Check Fraud-Who is Liable
Current UCC Codes outline specific check fraud responsibilities for banks and corporations. Court decisions have already established guidelines for legal responsibilities, and failure to meet these guidelines can cause a bank or company to experience financial loss.
UCC Revisions now define responsibilities for check issuers and paying banks under the term ordinary care. Under Sections 3-403(a) and 4-401(a), a bank can charge items against a customer's account only if they are "properly payable" and the check is signed by an authorized individual. However, if a signature is forged, the corporate account may be liable if one of the following exceptions applies:
Impact of Regulation CC
In 1992, the Federal Reserve Regulation CC reduced the time a bank was allowed to hold deposited funds as uncollected items. The new regulations provides access to funds in a shorter period of time- e.g., local checks within 2 days, non-local checks within 5 days - regardless of the actual check has cleared.
The regulation's intent was to speed the availability of funds. But the change has greatly increased fraud losses by shortening the time that banks have to return items paying against uncollected funds. In most cases, it increases the time criminals have to perpetrate a fraud. This is done by manipulating a checks routing and transit numbers, redirecting checks to an incorrect Federal District.
Banks are also required to follow stricter guidelines regarding new accounts. Any account that has been open for 30 days may no longer be considered a new account. This guideline, as with Reg CC, provides criminals with additional time to defraud banks via altered or bogus checks.
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