Topic: Uniform Commercial Code
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We are filing a financing statement on a customer who recently moved to Illinois. The customer has not yet obtained an Illinois driver’s license but has one from Iowa. Is that valid for purposes of filing the financing statement, or do we need to see a driver’s license issued by Illinois?
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No, you are not required to obtain an Illinois driver’s license when filing a financing statement for an Illinois resident. Under the Illinois version of the Uniform Commercial Code (UCC), ordinarily you would provide the debtor’s name as it appears on the debtor’s most recent Illinois driver’s license. However, because the debtor does not have…
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One of our customers recently deposited a check dated September of 2014. We attempted to collect the check twice, and the payee bank returned it for insufficient funds (NSF) both times. The payor bank then called and asked us to reimburse its customer for the NSF fees that it charged to its customer, since the check was “stale.” Is that required?
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No, we do not believe your bank is required to reimburse the NSF fees paid by the drawer of the check. While the UCC requires banks to pay checks that are deposited within six months of the check’s date, it also permits banks to pay checks that are older than six months (provided that the…
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What is our potential liability when a customer deposits checks made out to a business name (“Smith & Associates”) that does not match the customer’s name (“123 LLC”)? The name “Smith & Associates” is not registered as a business entity or as a d/b/a name.
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Depositing these checks into your customer’s account without endorsements could raise a number of concerns. First, your examiners may criticize this practice due to the risk that your customer is using the unendorsed checks made out to a different payee to launder money or engage in other illegal activities. Second, your bank is risking liability…
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When we receive returned mail from a customer’s address, and make several attempts to contact the customer for an updated address, do we need to continue mailing account statements?
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No, you are not required to continue mailing periodic statements in this situation. In fact, it may be advisable to discontinue mailing periodic statements to an address that you know to be incorrect, to prevent the statements and the personal financial information contained in them from falling into the wrong hands. We recommend monitoring the…
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One of our commercial customers reported several checks as forgeries promptly after receiving its account statement. The customer’s employee had stolen the checks and forged them. Should we file a police report? If the customer receives restitution from its employee, would we be entitled to receive that restitution?
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Since a police report already has been filed regarding the forgeries, the question becomes whether the bank should file a suspicious activity report, which would be required if the total dollar amount of the forgeries exceeds $5,000. Also, under the Uniform Commercial Code (UCC), in most circumstances, you will need to reimburse the customer for…
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One of our business customers is past-due on its business credit card. We have a security agreement securing a separate loan with a cross-collateralization clause granting us a security interest in “all present and future debts.” Would any laws prohibit us from enforcing the security agreement with respect to the business credit card debt?
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No, we are not aware of any laws prohibiting you from enforcing a security agreement that secures business credit card debt. For example, Regulation Z’s limitations on securing credit card debt with a borrower’s deposit account apply only to consumer debts. Also, we note that courts in Illinois generally have upheld cross-collateralization clause, provided that…
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What is your recommended record retention period for stop payment orders on checks? My opinion is that we need to retain them for six months after they expire, but we have been holding them for six years.
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We believe that the standard industry practice is to retain stop payment orders on checks for six months after the order has terminated. This corresponds with the IBA Guide to Record Retention, which recommends retaining stop payment orders for six months after termination (unless the stop payment relates to a preauthorized electronic fund transfer, in…
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When we have a customer sign an indemnity bond for a lost CD, do we need to keep an original copy, or would an electronic version suffice?
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Disclaimer: The Electronic Commerce Security Act (ECSA) was repealed and replaced with the Uniform Electronic Transaction Act (UETA), effective June 25, 2021. Please note that this change may affect the continued accuracy of this guidance as it pertains to the ECSA. An electronic version of the indemnity bond should suffice. The general rule under Illinois law…
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We are filing an amendment to our financing statement to release a specific piece of equipment that we were holding as collateral, per the debtor’s request. We currently have a blanket lien on all inventory, chattel paper, accounts, etc. When filing the UCC-3 form, should we check the “delete collateral” box or the “restate collateral” box?
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While the UCC does not address this question in the law itself, the Official Commentary to the Uniform Official Code clarifies that you may amend a financing statement by identifying specific changes (i.e., by using the “delete” box) or by restating the entire collateral description (i.e., by using the “restate” box). In other words, you…
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We received a Fedwire transfer request and paid the funds into our customer’s account. The next day, we learned from the originating bank that it very likely was a fraudulent transaction (related to an email scam), where someone impersonated the originator to initiate the transfer. The originating bank has requested that we return the funds, and we froze our customer’s account before he could withdraw the funds. We have confirmed the identity of the originator and originating bank and obtained a copy of the originator’s police report. Do we need any other documentation before returning the funds?
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No other documentation is required. The process of returning the wired funds is not governed by any laws or regulations related to Fedwire transfers. We recommend reviewing your account agreement with the customer to ensure that you are within your rights in freezing and removing funds from the customer’s account (which is likely in this…