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Business Accounts and ODP
Answer by John Burnett, BOL Guru
Guru Bios
Question: I need some help with Business accounts and ODP's. I took the web seminar on Overdraft Marketing and Policies in June. The speakers briefly touched on ODP's and business accounts (that if we offer it on business accounts we need to make sure that the resolution for Corporations and Partnerships state that the authorized signers are able to borrow money, and just because they have the authority to sign a check does not give them the authority to borrow money). I was trying to explain this to our marketing person and our CEO. Please explain the difference between why we need this for business and not for consumers, and does the above recommendation apply for sole proprietors, POA, and Trust accounts?
Answer: The advice applies to any entity. That means we would not apply it to sole proprietorships. The reason for the advice is the same reason that banks get separate authorizations for borrowing and for opening deposit accounts: entities only operate through their agents, and unless we know which agents are authorized to do various things with the bank, we accept the entity's business at our peril.
A business might, for example, authorize a bookkeeper to sign checks on its account. It does not do so in anticipation that the bookkeeper -- or anyone else for that matter -- will borrow money from the bank on the basis of access to the deposit account. Businesses often impose segregation of duties when it comes to deposit accounts and borrowing.
It's one matter for a business -- more accurately, its agents -- to err once in a while and create an inadvertent overdraft. It is quite another thing to anticipate an overdraft as a "normal" business transaction. An overdraft, after all, is a borrowing from the bank.
If your bank were to get "stuck" with an overdraft balance and attempt to collect it, one of the first arguments you're likely to receive from the business's attorney is "on whose authority did you approve that loan to my client?" If you haven't obtained documentation of borrowing authority that covers your ODP specifically, you could have a problem collecting your overdraft.
First published on BankersOnline.com 3/20/06
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