By Matthew M. Young, Attorney
Most credit unions facilitate transactions on behalf of their membership using powers of attorney on a daily basis. In fact, the most common questions I answer as corporate counsel for credit unions relate to powers of attorney. Despite the frequency in which these documents are used, many credit unions accepting these powers of attorney are unaware of the dangers/liability that exists in doing so.
It is important that credit unions understand that accepting a power of attorney is optional. With the exception of military powers of attorney, a financial institution is not required to honor a power of attorney presented to it. Therefore, if the credit union is uneasy about accepting a power of attorney due to the demeanor of the individual, inconsistencies with the document, or other outside factors, it is not required to accept the power of attorney. Nonetheless, the credit union should establish objective criteria for accepting or rejecting a power of attorney to avoid any appearance or allegation of discriminatory conduct on its part.
States’ requirements for valid powers of attorney vary. Most, however, have certain similarities regarding what elements must be in a power of attorney. For example, in Ohio, a power of attorney must be signed by the principal or in the principal’s conscience presence and the signature should be acknowledged in front of a notary public. In the past, the signature of two witnesses in lieu of a notary public was agreeable. However, my recommendation is to always require a power of attorney be notarized to avoid any possibility of fraud. Indeed, powers of attorney are often considered tools to commit fraud or a “license to steal”. The credit union should be mindful of red flags when reviewing a power of attorney, before its acceptance. For example, an old power of attorney should not be accepted. It is likely that the principal’s intent changed over time and therefore, he or she may have revoked the power of attorney or intended to do so. In cases where members present old powers of attorney, the credit union should require a newly executed power of attorney in order to proceed with a transaction. In addition, the credit union should compare the signature on the power of attorney with the signature it has on file for its member to avoid accepting a forged document. Another factor to consider is the consistency of the document. Typically, powers of attorney are multiple pages with the last page containing the principal’s signature and notarization stamp. With the advancement in scanning/word processing capabilities, it would be very easy for a fraudster to change terms in the proceeding pages of an otherwise valid power of attorney and present it with these falsified terms. While often times not practicable, the best way to avoid this scenario is to require that the power of attorney be prepared by an attorney-at-law.
All credit unions should be aware of several basic tenants which apply to powers of attorney. First, a standard power of attorney ceases effectiveness upon the death or incapacity of an individual. A durable power of attorney continues in its effectiveness after the incapacity of an individual, so long as it explicitly states this fact within the document. In no case does any power of attorney continue in force and effect after the death of a principal. Second, a principal can revoke a power of attorney at any time. Once this revocation has been submitted, or alternatively, a new power of attorney has been presented revoking the previous power of attorney, the credit union must notate its system records accordingly.
By taking these considerations into account and adopting procedures at the credit union outlining the proper method for handling powers of attorney, your credit union can avoid fraudulent activity thereby protecting the member and insulating the credit union from liability with these documents.