Uniform Commercial Code – Page 7 – IBA Compliance Connection

We are a small bank, and several of our employees have been diagnosed with COVID-19. We have two employees on site who are maintaining daily operations and addressing customer needs, but they may have been exposed to the disease. We have been in contact with the FDIC and IDFPR regarding the circumstances, and the IDFPR has advised us of the necessary steps to make an emergency proclamation request and temporarily close our bank. We would like to know if there are any other requirements or regulations we should be aware of in the event of a closure, such as any Uniform Commercial Code (UCC) considerations. Also, we note that our ability to handle the daily cash letter would not be impeded as our correspondent bank handles those operational duties.

Jan 25, 2021

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If your bank must close due to a large portion of your employees being diagnosed with COVID-19, we believe you generally would be excused from meeting the time limits imposed by the UCC, provided your bank exercises diligence in taking the necessary action as soon as it is able. Delays by collecting banks and paying…

How should customers who use both foreign and English spellings for their name endorse checks? For example, if a customer’s given name is Wiktor, but they also go by “Victor” and they have a check made out to “Victor Smith,” should they endorse the check as “Victor Smith”? Or, should the customer endorse the check as Wiktor Smith, a/k/a Victor Smith?

Jan 11, 2021

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We believe your customer may endorse the check as “Victor Smith” or as “Wiktor Smith” — or they may sign both names. The Uniform Commercial Code (UCC) provides that an “instrument is payable to the person intended by the signer even if that person is identified in the instrument by a name or other identification…

Does the UCC acknowledge “FDO” as a substitute for “for deposit only?” We are seeing customers use “FDO” in lieu of “for deposit only” when endorsing checks, and we would like to know if this shortened version of a restrictive endorsement is acceptable.

Dec 16, 2020

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We believe that your bank should treat a check endorsed as “FDO” as endorsed with the words “for deposit only.” You may choose to return a check with the restrictive endorsement “FDO” as lacking a proper endorsement if you are directed to deposit the check into an account other than the endorser’s, as you would…

We sent a breach of warranty claim to a depository bank for an altered item. We sent the claim via overnight mail, and the depository bank signed for it the next day. More than thirty days have passed, and we have not received a response to our claim. Is the depository bank required to respond within a certain amount of time? Also, what would the next step be in asserting our claim?

Oct 19, 2020

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We do not believe the Illinois Uniform Commercial Code (Illinois UCC) or any other state or federal law specifies any time by which depository banks must respond to a claim for the breach of a presentment warranty. Whether your bank decides to pursue this claim further (possibly in court) is a business decision to be…

What are the record retention periods for deposit account statements and checks? Do these requirements vary between paper and electronic records?

Sep 28, 2020

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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. Your bank should retain deposit account statements for at least five years and checks for…

What documentation should we require before closing an account remotely? Are there different guidelines for accounts that have a zero balance and accounts that have remaining funds? For example, if we receive a request to close an account with a zero balance, are we still required to obtain a letter of direction with a signature, or is an email from the email address we have on file for the account sufficient?

Aug 28, 2020

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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. We believe that you may accept electronic signatures to close accounts. Both Illinois and federal…

We have a blanket financing statement on all equipment “now owned and after acquired” by the debtor, who recently died. Another lender later filed a financing statement listing a specific piece of equipment, but we are unsure whether this lender has a purchase money security interest (PMSI) in the piece of equipment and would have priority over our lien. Must a financing statement indicate if the lender has a PMSI? Also, this lender has not amended its financing statement to reflect the debtor’s name as it appears on his driver’s license. Could this affect the lender’s position? An auction sale has been scheduled, and we are trying to determine our position.

Aug 13, 2020

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We are not aware of any statutory requirement for a financing statement to indicate that a lender has a PMSI in the collateral identified in the statement. You may wish to contact the other lender to inquire as to the nature of their interest in the piece of equipment. You are correct that a lender…

We have a customer who is a retired attorney and no longer maintains a business or IOLTA account. He wishes to deposit a Treasury check made payable to “John Doe ATTY FOR Client Doe.” The description on the check reads “SOC SEC for INS,” and our customer says the funds are his fees for representing a client in a Social Security dispute. Is our customer’s signature enough to endorse this check, or is the client’s signature required to complete the endorsement? We would typically require a check like this to be deposited into an IOLTA account. Generally, when a check is made out to Person A for Person B, what type of endorsement is required?

Jul 30, 2020

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We believe only the attorney’s signature is required to endorse this check. The Social Security Administration (SSA) has published guidance stating that when it issues fee payments either by check or direct deposit to attorneys who have represented Social Security claimants, the check may read, for example: “John Altmeyer ATTY FOR James Crandle.” Since the…

We paid five checks that turned out to be forgeries for a business customer. Our customer notified us of the forgeries shortly after receiving their account statement, and we returned them to the depository bank, but the returns were after the midnight deadline. Our account agreement provides that we are not responsible for any unauthorized signature or alteration that would not be identified by a reasonable inspection of the item. Our account agreement does not mention or offer specific fraud detection services. Can we avoid liability on this basis?

Jul 17, 2020

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We would not recommend relying on your account agreement to avoid liability to a customer for forged checks that your customer reported in a timely manner, but we note that we cannot provide legal advice. We recommend working with bank counsel to review and analyze your account agreement’s provisions with respect to the customer’s responsibility…

Are depository banks required to mail an image replacement document (IRD) with a chargeback notice? When we, as a payor bank, have returned checks to depository banks, we have received calls from their customers requesting a copy of the item, since their bank (the depository bank) does not provide it.

Jul 10, 2020

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No, a depository bank is not required to send an image replacement document (also known as a substitute check) to its customers as part of the chargeback notice. Regulation CC provides that if a depository bank receives a returned check, “it shall send or give notice to its customer of the facts,” but it does…

Topic: Uniform Commercial Code