Pub. 1 2012 Issue 8

good businesses use a large transient workforce. Many good transient workers prefer to cash their checks rather than deposit payroll checks at a bank that will not be local to them as they move around the country. Refusing to cash checks for unknown transient workers because of a few crooks is not a realistic solution. Encouraging or requiring businesses to use a Positive Pay System will prevent these losses. When using Positive Pay, the business cus- tomer provides the bank’s computer with check numbers and amounts before providing the checks to recipients. When a teller cashes a check, the teller will first memo post the check and the computer will reject the transaction if the business has not shown the check number and amount as an issued and outstanding check. The bank’s computer system also verifies any checks received in a cash letter against the customer’s issued outstanding checks so that other types of forgery can be detected and any forged checks that are discovered can be returned by the required midnight deadline. Some Positive Pay systems even use character recognition software to verify that the payee name has not been altered. Most bank check processing systems have Positive Pay as an avail- able option. However, because the customer can normally hold the bank liable for paying a forged check, some customers object to the cost and effort required for a Positive Pay system which is not of benefit to them. Some larger banks now have, in their standard business account agreements, added language that provides that if the customer chooses not to use fraud detection systems offered by the bank, such as Positive Pay, then the bank is not liable for any loss that would have been prevented by use of that fraud detection system. In a recent lawsuit entitled Cincinnati Insurance Company v. Wachovia Bank (2010WL 2777478), the court agreed with the bank that even though the normal UCC provisions hold a bank liable, UCC 4-103 allows the UCC standard provisions to be over-ridden by the account agreement. The court determined that had the customer implemented the Positive Pay procedures, the payment of the $153,856.46 fraudulent check would have been prevented. The court held that the bank was not liable to the customer for the fraudulent check because the account agreement provided that if the customer failed to implement the Positive Pay procedure, the bank would not be liable to the customer for the preventable loss. With customers and banks working together, many forged and altered check losses can be prevented. Banks can and should require that business customers implement reasonable loss prevention procedures. Banks can modify their business account agreements to provide that if the customer chooses not to use reasonable procedures, then the preventable losses will be the customer’s loss and not the bank’s loss. For more information, please give us a call at (785) 228-0000. 12 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s continued frompage 10 Bringing It All Back Home ABA National Conference for Community Bankers Register at aba.com/Community Our 2013 conference is an exploration of the best ways community bankers can apply on-the-ground experience and new technologies to compete more effectively. Join us next February in Orlando for a program focused on payment system trends, branch futures, gamification, new lines of business and more. February 17–20, 2013 JW Marriott Orlando, Grande Lakes l Orlando, Florida