACH deposits if we suspect there is fraud?
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We believe that you may be able to place a hold on deposited funds made by ACH debit transfers, subject to the terms of your agreement with the other financial institution, while your ability to place a hold on deposited funds made by ACH credit transfers would be limited to one day. However, we also…
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A check was presented to us that was drawn on our customer’s account. Approximately three weeks after paying the check, we discovered the payee had been altered. We returned the check with a claim of alteration to the depository bank, which responded with a late return claim since the midnight deadline had passed. Does the depository bank have any liability for presenting us with the altered check? If so, what is the appropriate mechanism for seeking redress, and what language should we use in our correspondence to the depository bank?
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Yes, your bank may seek relief from the depository bank for breach of a presentment warranty because the check it presented for payment had been altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository…