Compliance Bulletin

Banks Need to be Aware of Periodic Statement Disclosures
June 13, 2016

A provision of the Uniform Commercial Code (Section 4406) provides that if a bank furnished customers in period account statements with sufficient information to allow the customer to identify the items paid, then it is incumbent upon the customer to determine if the items are altered or unauthorized. Failing to discover and report a discrepancy, the customer is precluded from asserting a claim against the bank. Since 1990, Section 4406 included an official comment stating that a description of an item paid is sufficient if it is described by item number, amount, and date of payment. For any bank that did not return items or copies of items to their customers, the statute offered a bank with clear guidance on how to avail itself of the statutory safe harbor. Because the legislature had anticipated technological advances to alter the way disclosures may be made, the provision was set to sunset in five years. The helpful provision had been legislatively renewed continuously until a bill renewing Section 4406 in 2014, effective as of January 1, 2015, omitted it. Ted Teruo Kitada, senior counsel with Wells Fargo and chairman of CBA’s Legal Affairs Committee, prepared a Regulatory Compliance Bulletin on this issue that includes a sample account agreement provision as a workaround until the legislature decides to reinstate the safe harbor. 

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