CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2004 No.15
September 14, 2004

Vol 2004 No. 15 September 14, 2004

Safe Harbor For Periodic Statements Extended to 2010

A CBA-sponsored bill (AB 2671) was passed that extends the provisions of Commercial Code Section 4406, presently set to expire on January 1, 2005, for five additional years to January 1, 2010. This is the California law that requires banks to provide sufficient information to customers regarding checks and other items paid from an account. The law also requires consumers to examine bank statements (or the items, if provided) and to notify the bank within a reasonable time after receipt of such information of any alterations or unauthorized signatures.

Section 4406(a) specifically states that "the statement of account provides sufficient information if the item is described by item number, amount, and date of payment." This provision is important to the industry because it establishes a standard that is clear and achievable for what constitutes sufficient information for purposes of triggering customers' obligations to notify banks of unauthorized activities. Without the extension, a replacement section would have gone into effect that would require banks to provide sufficient information rather than to reasonably identify the items. Also, because the replacement section does not include the clarifying language quoted above, the adequacy of the information banks must provide would, in essence, be determined judicially through litigation.

The existing statutory standard has been subject to legislative sunsets because of the prevailing expectation that advances in technology will some day allow the industry to return more information to customers, including payee name. Indeed, with Check 21 soon to become effective, it is conceivable that, within the next few years, many more banks will begin to make images of checks available, including through the Internet. It is uncertain, however, how quickly the entire industry will migrate to electronic check clearing, or otherwise be able to provide more information than what section 4406 presently requires. AB 2671 guarantees that, at least until January 1, 2010, banks can continue to provide the check number, amount, and date of payment to comply with the notice requirement.
If you have any questions, you may direct them to Kevin Gould, who is the lead lobbyist for this bill at kgould@calbankers.com.