Uniform Commercial Code:
Your Rights as an Account Holder

Have you ever looked at the back of your bank statement and wondered about that 'In case of error...' statement?

Usually it's along the lines of "In case of errors or questions, we must hear from you no later than 60 days after we sent you the first statement on which the error or problem appeared."

This statement is in accordance with the UCC (Uniform Commercial Code), which regulates all activity between the you and your bank. It specifies your bank's rights and responsibilities, as well as your rights and responsibilities as an account holder.

Your responsibilities:
As an account holder, you are responsible to notify your bank of any errors within a stated period of time. If this period lapses, your legal rights to make a claim are severely diminished. Note: The lapse of time does not preclude you from making a claim, but you may find yourself in a legally 'weaker' position.

The time period is typically stated on the back of every bank statement you receive. It will be under a heading similar to "Your Rights", or "In Case of Errors".

The period of notification is agreed upon between you and your bank when you open an account, and varies from institution to institution. Note: Brokerage accounts, while performing 'bank-like' activities, are covered elsewhere (and beyond the scope of this article).

It's important to familiarize yourself with the notification period and procedures for your banking institutions.

Why is there a time period for claims?
The banks introduce time periods for claims to protect their exposure and loss against internal errors and fraud.

Internal Errors
If, for example, your bank incorrectly credits your account with 4%, instead of the 5% interest they advertise, they - in theory - are not required to rectify this if you don't note the error within a prescribed number of days.

Fraud
Consider this example: You have an account at Bank Y. A counterfeiter opens a checking account under a false identity at Bank X. He then deposits into his account, thereby drawing a counterfeit check against your account. Afterwards, he withdraws cash at Bank X against his balance and is never heard from again.

If you contact your bank about the counterfeit check within the UCC time frame, your bank has a proper claim against Bank X (the bank of first deposit). When your bank is reimbursed for the loss, you in turn will be reimbursed.

The challenges arise when fraudulent activity is discovered after the UCC time frame. If you fail to notify your bank within the allotted time frame, your bank has little to no recourse against the other bank. If your bank decides to reimburse you, they wouldl be paying the loss from their own 'pocket' - due to your failure to perform a timely reconciliation.

Not only does the UCC regulate activity between you and your bank, it also regulates activity between banks.

What can you do?
Perform timely bank reconciliations
One of the most important ways to manage your cash and reduce fraud losses is to perform timely bank reconciliations.

If you suspect there's been fraudulent activity on your account:
Notify your bank
Follow your bank's procedures for items in "Error or Dispute". We highly recommend that, in addition, you follow up in writing (Certified mail, if appropriate).

Seek professional advice
This article is written as a general overview and should not be construed as professional advice. Each client's situation is unique. If you have questions or concerns about your financial and accounting procedures, seek professional guidance.

Treasury Software is a leading provider of client-side file creation and transmission software for Positive Pay and ACH, as well as bank reconciliation and custom cash management solutions. Designated a Verified for Windows XP software application by Microsoft, Treasury Software is a Microsoft Certified Partner. Winner of the Gold Cup Award from CPA Software News, Treasury Software products are easy to use, secure and cost effective.

For more information: www.TreasurySoftware.com or 866-226-5732.