Both as bankers and consumers, we all know that there are legitimate and reputable firms using the telephone as an integral part of their business of generating sales. Certainly, “telemarketing” has become an accepted way of doing business for many companies. The NBA has received however, a spate of inquiries from bankers who are concerned about cases of alleged “over-the-phone” improprieties and the potential liability on the part of their banks and bank customers. The facts typically described involve a caller’s use of information that results in the preparation of drafts against a customer’s account. The issue that invariably arises is whether or not a draft (that looks like a check) prepared by the caller is an authorizeddraft. For example, a bank customer may be informed that they have won a “prize” and are asked to give their checking account number to either “verify” that the customer has won a contest or for depositing the “prize winnings.” If an unscrupulous caller is able to extract an account number from the bank customer, a draft may be prepared which the customer never authorized. The draft may have the bank customer’s name printed on the signature line or note that the “signature” is authorized.
The Uniform Commercial Code provides that banks must pay only those checks or drafts which are “properly payable”. To be properly payable, a check or draft must be “authorized” by the accountholder. Should the bank customer give account number information with the under-standing that the number will be used to make up a draft, then the draft will be considered “authorized” (and properly payable). But should the customer give an unscrupulous caller an account number without the understanding that the number will be used to make up a draft to extract funds from the account, the negotiable instrument is considered “unauthorized” and is not properly payable.
When a bank pays an unauthorized draft, the accountholder may ask for the account to be recredited. The bank would be required to recredit the account and could end up with taking a loss. The draft cannot be returned to upstream banks in that determining “authorization” is the payor bank’s responsibility. To avoid such losses, bankers should be alert to drafts that do not contain the customer’s actual signature. In finding such a draft, the bank should contact the accountholder to determine if the draft was authorized. If the draft is not authorized, it must be returned through the check-collection system by the bank’s midnight deadline.
Correspondence received from the Nebraska Department of Banking’s General Counsel, dated May 5, 1994, has also stated that:
The Department is of the opinion that a financial institution acts correctly when it returns a draft due to an unauthorized signature. A customer account is a contract with the financial institution. A material part of such a contract is that funds will be released only upon proper signatory authorization. Where the authorization does not exist, or has not been provided to the financial institution for its file, the financial institution could be liable for breach of contract and be unable to recover any funds which it paid out.
Once again, this article is not a criticism of legitimate telemarketing activities, but serves only to alert bankers that there are risks when paying unauthorized drafts resulting from the activities of unscrupulous persons. Also, bank customers should be alert to those situations that may involve telemarketing fraud, e.g., if a caller declares that the consumer has won a prize and asks for the checking account number of credit card number to either “confirm” or “verify” the prize; if a caller offers the consumer a “gift” that involves the payment of a fee or other charge before the gift is sent (if it is truly a gift, the consumer should not have to pay for it or buy anything to get it); or if a caller wants immediate results or requests that the consumer send money to enter the “next” level of a contest or if the caller is hesitant to provide the consumer with specific, written information. If telemarketing fraud is suspected, your customer may want to contact any of the following listings:
Nebraska Attorney General
http://www.ago.ne.gov/
Office of the Attorney General
2115 State Capitol
Lincoln, NE 68509.
Telephone: (402) 471-2682
Toll-free Consumer Protection Line: 1-800-727-6432.
Federal Trade Commission
http://www.ftc.gov/
Bureau of Consumer Protection
Washington, DC 20580
Telephone: (202) 362-2222
National Fraud Information Center
http://www.fraud.org/
Telephone: 1-800-876-7060
Consumers wanting to remove their names from phone lists for unsolicited calls should contact:
Telephone Preference Service
Direct Marketing Association
P.O. Box 9014
Farmingdale, NY 11735
(212) 768-7277