For those who do not check the Securities forum, there is a pretty good discussion of forgeries going on...

Forgeries - Limiting time that customer has to rev Reply




I know this comes up at least once a month, but here goes:

I seem to be caught in a Catch-22, for all of you over 40. I keep reading on here and elsewhere that the industry standard for the time that a customer has to review his statement and report unauthorized items (i.e., forgeries) is ten (10) days. We use a Bankers Systems signature card/account agreement, which gives them 30 days under UCC 4-406 and 60 days under UCC 4-103. I've tried to get this changed, but Bankers Systems will not allow the change without excluding the form from their warranty for compliance, since they say that these sections require these time frames.

What am I missing here?

Thanks in advance for your replies.

Ed Lampman
Community Bank & Trust

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mbguard
(Administrator)
04/30/02 02:32 PM
Re: Forgeries - Limiting time that customer has to rev [re: elampman] Reply




The UCC says the customer has to promptly examine his statement and report forgeries and alterations within a reasonable time. That is generally not to exceed 30 days. The provisions of the UCC can be varied by agreement of the parties, but until we have court cases in each state that deal with shortening the time limit, there's no certainty about what is reasonable. Should it be longer or shorter for business customers than for consumers, for example?

If you set a shorter length of time by agreement, than the law expressly permits, you just need to understand that you are taking a risk. The risk is that a customer that reports after the time limit will attack the limit and a court may find in their favor. On the other hand, the court may find in your favor and you may substantially reduce your losses through a shortened exposure time.

Mary Beth Guard
Executive Editor
BankersOnline.com

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JacFSB
(BOL Veteran)
04/30/02 02:34 PM
Re: Forgeries - Limiting time that customer has to rev [re: elampman] Reply




Ed,
The UCC in your state may vary, but in looking at the Federal version, I do not see reference to either 60 or 30 days. 4-406 requires the depositor to use 'reasonable promptness' in examining their statement, and creates a one year maximum timeframe for disputing a signature. 4-103 allows the timeframe to be reduced my mutual agreement. This is what gives your disclosure and signature card precedence over the default one year. I have not seen reference to any ten day limits, so if someone could point me in the right direction for finding that information, that would be helpful.

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Rob Robinson
(Unregistered)
04/30/02 02:37 PM
Re: Forgeries - Limiting time that customer has to rev [re: elampman] Reply




UCC 4-406(2) states: “the customer 's unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank if the payment was made before the bank received notice from the customer of the unauthorized signature or alteration and after the customer had been afforded a reasonable period of time, not exceeding 30 days, in which to examine the item or statement of account and notify the bank.”

Hence the new “industry standard” is evolving to the 30-day period due to the probably accurate presumption that 30 days will be deemed “reasonable” by default. I’m not familiar with a 60-day provision established by UCC 4-103 (but that certainly doesn’t mean it doesn’t exist).

This posting in not intended as legal advice nor should it be construed as such for any purpose.

Rob Robinson
CAMELS' Eye Limited
Community Banking Specialists
http://www.camelseye.com


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elampman
(Junior Member)
04/30/02 02:38 PM
Re: Forgeries - Limiting time that customer has to rev [re: JacFSB] Reply




That's pretty much what I see in those sections, also, but please refer to Barbara's comments on this page:

http://www.bankersonline.com/operations/gurus_op01b.html

Edited by elampman (04/30/02 02:40 PM)

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Anonymous
(Unregistered)
04/30/02 03:51 PM
Re: Forgeries - Limiting time that customer has to rev [re: Rob Robinson] Reply




Rob, you said that you are not familiar with the 60 days under 4.103. Well, it is not there. But she is right to refer to that section to justify the 60 day period. So, what is she talking about?

Well, under UCC 4.406, a customer must notify the bank within one year after the statement or items are made available. If the drawer is late in reporting the forgery, he may not challenge the debit and the bank is not obligated to recredit the account, unless the bank acted in bad faith. If your customer does not notify the bank within this one-year limit, your bank may not recredit the customer's account and pass the loss on to the collecting bank on a theory of breach of warranty BCC §4.406(f). This limit is not a statute of limitations, meaning that it is not a limit on the time that the customer has to bring legal action your bank.

