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Telephone Authorization for Bank Debit

Question: We have a customer who gave out his checking account number and our bank number over the phone to buy something, and now he wants his money back. Where do we stand?

Answer: In a pretty good position, actually. Uniform Commercial Code 4-401(a) says you can't charge a customer's account unless the item is properly payable. However, if it is properly payable, you can charge it against the customer's account, even though the charge creates an overdraft. An item is properly payable if it is authorized by the customer. It doesn't have to be signed, if it is authorized. Authorization can be made orally. With telemarketing scams that get customers to agree to let the company process a draft to be drawn on their account, their recorded conversations wherein the customer gives consent constitutes sufficient authorization to make the item properly payable. (UCC 3-401)

Copyright © 2005 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 15, No. 3, 4/05

First published on 04/01/2005

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