Volume 16 Issue 1

Jan/Feb 2004

© by Tax & Business Professionals

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.

Want some NACHAS?

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 another crook.

Dealing with Government Agencies

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.

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