of good faith or to limit potential damages. Improper intervention between a customer’s promised payment to another party may evidence a lack of good faith or, worse, increased liability for proximate damages if bad faith can be proved (UCC 4-103). If what has been previously stated isn’t enough to initiate a conversation with bank counsel, my compliance colleagues may want to consider the UDAAP ramifications associated with disparate treatment. Let’s say your bank has a policy of cashing an on-us check for non-customers for $5.00. Simultaneously, the bank requires customers to deposit on-us checks and will only make those funds available according to its Funds Availability Policy. Refusing to pay an on-us check to a customer according to the same terms as a non-customer would likely incur UDAAP risks. For instance, if a customer’s account is overdrawn, but they merely want to cash the on-us check to prevent an offset of those funds, is it “fair” to not provide the same service to customers as the bank does to non-customers? Probably not. A customer could easily endorse the check to a third-party non-customer or deposit it at another financial institution to avoid the bank’s offset of funds. I certainly don’t want to be the person trying to explain the “countervailing benefits to consumers or competition” that somehow outweigh the injurious effects of this type of policy. Of course, these analyses are dependent on your bank’s specific policies, agreements and the relevant federal and state authorities — it’s uncertain whether the practices previously described will result in administrative or civil liability. Determination of whether a violation even exists is left to the factfinder (i.e., auditor/examiner or judge/ jury). That said, banks should consider implementing policy changes and other controls to bring any identified risks within the limits of their risk appetite (along with safety and soundness considerations). We always recommend consulting with bank counsel for guidance relating to legal risks. On-us checks carry different risks than transit checks, creating distinct responsibilities, particularly regarding wrongful dishonor and funds availability. Wrongful dishonor occurs when a bank lacks a valid reason for refusing its obligation to pay an item according to its terms. A bank may be held liable for damages proximately caused by its refusal (UCC 4-402). Further, some states require banks to pay on-us checks without regard to whether the payee is a customer (provided the check is properly payable and the payee provides reasonable identification). That is, if the bank would otherwise cash an on-us check for a customer, some states require banks to do the same for non-customers. Further, a bank’s agreement with its customer may not disclaim responsibility for lack 27 NEBRASKA BANKER
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