Section 4.103(a) allows the effect of the provisions of UCC Chapter 4 to be varied by agreement. Bankers Systems has chosen to vary the effect of the provisions of 4.406(f) to shorten the time therein from 1 year to 60 days. If the customer does not notify the bank within 60 days after the statement is made available, the customer is precluded from asserting against the bank any unauthorized signature or alteration on that statement. (This would be 1 year rather than 60 days if the agreement does not vary the UCC to shorten the period.)

Assuming there is no negligence or wrongdoing on the part of the customer, then regardless of whether a customer notifies the bank of a forgery within 30 days of the availability of the statement, the customer is not responsible for any forgeries that his timely notification could not have avoided (this includes any initial forgery, any other forgeries by the same forger appearing on the statement, and any forgeries by the same forger that occur before the end of the 30 day period). However, under Bankers Systems' varied agreement, if the customer waits more than 60 days after the availability of the statement, he will be precluded from asserting against the bank even those forgeries, by the same forger, that he could not have possibly have prevented by timely notifying the bank within 30 days.

If the customer notifies the bank more than 30 days after, but less than 60 days after availability, then he is precluded from asserting against the bank the forgeries, by the same forger, that notice within 30 days would have prevented. But, he can still assert those forgeries by the same forger that a timely 30 day notice could not have prevented.

I hope this makes sense.

zaibatsu (not logged in)




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mbguard
(Administrator)
04/30/02 08:11 PM
Re: Forgeries - Limiting time that customer has to rev [re: elampman] Reply




On forged signatures:

If the customer finds and reports within the "reasonable time" (30 days -- or less if your agreement has a lesser period), the bank generally bears the loss.

If the customer finds and reports beyond/outside the "reasonable time", the customer takes the loss unless the customer can show the bank failed to exercise ordinary care -- in which case the loss is apportioned between the two or passed to the drawee bank.

If it's been more than a year, the customer is outta luck, regardless of whether or not the bank exercised ordinary care.

So, when Barb says the customer has a year, that's what she means. The customer may actually be unable to pass the loss on if it's been a much shorter time period, depending upon all the circumstances.

Mary Beth Guard
Executive Editor
BankersOnline.com

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Rob Robinson
(Unregistered)
05/01/02 08:20 AM
Re: Forgeries - Limiting time that customer has to rev [re: Anonymous] Reply




Outstanding! Thanks for the clarification. (As anyone that reads my posts has figured out by now, I LOVE details, apparently sometimes “nauseatingly” so.)

I knew the parties could vary by agreement, I just couldn’t find the 60-day specific reference and was confused about the specific cite.

This posting in not intended as legal advice nor should it be construed as such for any purpose.

Rob Robinson
CAMELS' Eye Limited
Community Banking Specialists
http://www.camelseye.com


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Anonymous
(Unregistered)
05/01/02 08:22 AM
Re: Forgeries - Limiting time that customer has to rev [re: mbguard] Reply




Mary Beth is correct, but remember that for forgeries that the customer could not have prevented by notice within the reasonable time--forgeries on that statement and forgeries occurring by the same forger that occur after the statement period but before the reasonable time elapses--the customer is not liable for those forgeries unless the customer fails to notify the bank within the 1 year (or within a shorter period by agreement). Of course, this answer might change if the customer is in some way responsible for the forgeries (complicity or failure to excercise due care).

And "zaibatsu" may have claimed the Oscar for longest single post in this string! May I suggest that next time you include a link to the other discussion, and not repeat the whole thing?

By the way, an extremely well-organized discussion on the Texas case, "Z"!

I included the entire thread because I thought that someone searching for this discussion would not search in the Security forum. This way a search for this topic in the General forum (where this probably belongs) will turn up this thread.

Perhaps that is the difference between an attorney and a consultant (by the hour, by the job). zaibatsu posted the thread, Richard answered a post with "No".

Just an observation.

You mean I'm getting paid by the hour to post on this forum? Hey, regardless of what John says, now, I know my posts are actually too short. Who's paying the bill?

The check is in the mail. As I understand it, most of you get paid twice what I do.

(To avoid confusion by any new readers, there is no tax withholdings on what we get, because what we get is beyond dollars and cents.)