Give Your Account Documents a Checkup

Written By: Jay L. Hack


In 2008, I wrote in the Business Law Journal that legal developments lagged behind technology so banks needed to stay at the head of the curve to avoid claims of negligence for failing to offer state-of-the-art solutions to customers. Recently, we had a practical application of this situation. The Uniform Commercial Code requires depositors to review checks shown on their account statements for alterations or forgeries. The risk of loss shifts to the customer if the customer does not promptly report discrepancies. However, the statute only mentions checks. Last month, a depositor claimed that two years of ACH withdrawals were unauthorized but he didn't notice the charges because he never conducted transactions on the account. The statute, or an account agreement with only the statutory wording, would have provided no protection. However, in this case, the account agreement covered all transactions on the statement, not just checks. The ACH charges were allegedly originated by the depositor’s nephew. Thus, we were able to write the depositor a letter saying, “you have no claim against the bank." We avoided having to disprove his allegation that the charges were unauthorized.

Today's Takeaway? They didn't teach medicine in law school, but I recommend that banks give their account agreements a periodic check-up to make sure that they address modern technology. Your new product policy should also require this as part of your risk assessment before implementing a new product. Think for a moment about the technology allowing cell phone photographs of checks to be deposited. That technology did not exist when the laws applicable to bank deposits were written. Does your account agreement and funds availability policy cover this new technology?
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