Topic: Uniform Commercial Code
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We recently started offering remote deposit capture (RDC) for consumer accounts through mobile phones. A customer recently deposited a check using our RDC phone app. Three days later, the check was cashed at a currency exchange (we don’t know if it was our customer who cashed the check or someone else), and the currency exchange’s deposit of the check was returned. The currency exchange is demanding that we reimburse it under the Check 21 Act warranty provisions and as a “holder in due course” under the Uniform Commercial Code. Are we required to reimburse the currency exchange?
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No, we do not believe that your bank is required to reimburse the currency exchange under these circumstances. There have been two attempts to deposit this check. First, your customer deposited the check using your bank’s mobile app, and your bank successfully obtained payment from the paying bank (the bank on which the check was…
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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 have an ad hoc overdraft program. In which order should we pay overdrawn checks: High-to-low or low-to-high?
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This question does not have an easy answer. Illinois law has long granted banks the freedom to post checks in any order they choose, without regard to the order in which they were received. However, as discussed below, the federal banking agencies have issued guidances that discourage the use of high-to-low posting orders (without explicitly…
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We have been presented with a Bank Claim of Late Return from another bank for a check we rejected due to an unauthorized endorsement. Our customer made the check payable to a company. The customer informed us that the company did not authorize the endorsement on the check. The Claim of Late Return states that we must provide an affidavit within 20 business days if we dispute the claim. Should we obtain an affidavit from the payee company (who is not our customer)? Should we use the Federal Reserve Board’s Paying Bank’s Response to Claim of Late Return form to respond to the claim?
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Yes, we believe that you should obtain an affidavit from the payee company to contest the claim. In addition, you should use the Federal Reserve Board’s forms if the check was processed through the Federal Reserve check collection system. To dispute a claim of late return on an item processed through the Federal Reserve check…
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A business customer requested a stop payment order on a preauthorized ACH debit to his account. We know that Regulation E requires consumers to provide three business days of notice to stop payment. Does this rule also apply to business customers?
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No, Regulation E — including its timeframes for stop payment orders — does not apply to business customers. The Uniform Commercial Code states that banks may establish their own cut off time for receiving orders to cancel the payment of a funds transfer. Consequently, we recommend reviewing your account agreement with your customer to determine…
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John Doe runs a farm management company, John Doe, LLC. He would like to open a business account for the company at our bank. Sometimes he receives checks that list the payee as “[client name], c/o John Doe, LLC.” Can he deposit these checks into his business account without the client’s endorsement if he has their written authorization to do so?
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Yes, we believe that John Doe, LLC may deposit these checks in its account at your bank without its clients’ endorsements. However, this practice could pose minor residual risks to your bank (even with written authorizations from your customer’s clients on file). Under the Uniform Commercial Code (UCC), if a check is made out to…
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A customer asked to deposit a check for over $1000 drawn on a credit union account in Italy. The check has been marked “non-transferable” and has been indorsed in blank by the payee. However, our customer is not the payee. Can we deposit the check into our customer’s account?
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Whether you wish to deposit the check into your customer’s account is a business decision for your bank to make. According to the U.S. Treasury, a check drawn on an Italian bank in an amount greater than $1000.00 must be marked as “non-transferable.” However, under the Illinois Uniform Commercial Code, when a check is endorsed…
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We have a potential borrower who owns a lot of equipment. He has 12 loans with other banks, and these other lenders each have UCC blanket liens covering all of the borrower’s inventory and equipment. We would like to make a loan secured by (but not to purchase) specific equipment covered by those UCC liens. Can we require the other lenders to assign us their interest in only this specific equipment or to otherwise acknowledge our lien priority with respect to this equipment?
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You may request lien subordinations from each of the senior lenders for this piece of equipment, but you cannot require them to subordinate their security interests to your bank. The Illinois Uniform Commercial Code (UCC) permits a lender holding a senior security interest to subordinate its interest to another lienholder by entering into a subordination…
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What is the retention period for documents and forms of identification relating to customers we have done a signature guarantee for?
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We are not aware of any law that directly addresses the retention period for documents related to signature guarantees. However, a signature guarantee creates unique, direct liability on the part of the bank that may warrant permanent retention. Under the Illinois Uniform Commercial Code, the guarantee of a signature of an indorser of a security…