This may be a dumb question, but is there a regulation that states how much time we must give a non-consumer to notify us of any discrepancies to their statement and checks. Obviously, I understand that they only receive statements every month. Our T&Cs state they must examine their statement with "reasonable promptness" and notify us promptly. In the following paragraph it states they must notify us within 30 days from when their statement was first sent. Is this common practice?

The reason I ask is because we have seen an uptick of fraudulent business checks recently and with the above language, we have been hit with some pretty big dollar amounts. We are seeing a lot of checks being stolen from mailboxes and whitewashed and the customers finding the fraud on their statements.

We did have a conference call with a vendor today to discuss Positive Pay, however, this service did not look at the payee when verifying checks. So, we will now be looking at another vendor.

I guess I'm just curious:
1.) What timelines we can and cannot state in our T&Cs (of course I understand we need to give the customer time to review their statements).
2.) What are other banks doing to cut back on their losses from fraudulent business checks.
3.) Who uses Positive Pay and has it helped with these checks.
4.) And do you charge your customer for Positive Pay?

Also - one last thing. If you offer Positive Pay to a business customer and they do not sign up for it, can liability be put back onto them if they have fraudulent checks on their account, if it is stated in our T&Cs?

I appreciate any feedback.

Depending on the language in your deposit agreement(s) -- you may have a different, stricter agreement for business accounts -- you may be able to bar claims for unauthorized items and/or alterations after a stated number of days after you have sent a statement reflecting the payment of such items. Have your bank legal counsel go over your deposit agreements and check them out. Counsel should also give you advice of what state courts have defined as "reasonable" or "unreasonable" time limits.

If you don't have such wording, you are left with whatever your state has in section 4-406 of its Uniform Commercial Code.

Positive Pay may help. It won't prevent every loss, but it will help. Get counsel involved in that discussion, too.

This is a legal, not a compliance question.

Default statute of limitations will be in your state's uniform commercial code. For many states, this is one year for forged or altered checks.

You can modify this timeframe by account agreement which will be subject to contract law in your state. You should double check with legal counsel if you are not sure of the application of applicable law on your terms and conditions.

With respect to questions 2-4 I will leave it to bankers to comment.

Thank you John & Brian! And yes - I would love to hear from other bankers on questions 2-4.

Question #2: Depends on your policies and procedures. We have human eyes on all checks posting above a certain $ amount. We also encourage our business customers to monitor accounts daily.

Question #3: Any organization that writes a lot of checks or keeps significant balances. I know that is broad, but its been our experience that check fraud can happen to any of them. It's best to have the Positive Pay conversation with all of your business or municipal customers up front, before fraud happens. Our posture has been that if they don't have it and the Bank takes a loss, then their choice is to close the account and open a new one, or get Positive Pay. If they don't like either of those options, then they need to find another bank. The average fraudulent check is usually just under $5,000, and we're not looking to take that loss twice with any one customer. Positive Pay does help cut down on fraud losses. The feature that allows confirming the payee is a must now.


Question #4: We charge a fee for this. More costs more. Ask your customers if they want to be changing accounts or banks when (not if) fraud happens to them.

2 - all types of automated and manual reviews, including high amounts, sequence number out of range, duplicate detection, signature review over $x, frequency or use of checks via said account, and a bunch of other stuff
3 - we use, and yes, it cuts down, we also are now a "return all" setting in positive pay, they don't respond, it gets returned. "pay all" is no longer an option
4 - yes, we charge. it is a business product

Thank you ssteve & HappyGilmore! I appreciate the feedback. This definitely gives us a starting point of what we need to add to our current procedures and how to move forward with PP.

Any other information from any other fellow bankers is welcomed!

Thanks

We"ve also had a substantial increase in check fraud over the last few years. We do have positive pay (originally offered traditional (check #/$ amount) and also payee (payee, check #, $ amount) and require anyone that had check fraud to sign up. Most customers do; some will opt to close the account and open a new one. If they refuse either option they sign a form stating they are responsible for reviewing all items and notifying us promptly of any fraudulent items.

Does payee positive pay work? Yes, if the customer views AND decisions their exceptions correctly. Has it stopped check fraud on the account? For the most part yes. Surprisingly we have had customers mark fraudulent items to pay. Not sure how that is going to pan out as the few we have are still in the works. We had them complete affidavits for altered checks and submitted them to the depositing banks. At that point there isn't much we can do until we hear from the other banks, a process that seems to be taking at least 4 months (usually longer). It is above my pay grade so I cannot answer as to whether the customer would still get reimbursed if the other bank fails to pay. My personal feelings are No, they shouldn't - they paid the item.