Topic: Fraud
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We learned that one of our customers had three fraudulent checks drawn on his account after we alerted him that he had overdrawn his account. We believe that the checks are counterfeits and the fraudster forged our customer’s signature on them. The checks all were deposited at different banks. We returned the checks to the Federal Reserve four days after we paid them and received a claim of late return for one of them shortly after. The Federal Reserve says we have twenty days to respond to the claim. What is our best option for responding to the claim of late return?
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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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A customer has been depositing checks with multi-party endorsements for several months. At least one of the four endorsers claims they did not sign these checks. When completing the Suspicious Activity Report (SAR) form, should we mark this activity under category 34 (Fraud), select box z (Other), and write in “endorsement” or should we mark this activity under category 38 (Other Suspicious Activity) and select box f (Forgeries)?
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We believe it would be appropriate to record this activity under both category 34 (Fraud) and category 38 (Other Suspicious Activity), since FinCEN’s SAR Electronic Filing Requirements User Guide states that filers should “use the suspicious activity category Items 32 through 41 to record the type(s) of suspicious activity” and “check all boxes that apply…
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Under Regulation E, would it be considered an unauthorized transaction if a consumer is fraudulently induced to send an electronic payment — as opposed to when a consumer is induced to a provide a fraudster with their account information or access device?
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No, we do not believe that an electronic payment initiated by a consumer — even if fraudulently induced — would be considered an unauthorized transaction under Regulation E. An “unauthorized electronic fund transfer” is defined as “an electronic fund transfer from a consumer’s account initiated by a person other than the consumer without actual authority…
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We have an elderly customer who seems to be the victim of a home improvement scam. The scammers want her to wire money to a fake healthcare company. We refused to send the wire, but our customer withdrew a cashier’s check for the same amount from one of our tellers, who was unaware of the situation. I know that we cannot normally stop payment on a cashier’s check, but this is blatant fraud. Our customer is adamant that the transaction is legitimate. Is there any way that we can prevent this fraud from occurring?
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You are correct that your bank cannot stop payment on the cashier’s check without risking liability for the check. We believe that you should instead file a suspicious activity report (SAR) and report the scam as potential elder financial exploitation to the Illinois Department of Aging. As a general rule, once a cashier’s check enters…
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Our customer reported that a check they issued was stolen and washed, changing the payee and amount of the check. The customer reported the fraud to us two weeks after the check had cleared. Are we liable to our customer for paying the altered check, and do we have a claim against the bank of first deposit?
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We believe you must reimburse your customer for the amount paid on the altered check and that you have a claim against the bank of first deposit for breach of its presentment warranties. Under the Illinois Uniform Commercial Code (UCC), banks may charge their customers only for items that are properly payable — meaning authorized…
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We sent an affidavit of altered check to a bank that cashed a check issued by our customer. The depository bank is now claiming under Regulation CC (12 CFR 229.38(i)(2)) that the presumption of alteration has been overcome because the check had an unauthorized signature of the drawer, making it a forgery and not an alteration. The signature on the check does not match the signature the drawer provided on the fraud affidavit, and the drawer cannot verify that the signature on the check is theirs. We believe this is because the customer’s signature was traced back onto the check after it was stolen from a U.S. postal box and washed, so it is not an exact match. Do we have grounds to sue the depository bank for violating the presentment warranties? Additionally, are there any time frames we should be aware of? We supplied an affidavit of alteration in August 2020 and did not get a response from the depository bank until April 2021.
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We cannot comment on whether you have grounds to sue the depository bank. If a court were to conclude that the disputed check was altered rather than forged, we believe that the depository bank could be held liable for violating its presentment warranties — but that outcome depends on whether you can prove that the…
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An examiner noted that we have an older account for a customer with a doing business as (DBA) name that is very similar to the name of a corporation where the customer is an employee or owner. The corporation does not have an account with our bank, and we do not have an assumed name certificate for the DBA account. What is our potential liability if our customer fraudulently deposits checks made out to their DBA name that are intended for the corporation? Would we be liable to the corporation if they claim the checks were stolen? If we are unable to obtain an assumed name certificate, could we have the corporation sign an indemnification agreement authorizing the customer to deposit checks made out to their DBA name?
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At the outset, we believe it would be prudent to ask your customer to establish a new account in the name of the corporation, since it appears that your customer is depositing checks payable to the corporation’s name. We recommend following your account opening procedures for corporate accounts, which should include obtaining a corporate resolution…
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A business customer wrote a check to one of their vendors that was negotiated and cleared their account. One month later, the customer learned that their vendor did not receive the check. Apparently, a fraudster intercepted the check, created a business with the same name as the payee in another state, and used the check to open an account at another bank. The check was not altered. Who holds the liability for this check, can it still be returned, and do we need to credit our customer for the amount? Our customer notified us of this issue within sixty days of discovering it, as required by our account agreement.
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We believe you will need to credit your customer for the check. However, we believe your bank is entitled to demand repayment for the check from the depository bank, since it appears to have breached its warranty to you that the check did not have a missing or unauthorized endorsement. Under the Illinois Uniform Commercial…