Topic: Fraud
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One of our business customers has reported fraudulent checks drawn on its deposit accounts several times. We want to require this customer to use our Positive Pay check fraud prevention service. If the customer refuses, can we require the customer to sign a waiver excusing us from liability for fraudulent checks?
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No, we do not believe that the Uniform Commercial Code (UCC) would permit an agreement excusing a bank from its liability for fraudulent checks. The UCC does permit parties to vary its provisions through private agreements. However, it does not permit an agreement that would “disclaim a bank’s responsibility for its lack of good faith…
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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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Is there any guidance regarding commercial customer liability for fraudulent checks, or do we just need to address liability in our terms and conditions?
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Commercial customer liability for check is addressed in the Uniform Commercial Code (UCC), as well as your account agreement. Articles 3 and 4 of the UCC, which outline customer liability for check fraud, apply to both individual and commercial customers. We have included several relevant provisions regarding liability in our resources section below. In addition,…
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An elderly customer purchased a $9,000 cashier’s check. She came in the next day to request a stop payment, as she now believes that she was defrauded — she had received a telephone call from someone claiming to be with Publisher’s Clearinghouse, who told her that she had won and needed to send in a $9,000 cashier’s check to withdraw her winnings. Can we stop payment?
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No, we do not believe that you should stop payment on the cashier’s check. The Illinois Supreme Court has held that a cashier’s check is the equivalent of cash. As a general rule, once a cashier’s check enters the stream of commerce, the issuer (your bank) is liable under the Uniform Commercial Code (UCC) if…
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We use the Thumbprint Signature Program® offered through the IBA. A non-customer came in to cash a check, and we requested her thumbprint. She refused saying that it is illegal to require a thumbprint. I assume she is wrong, but how do I respond?
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You are correct that requesting thumbprints from non-customers prior to cashing their checks is not illegal. Neither Illinois nor federal law prohibits this practice, and it is a simple way to reduce check fraud. The OCC has implicitly endorsed fingerprinting programs, provided that they are applied consistently and non-discriminatorily. We also note that a bank…
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Can we permit a blind customer to use a rubber stamp to sign checks?
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Yes, you may permit the customer to use a stamp of her signature to sign her checks. The Uniform Commercial Code (UCC) expressly states that a signature may be made by means of a device or machine. The UCC comments further clarify that “[a] signature may be handwritten, typed, printed, or made in any other…
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How long do corporate customers have to report an unauthorized “PPD” ACH transaction? Our account agreements provide that customers must notify us of unauthorized transactions within 30 days of receiving a statement showing the unauthorized transaction, and a customer did notify us within that time frame.
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Generally, a business customer’s time frame for reporting an unauthorized ACH transaction for a commercial account will be governed by your account agreement, which in your case requires business customers to report unauthorized transactions within thirty days. However, your bank’s deadline for reporting a transaction for reimbursement from the originating depository financial institution (ODFI) is…
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We use an Affidavit of Alteration, which customers use to report forgeries and alterations, including a forgery of the customer’s signature on an endorsement. However, I don’t think customers should use this form to claim that a payee’s endorsement was forged on the customer’s check. Should we use the Affidavit of Alteration form in those cases?
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We recommend modifying your Affidavit of Alteration form in cases involving a payee’s forged endorsement on a check, or using a separate form entirely. We agree that in most instances, a customer will not be able to verify that a third party payee’s endorsement was forged. But if a customer notifies your bank that a…
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We suspect that a customer is kiting checks. We would like to send him a “warning” letter to see if the activity stops. How should we outline our concerns without accusing the customer of illegal activity?
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First, we note that because you can identify the customer suspected of check kiting, you are required to file a suspicious activity report if the suspected violation or pattern of violations aggregates $5,000 or more. In addition, because you suspect that your customer is engaged in check kiting, you have reasonable cause to place a…