Topic: Uniform Commercial Code
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Our loan department is considering lending to minors if they have a parent or guardian as a co-borrower. Can we limit this lending to loans with a security interest in an automobile? If title to the vehicle is in the minor’s name, what issues could we run into if we try to collect on the note or repossess the vehicle?
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Limiting Minor Borrowers to Auto Loans In Illinois, the general rule is that minors cannot enter into legally binding contracts, since an agreement with a minor is voidable by the minor until they reach the age of majority (which is eighteen in Illinois). There are some exceptions to this general rule, as in cases of…
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A customer with a payable on death (POD) checking account has died, and we have not yet closed the account. The POD beneficiary is waiting to receive insurance checks for storm damage to the deceased customer’s home that occurred while she was still alive. The insurance company said that the checks will be made payable to the deceased customer. Can the POD beneficiary deposit these checks into the POD account once she receives them, or will she need to provide us with a small estate affidavit?
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No, we do not believe that the beneficiary — and now owner — of a POD account may deposit checks made payable to the prior owner, and we do not believe a small estate affidavit would protect you from potential liability. Under the Illinois Trust and Payable on Death Accounts Act, unless otherwise agreed, the…
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Our customer paid a vendor, but the vendor claims they never received payment. Although the check cleared our customer’s account, the endorsement on the back of the check does not appear to match the name of the payee (the vendor). We have an affidavit from the vendor and a copy of the front and back of the check. Is sending a “without entry” claim to the depository bank the best course of action? Do you have an example of a “without entry” claim that we can send to the depository bank? Should we reference the depository bank’s warranty of the item’s authorization under Regulation CC and ask that they honor the warranty by remitting a cashier’s check?
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We do not recommend sending a “without entry” claim under Section 229.34(d) of Regulation CC, which concerns returned check warranties. However, we believe your bank may have a claim against the depository bank for breach of its presentment warranties under the Illinois Uniform Commercial Code (UCC). We recommend sending notice of the breach of warranty…
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We have a collection company customer that uses its own endorsement stamp to deposit checks made out to companies on whose behalf it is pursuing collections. The customer claims that getting endorsements from their clients would be too onerous due to the high volume of checks they handle. Instead, they say they have “agency agreements” with all of their clients giving them the necessary authority to deposit these checks. However, they are unwilling to share copies of these agreements with us. Could we face any liability for allowing this practice to continue?
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Yes, we believe that allowing the practice described would put your bank at risk of liability for breach of its presentment warranties and conversion under the Illinois Uniform Commercial Code (UCC). Under the Illinois UCC, your bank could be liable to the payor bank for allowing your customer to deposit checks without a proper endorsement.…
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Our bank sells personal money orders. A teller types in the amount and date, and the purchaser fills in the payee line and signs as the remitter after they leave the bank. Is a personal money order considered valid if the purchaser never signs the face of the money order and it clears the bank unsigned?
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No, we do not believe that a personal money order that has not been signed by the drawer is valid. To begin, we note that under Illinois case law, the money order you described would likely be treated as an ordinary check, not a cashier’s check, as it is not structured as a bank obligation…
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Our bank wants to offer Interest on Lawyer Trust Accounts (IOLTA). How do we register with the Illinois State Bar Association? What reporting and money transfer requirements do we need to comply with once the account is set up?
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To become eligible to hold IOLTA accounts, a financial institution must agree to report account overdrafts to the Illinois Attorney Registration and Disciplinary Commission (Illinois ARDC) and meet certain interest rate requirements. Financial institutions also must remit monthly earnings to the Lawyers Trust Fund of Illinois. Before a financial institution may hold IOLTA accounts, it…
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A check was presented to us that was drawn on our customer’s account. Approximately three weeks after paying the check, we discovered the payee had been altered. We returned the check with a claim of alteration to the depository bank, which responded with a late return claim since the midnight deadline had passed. Does the depository bank have any liability for presenting us with the altered check? If so, what is the appropriate mechanism for seeking redress, and what language should we use in our correspondence to the depository bank?
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Yes, your bank may seek relief from the depository bank for breach of a presentment warranty because the check it presented for payment had been altered. We recommend sending notice of the breach of warranty to the depository bank as soon as possible, with an affidavit of alteration signed by your customer. When the depository…
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A business customer sent a wire to another bank to pay one of its vendors, but the vendor says it never received the money. The wire was sent to an account with the same account number as the account that received the payment, but the names associated with these two accounts were different. The wire beneficiary’s bank immediately closed the account for fraud but has denied our request for reimbursement. Are we entitled to be reimbursed by the beneficiary’s bank?
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No, we do not believe you have the right to be reimbursed by the beneficiary’s bank for the wired funds. Article 4A of the Illinois Uniform Commercial Code (UCC) provides that the bank for a beneficiary of a wire transfer may rely on an account number to identify the beneficiary “if a payment order received…
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Are we required to reimburse a customer for an altered check claim on a check that appeared on their statement six months ago? The customer sent the check by mail and says that the payee was altered. Our account agreement requires customers to report their discovery of unauthorized signatures or alterations with “reasonable promptness” — defined as within sixty days of when the statement is first made available, after which time the customer cannot assert a claim against us for the loss, “without regard to whether we used ordinary care.” Shouldn’t the depository bank that breached a warranty bear the loss for the altered check?
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We do not believe you are required to reimburse your customer — provided your bank used ordinary care in paying the altered check. Whether the provision of your account agreement disclaiming liability within the first year after an item appears on your customer’s account statement, without regard to whether you used ordinary care in paying…