Volume 16 Issue 1 -- January/February 2004
Norton, your client, calls and complains about an
unauthorized bank account withdrawal by a Nevada business called NevR Doit,
Inc.(“NevR”), which ran ads about assisting in the formation of Nevada
corporations. Responding to the ad,
Norton (“Nort”) conditionally agreed to use the services of NevR to form a
new Nevada corporation, but Nort’s understanding was that nothing would happen
until he sent his signed consent to NevR.
Nort’s mistake was to give NevR his bank account
number and believe that NevR would honor its oral promise to wait.
Did NevR wait for the written consent of Nort?
You guessed it. Armed with
Nort’s bank account number, NevR decided not to wait for Nort’s written
consent and proceeded to fraudulently withdraw funds from Nort’s account and
prepare “canned” corporate documents.
Is it too late for Nort to nip NevR’s improper
withdrawal from his bank account? No,
but Nort should not have given NevR his account information in the first place.
Nort has some chips on his side because of NACHA.
NACHA, an acronym for the “National Automated Clearing House
Association,” has developed standards for reversing questioned transactions.
Most electronic bank charges are processed by automated electronic
clearing houses. Under the
guidelines adopted by NACHA and authorized by the Federal Reserve Board, Nort
can have the NevR withdrawal reversed if he goes to his bank and insists that
the questioned withdrawal be credited to his account because he did not, in
fact, authorize it.
If Nort acts within 60 days, his ability to stop
NevR’s withdrawal will likely be successful, unless NevR can prove Nort
authorized the withdrawal in writing.
What if Nort misses the 60-day limit?
If more than 60 days have passed, Nort may still be able to get the
withdrawal reversed, but it will probably be more difficult.
Since organizations like NevR rely on credit card charges to sustain
their cash flow, and banks and NACHA members do not like to reverse entries, it
is possible that with a few complaints NevR will be denied the ability to
transact business through the NACHA system.
The thing which Nort should keep in mind is not to
accept “NO” the first time he hears such a response from a bank employee or
officer. Similarly if the bank
refuses to help, then it is possible to take the matter directly to the NACHA
clearing house member.
Don’t expect to get a quick, clear answer or even
cooperation at first. Get the name
and position of the individuals you “may” get on the phone and be
persistent. Dealing with large entities is a daunting task that requires energy,
perseverance, and good record keeping.
After the account information has already been
given out, it may be wise to cancel the bank account in question to avoid future
unauthorized withdrawals. Even if NevR desists from trying again, it may give the account information to
What about arrangements for withdrawals from
Nort’s bank account by government agencies, like the IRS?
The problem may not be the bona fides of the creditor but the competency
of the governmental system to correctly withdraw and credit the account of the
debtor, here Nort. We recently saw a case where the IRS correctly debited the
bank account each month, but then incorrectly credited the payments.
Generally, if a creditor is to be given a bank
account number, then a separate bank account should be established for such
withdrawals and that account should be maintained with only enough funds to
support the authorized debits.
Writing checks may be even better than a separate
account for withdrawals by creditors. If Nort had insisted on writing a check
for the service of NevR the problems discussed above probably would not have
been created. In dealing with large
organizations like the IRS it is often necessary to create the “record” by
having written proof of payment and other actions.
While it does not sound modern, and isn’t, writing checks is sometimes
the only practical way to prove financial activity with large organizations.
If you or a client have problems of this type, call
The Tax & Business Professionals for assistance.
By Tax and Business Professionals, Inc.
9837 Business Way
Manassas, VA 20110
While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.
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