Topic: Uniform Commercial Code
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A customer purchased a money order from our bank, but the money order was intercepted and fraudulently cashed by an unknown third party by mobile deposit at another financial institution. The money order was signed by our bank and drawn from our account. Our customer discovered the fraud when they received notice from the intended payee that their payment was never received. The customer is requesting a refund. What should we do?
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We do not believe your bank is obligated to refund your customer. We believe that your bank may assert a claim against the presenting bank for breach of its presentment warranties and refund your customer as a courtesy. To begin, we note that under Illinois case law, the money order you described would likely be…
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We want to extend a loan to a company and take all of their assets as collateral, including their accounts receivable. However, the company already has supply chain financing arrangements with other banks. For example, when the company wants to be paid immediately for goods sold to a buyer, the company contacts Bank A and receives immediate payment from the bank. Bank A in turn buys the relevant account receivable from the company. We are aware that Bank A has filed a Uniform Commercial Code (UCC) financing statement that may cover some of the company’s accounts receivable. Would Bank A’s security interest in an account receivable have priority over a financing statement we file afterward covering all of the supplier’s accounts receivable?
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Yes, we believe that a prior sale of accounts that has already been perfected would have priority over any financing statement covering the same accounts that your bank files later in time. Article 9 states that “a debtor that has sold an account does not retain a legal or equitable interest in the collateral sold.”…
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Our business customer sent a very large check (in the six figures) to one of their vendors, and the check was deposited, but their vendor says they did not receive it. We sent the bank of first deposit a presentment warranty letter asking for the money back. The bank of first deposit told us that it would take 30–90 days to research, and that they need an affidavit from the payee (our customer’s vendor) stating that they did not receive the check or deposit it. Are there any time limits regarding how long the bank of first deposit has to conduct its investigation, and are we required to provide them with the affidavit they requested?
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We do not believe the Illinois Uniform Commercial Code (Illinois UCC) or any other state or federal law specifies a deadline for a depository bank’s response to a claim for the breach of a presentment warranty. Additionally, we are not aware of any requirement that your bank provide an affidavit when making your claim for…
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Are we allowed to charge an insufficient funds fee in Illinois for consumer loan payments made by check that are dishonored? If so, what is the maximum amount we can charge?
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Illinois law allows banks to charge returned check fees for consumer loans, provided that the fee is properly disclosed and agreed to by the borrower. Additionally, we do not believe there is a maximum amount for returned check fees for loan payments, provided the fee is set according to your “prudent business judgment and safe…
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Is there a requirement under state law to refund any surplus after the sale of a repossessed vehicle? If so, does this requirement extend to a vehicle surrendered in a bankruptcy proceeding?
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Yes, Article 9 of the Illinois Uniform Commercial Code (UCC) generally requires secured parties to pay a debtor for any surplus resulting from the sale of a vehicle that has been repossessed, and we believe this provision also is applicable to a vehicle surrendered in a bankruptcy proceeding. Whether a vehicle is repossessed by judicial…
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Are the following fee caps still in place for Illinois chartered banks — the greater of $25 or actual costs for an overdraft or insufficient funds fee, and a returned check fee of up to $4.50 for commercial accounts? Are there any other fee caps we should be aware of?
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Yes, the fee caps you referenced are still in place. Regarding other fees, Illinois chartered banks generally may charge any fees agreed to by their customers, as discussed in more detail below. Section 3-806 of the Illinois Uniform Commercial Code (UCC) provides that any person who issues a check “that is not honored upon presentment…
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We have a UCC-1 financing statement on file for collateral securing a loan we are renewing. The borrower now has a REAL ID driver’s license reflecting their full middle name, but our UCC-1 reflects only their middle initial. Do we need to amend the UCC-1 to match the name on the borrower’s new ID or is the UCC-1 valid until the date we are required to file a continuation for it?
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We recommend amending a “blanket” financing statement (UCC-1) within four months of the issuance of a new driver’s license reflecting a different name than what appears on the UCC-1, as this is the length of time a financing statement remains effective as to after-acquired property once it becomes “seriously misleading.” Although a change from a…
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Is there a timeframe for amending a Uniform Commercial Code (UCC) financing statement when a customer’s name changes on their driver’s license? REAL ID driver’s licenses include individuals’ full middle names (not just the middle initial), and we would like to know how long we have to amend our financing statements to reflect a changed name on a driver’s license (e.g., a change from “John S. Smith” to “John Scott Smith”).
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We recommend amending a “blanket” financing statement (UCC-1) within four months of the issuance of a new driver’s license reflecting a different name than what appears on the UCC-1, as this is the length of time a financing statement remains effective as to after-acquired property once it becomes “seriously misleading.” Although a change from a…
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A customer submitted a check for deposit that was returned for insufficient funds. Per our policy, we automatically submitted the check a second time and it was again returned for insufficient funds. The customer went to the police to make a claim against the payor and was told they have no recourse under the criminal code since the check was resubmitted for payment within seven days of the first return. According to the police we would need to submit the check for payment again for the customer to have a case, but we believe Regulation CC prohibits a third submission. Are they correct?
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We believe that you may be able to submit the check for payment a third time as discussed in more detail below, either by submitting it for payment through the ACH system or by sending it as a collection item directly to the paying bank. The police are partially correct, since one method of proving…
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A customer with a trust account died, and the successor trustee has obtained an EIN and will be opening a new trust account. If the trustee has checks payable to the deceased customer’s estate, can they be deposited into the new trust account?
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Generally, a check made out to an estate should be deposited only into an estate account, and depositing the check into a trust account could result in a breach of the Uniform Commercial Code (UCC) warranties. We do not recommend accepting checks payable to the deceased customer’s estate for deposit into the new trust account,…