Topic: Uniform Commercial Code
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What is the procedure to return an unauthorized remotely created check (RCC) drawn on a business customer’s account that is processed through the check collection system as a substitute check (not as an ACH transaction)? What return code should we use? Should we have the customer sign an affidavit? Do Rule 8 and Rule 9 apply to us?
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The procedure for returning an RCC processed through the check collection system is no different than for returning any other unauthorized check. If you discover that an RCC was unauthorized before the midnight deadline has passed (midnight on the next banking day following the banking day on which the check is presented), your bank may…
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Under Uniform Commercial Code (UCC) Section 4-405, my understanding is that a bank is not required to restrict a deceased customer’s account until the bank “knows of the fact of death.” What constitutes knowledge? Does it have to be from a government source, or would an obituary or church bulletin count, or even attending a funeral? Also, Section 4-405 permits us to pay or certify “checks drawn on or before” the date of death for 10 days after the date of death. Is that referring to checks written by the deceased customer or checks made payable to the deceased customer?
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For UCC purposes, “knowledge” is actual knowledge of the customer’s death. The UCC and accompanying official comments do not define “actual knowledge.” We believe that obituaries, church bulletins and funerals all would constitute reliable knowledge of a customer’s death and should be treated as conferring actual knowledge. The provision in UCC Section 4-405(b) — permitting…
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We want to add new collateral (a deposit account) and lower the interest rate on an existing commercial mortgage loan, with no other changes. Can we modify the note without recording a modification of mortgage since there is no extension of the loan term or increase in the loan balance?
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Yes, we believe that your bank may modify the promissory note without recording a modification of mortgage, but we recommend engaging your bank’s counsel to review the relevant loan documents and ensure that your bank’s lien position will not be affected. Illinois courts repeatedly have held that a note “given in renewal of another note…
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We are making a loan to an Illinois land trust. The loan will be secured by a money market deposit account issued by our bank and pledged as collateral on the loan (in addition to the real estate held in the land trust). Is this permitted? Since it’s our own deposit account, do we have automatic control over the deposit account? Or is other action required to perfect our lien?
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Yes, you are permitted to take a security interest in a deposit account held by your bank as collateral for a loan. To perfect your security interest, you need only have “control” over the deposit account, which you do; no further action is necessary. Note that if the deposit account was being held at another…
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One of our customers just notified us that several counterfeit checks have been drawn on her checking account, starting over six months ago, with the most recent check paid about a month ago. We have copies of the checks, which state “signature not required” and that “customer authorization was obtained using Quick Pay Office Pro.” Are we liable for paying these checks? Our account agreement requires customers to report unauthorized checks within 60 days.
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Based on the facts provided, we believe these checks are remotely created checks (defined in Regulation CC as a check “that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn”). We do not believe that your bank should be liable for the unauthorized…
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We have a business customer that is buying a piece of equipment. We would like to know how to do the UCC filings. The loan secured by the equipment is made to XYZ Inc. d/b/a ABC Auto. The invoice from the dealer is addressed to ABC Auto. Should we do multiple filings to cover both business names?
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Since the debtor is a corporation, you should use the corporation’s name as it appears in the debtor’s Articles of Incorporation (or in the most recent Articles of Amendment that change the corporation’s name, if any). The Uniform Commercial Code (UCC) sets the standards for naming the debtor in a financing statement. For a registered…
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One of our customers is claiming that her daughter stole several checks from her checkbook and forged her signature on checks totaling $800. The customer lives with her daughter and told us that her daughter is a felon and a drug addict. Do we have to reimburse our customer? She notified us about the forgeries within the 30-day deadline established in our account agreement, but we believe that she failed to properly guard her checkbook. This is her second claim of fraud, with the first claim involving her grandson’s unauthorized use of her debit card. Also, can we contact the individual (a local businessman) who cashed the forged checks?
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You need to reimburse a customer for forged checks if the customer alerts you to the forgery with “reasonable promptness.” In this case, your customer fulfilled her notice obligation by alerting you about the forged checks within the 30-day notice period established in your account agreement. However, your bank is not obligated to reimburse the…
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We have a potential business customer that performs property repairs. The customer would like to deposit checks issued by insurance companies for the property repairs. The checks are payable jointly to the business and the homeowner. The business obtains limited power of attorney (POA) documents from the homeowners authorizing it to endorse and deposit the checks. Can we rely on the POA for these deposits, without the homeowner’s endorsement? Should the POA be notarized? Should the business endorse as power of attorney for the homeowner?
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Yes, your bank may rely on a power of attorney document that grants your business customer the authority to endorse a check on a homeowner’s behalf. In fact, the Illinois Power of Attorney Act requires you to comply with an agent’s directions that are in accordance with the agent’s POA document, “and any person who…
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We have an elderly customer who we think is being scammed. We see repeated charges on his checking account from a computer repair company (these are remotely created checks rather than physical checks). Each new charge is usually around $600. We have tried to explain to the customer that we think he is the victim of a scam, but the charges keep appearing. We know about our reporting obligations under state and federal law regarding suspected elder financial abuse, but can we also stop payment on these charges?
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Your bank may stop payments on these charges provided your customer’s account agreement grants you this authority under these circumstances. Demand deposit account (DDA) agreements typically include a provision permitting the bank to decline a transaction if the bank suspects fraud or otherwise finds it necessary to protect the customer or the bank. Such a…