Community Bankers' Advisor

i  November - December, 2003

Page 2  


payment". We would hope that having a stop payment on the item would simply give you a method, operationally, to kick it out and allow you to process it in a timely fashion. You would not want to return it marked "stop payment" under the scenario just described because that doesn't alert the depositary bank to the real problem - and it makes it look like you have wrongfully refused to pay the check.
If the check comes in during the 90 day period after it was issued and it has a valid endorsement on it and has been negotiated over to a holder in due course, you would need to pay it. Failure to do so could give rise to a claim against you. If you decide (and I wouldn't advise it) as an accommodation to the customer, to refuse payment of the check, even if it appears to have a good endorsement, you would want the customer to agree to indemnify you for all claims and charges you incur as a result of not paying the check during that 90 day period (before the declaration of loss becomes enforceable and you have a legal right to return the check unpaid). You can only require the indemnification for the period of time that you have exposure to liability before the Section 3-312 protection clicks into place.
As with many other banking matters, it's simply an issue of risk management. If you are willing to take the risk that the check might show up validly endorsed and you could end up paying twice - or if you are willing to take the risk with prudent steps to insulate yourself from liability by getting an indemnity agreement or a bond, then you can put the stop payment on. You simply need to understand the potential liability before you do and you need to make an informed decision about whether it's worth it - or whether you should wait it out.

Copyright © 2003 BankersOnline.com. Originally appeared in Oklahoma Bankers Association Compliance Informer, October 2002. (Reprinted with permission from the author.)

 

You Are Asking. . . .

Q: A customer has three different businesses and they are all sole proprietorships “Doing Business As.” Should we require him to have three separate accounts established for each DBA, or is it all right for him to combine the funds from each company into one account?

A: Merging the accounts is not a good idea, though in reality you have only one actual customer. Not only will consolidating this activity into one account cause a headache for the customer's accountant at tax time, your concerns are whether items payable to all of the trade names can or should be deposited to the same account. Also, how will your bank monitor customer activity for suspicious transactions? In addition, it sends the wrong message to tellers and may lead them to the conclusion that depositing checks payable to multiple payees into a single account is generally permissible. We recommend that you require that he segregate the businesses in separate accounts.

Q: What's your opinion -- should our tellers have their full name on their name plates?
A: Everyone knows everyone in small towns, but we would vote no on the matter because of security and the privacy of the employee. That said, this is entirely a bank decision.

Q: What accounts are covered by the USA Patriot Act?
A: Briefly, an "account" is defined by the Act as formal banking arrangement established to provide or engage in services, dealings or other financial transactions. This handy-dandy chart generally shows what is included and what is not included in this definition.


Included
Excluded
Deposit Account Travelers checks
Checking Account Check cashing
CD Wire transfer
Safe Deposit Box Money Orders
Loan Accounts acquired through acquisition, merger, purchase of assets, or assumption of liabilities from a third party
Mortgage Sub-accounts held through a deposit broker
Credit Card Accounts for participating in an employee benefit plan established pursuant to the Employee Retirement Income Security Act
Custodian or Trust Services  
Previous PageNext Page
Gold Bard

Firm Profile | Attorneys | Newsletter | State Government | Links | Contact Us | Home

Copyright 1998-2002 Olson & Burns, P.C., all rights reserved.
This website is presented for information purposes only and is not intended to provide legal advice.