Legal Definitions - bank-statement rule

The bank-statement rule is a principle in commercial law that places a responsibility on bank customers to promptly review their bank statements and report any unauthorized transactions, such as those resulting from forgery or alteration, to their bank within a reasonable timeframe. If a customer fails to do so, they may lose their right to hold the bank responsible for losses incurred due to those unauthorized transactions. This rule encourages customers to act diligently in monitoring their accounts, helping to prevent further fraud and ensuring timely resolution of issues.

Here are some examples illustrating the bank-statement rule:

• Example 1: Small Business Payroll Forgery

  Maria owns a small graphic design firm. She receives monthly paper bank statements. One month, her bookkeeper, who has access to the company's checkbook, forges Maria's signature on a check for $5,000 and cashes it. Maria, busy with client projects, puts the bank statement aside and doesn't review it until three months later. When she finally examines it, she discovers the forged check and immediately contacts her bank. Under the bank-statement rule, Maria might be precluded from recovering the $5,000 from the bank because she failed to review her statement and report the forgery within a reasonable period, allowing the fraud to go undetected for an extended time.

• Example 2: Online Account Fraud

  David manages his personal finances entirely online and rarely downloads or reviews his digital bank statements. A scammer gains access to his account information and alters a legitimate online bill payment, redirecting $1,500 to their own account. The fraudulent transaction appears on David's online statement shortly after it occurs. However, David doesn't log in to thoroughly review his transaction history for two months. When he finally notices the suspicious payment, he reports it to his bank. The bank-statement rule could apply here, potentially limiting David's ability to recover the funds because he did not promptly review his account activity and report the alteration, even though his statements were readily available digitally.

• Example 3: Non-Profit Organization's Embezzlement

  The "Community Outreach Foundation," a non-profit organization, has a treasurer responsible for managing its bank accounts. The treasurer begins to embezzle funds by altering the payee names on legitimate checks after they have been signed by the president, diverting money to personal accounts. These altered checks are returned with the monthly bank statements. The foundation's bylaws require the president to review bank statements, but due to a busy schedule, the president only glances at them superficially for several months, missing the subtle alterations. When an external audit finally uncovers the embezzlement six months later, the foundation reports it to the bank. The bank-statement rule could prevent the Community Outreach Foundation from recovering all the embezzled funds from the bank, as the organization, through its president, failed to diligently examine the statements and accompanying checks within a reasonable time to detect and report the alterations.