Topic: Fraud
-
We paid five checks for a customer in late December 2019 that turned out to be forgeries. Our account agreement provides customers with a 60-day period after receiving their account statements to report any unauthorized payments. This customer notified us that the checks were fraudulent on January 9, and we returned them on the same day — even though the midnight deadline for their returns had long passed. The bank of first deposit filed a claim of late return through the Fed’s adjustment process, and we filed a response. On January 31, the Fed reimbursed us for all five checks, and we credited our customer’s account. On May 18, we received letters from the bank of first deposit requesting that we credit them for three of the checks. Are we liable to the bank of first deposit for these checks? How long does the bank of first deposit have to request credit for the two remaining checks?
—
by
Your bank likely is liable to the depository bank for all five forged checks, since your bank did not return them until after the midnight deadline had passed. Regarding the two remaining checks, the depository bank has up to three years to request credit and bring an action against your bank for failing to pay…
-
Does the Uniform Commercial Code (UCC) require us to reimburse commercial customers when they report an unauthorized check within thirty days of receiving their account statement? Due to the availability of online banking, can we require commercial customers to report an unauthorized check no later than one day after it posts to their account?
—
by
Generally, banks are liable under the UCC for the full amount of an unauthorized check reported by their customers (whether consumer or commercial) with “reasonable promptness” — a reporting period which by default is “within one year after the statement or items are made available to the customer,” but which can be reduced to a…
-
One of our customers mailed a check to a vendor that was intercepted by a rogue postal employee who then generated their own check and forged our customer’s signature. The forged check was used to open a fraudulent account at another bank and cleared our bank. Our customer notified us of the fraud outside of the Federal Reserve’s return window but within the thirty-day window for customer notifications under our account agreement. Are we liable for the full amount of the check? Do we have any recourse against the depository bank? We had advised the customer to pay this vendor electronically rather than mailing a check.
—
by
We believe that your bank likely is liable for the full amount of the check since your customer reported the fraud within your account agreement’s reporting deadline. Whether your bank has any recourse for the check depends on whether the depository bank breached a presentment warranty to your bank or your customer’s negligence substantially contributed…
-
Our customer notified us of four forged checks posted to its account. The checks were purchased from a check printing company and were printed with the name and address of an out-of-state business, as well as our customer’s account number and our routing number. The checks were processed on December 31, and we returned them as “altered/fictitious” on January 13. We obtained an affidavit of forgery from our customer but did not attach it to the return. On February 28, the depository bank sent a claim of late return, and our account was debited for the checks. We have twenty days to contest the depository bank’s claim of late return, and we thought the depository bank only had twenty days to make their claim. Can we contest the depository bank’s claim of late return on the basis that it was untimely? If not, we believe we would be liable for the checks, since our customer reported the fraud within two weeks after the checks were processed. What are our options for recovering these funds?
—
by
The depository bank had two months to file a claim of late return — not twenty days. Additionally, a paying bank may only dispute a claim of late return with evidence that the return was not late. Consequently, it does not appear that your bank has a valid basis to contest the claim of late…
-
Our business customer mailed a rent check that was stolen in transit, altered to change the payee, and deposited or cashed at another bank. Our customer notified us approximately two weeks after this occurred, when they discovered the check payee line had been altered. We returned the check as an “altered/fictitious item.” Approximately one month later, the depository bank filed a claim of late return and put an adjustment through the Federal Reserve Bank to debit us for the item. Can the depository bank file a claim of late return in relation to a fraudulent or altered check? We have twenty days to respond.
—
by
Yes, the depository bank can file a claim of late return in relation to a fraudulent or altered check that was not returned before the midnight deadline. However, your bank may be able to seek relief from the depository bank for breach of a presentment warranty due to the altered check. Under the Federal Reserve…
-
We have a business customer that deposited a fraudulent $100K cashier’s check at our bank. The customer waited two days for the funds to become available, then wired out $70K. After sending the wire, we received the $100K check as a chargeback with the notation that the check was an “altered fictitious check,” but we rejected the return as late (past the midnight deadline). Our customer later notified us that the $100K check they deposited appeared to involve a fraud scheme. We placed a hold on the remaining $30K in our customer’s account. After waiting thirty days, we have not heard from the paying bank, which apparently has a $100K loss. Is our customer entitled to keep the $30K from the fraud, or does the paying bank have a right to claim the remaining funds?
—
by
Whether the paying bank has a right to claim the remaining funds from your customer depends on the facts and circumstances of the fraud. If your customer was an innocent victim of the fraud and took the cashier’s check in good faith as payment for goods or services (or took certain actions in reliance on…
-
We recently discovered that fictitious checks were written with the name and address of one of our business customers and our name and routing number, but with an invalid account number. Neither we nor our customer experienced any loss due to the fraud, but when reviewing the matter, we learned that Experian allows businesses to place fraud alerts on their business credit files. We also learned that some states have identity theft laws that protect business entities. Does Illinois have any protections for businesses against identity theft?
—
by
Yes, Illinois recognizes identity theft as a crime against businesses. Under the Illinois Criminal Code, “identity theft” occurs when a person knowingly “uses any personal identifying information or personal identification document of another person to fraudulently obtain credit, money, goods, services, or other property.” “Person” is defined to include a “public or private corporation, government,…
-
Our customer wrote a check from her checking account to her insurance company; however, the insurance company said it did not receive the check. Our customer’s signature is on the front of the check, and we have a copy of the check with an endorsement on the back. The insurance company says it is not their endorsement. Is the bank of first deposit responsible for resolving this matter? The insurance company has requested that we provide an affidavit of forgery, but our bank didn’t cash the check.
—
by
Yes, we believe the depository bank that accepted the check with the forged endorsement is responsible for resolving this matter and is in the best position to provide the insurance company with any requested affidavits. The Uniform Commercial Code (UCC) places the ultimate risk of loss for the payment of a check with a missing…
-
Do you have a sample positive pay agreement?
—
by
We do not have a sample positive pay agreement in our forms library; however, we have made a request to our Compliance Division Advisory Committee for sample positive pay agreements and will send you any submissions we receive. Also, included in our resources are three banks’ positive pay agreements that are available online. For resources…
-
Shortly after receiving his account statement, our customer notified us that some counterfeit checks had cleared his account. We sent the checks back through the Fed as fraudulent. We have received one of the checks back as a “late return” from the depository bank. Who is liable for these checks under the UCC, and does our bank have any recourse for these checks?
—
by
We believe your bank likely is liable for these checks since they were returned after the midnight deadline. Whether your bank has any recourse for the checks depends on whether the depository bank breached a presentment warranty to your bank, or your customer’s negligence substantially contributed to the making of the fraudulent checks. Under…