Topic: Uniform Commercial Code
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If a bank customer reports a fraudulent check within the timeframe required in the account agreement (for example, within thirty days), does the Uniform Commercial Code require the bank to reimburse the customer for the loss?
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Yes, the Illinois Uniform Commercial Code (UCC) generally requires a bank to reimburse a customer for a fraudulent check when the customer notifies the bank of the unauthorized payment in the timeframe provided in the account agreement. However, there may be cases where a customer’s negligence precludes reimbursement, as discussed in more detail below. The…
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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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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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What is an appropriate record retention period for original medallion paperwork? Would you recommend the same retention period for virtual copies? We reached out to the Securities Transfer Agents Medallion Program (STAMP), and they stated: “Time of retention is a decision made by the institution itself in accord with your own legal, risk management and audit procedures.”
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We are not aware of any law that directly addresses the retention period for documents related to medallion signature guarantees, other than the SEC’s requirement that securities transfer agents retain records related to rejected transfers for three years following the date of rejection. That said, a medallion signature guarantee creates unique, direct liability on the…
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Our customer deposited a check on Wednesday. After 6:00 p.m. on Friday, when our bank was already closed, we received a fax from the paying bank stating that it would be returning the check. Is this considered a late return?
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Yes, we believe that the paying bank returned the check late and that your bank has a claim of late return against the paying bank. Under the Federal Reserve’s rules, a paying bank “may send . . . a returned check that a Reserve Bank did not handle for forward collection only if it sends…
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We have a customer that has been wiring money from an overseas bank to his account at our bank. The total amount of money involved is over $50,000, but all the individual transactions have been below $10,000. We do not believe this is a “mule” situation as the funds remain in the customer’s account after they have been wired. We know that we can reject wires and file a suspicious activity report (SAR), but is there any way for us to verify that the wires are legitimate without talking to the customer? We have attempted to call him, but his phone does not accept voicemail. Further, neither the customer nor the bank he is wiring funds from come up as a positive OFAC hit. For now, we have placed a temporary hold on his account.
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We are not aware of any guidance outlining steps that a bank can take to verify the legitimacy of a customer’s wire transfers. If you cannot reach your customer by phone, you can try contacting them by mail or email if you have their address or email address on file. You also could try reaching…
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We learned from a webinar on check fraud liability that a customer generally is liable only for checks endorsed with a stamp (also known as a facsimile) signature if the customer authorized their bank to accept such signatures and was negligent in protecting their signature stamp. However, we were advised that large banks are updating their deposit agreements to provide that if a customer creates a signature stamp — even if they don’t intend to use it for checks — they may be liable for any checks endorsed with the stamp. Does Illinois law allow such account terms? What risks should we consider before adding this language to our deposit agreements?
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Yes, we believe Illinois law permits account terms limiting a bank’s liability for checks endorsed with a stamp or facsimile signature — provided the customer agrees to the terms. Based on the case law we reviewed, we believe this is a common and accepted practice, in addition to being authorized under the Illinois Uniform Commercial…
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Is there any Illinois law that addresses stop payment requests received orally?
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Yes, the Illinois Uniform Commercial Code (Illinois UCC) addresses stop payment requests received orally. The Illinois UCC generally provides that a stop payment order for any item drawn on a customer’s account is effective for six months. However, an oral stop payment order lapses after fourteen calendar days if it is not confirmed in writing…