What Do I Do If…
What do I do if one of our depositors comes in and says they were contacted by the payee on one of their checks, and that payee says they never got our depositor's check? But when our depositor looked at the records on his account, he sees the paid check is on his statement. Evidently somebody else got the money meant for the payee. What happens now?
What Doesn't Happen
The first thing that doesn't happen is immediately recrediting your depositor's account. You need to do some research and investigation on the circumstances surrounding the negotiation before you credit your customer/ member.
First - the check
The first thing you do is get a good copy of the front and back of the check. It could be an original check, or, under Check 21, that's going to be a substitute document - which is still OK. That's the legal equivalent of the original check. If there is a valid claim, after you take a good look at it and ask some questions, you're going to give that copy to your customer/member.
Second - the Date
What is the date of negotiation? According to the Uniform Commercial Code:
§4-111 Statute of Limitations - An action to enforce an obligation, duty, or right arising under this Article must be commenced within three years after the [cause of action] accrues.
§ 3-118 Statute of Limitations states: (g) Unless governed by other law regarding claims for indemnity or contribution, an action (i) for conversion of an instrument, for money had and received, or like action based on conversion, (ii) for breach of warranty, or (iii) to enforce an obligation , duty, or right arising under this Article and not governed by this section must be commenced within three years after the [cause of action] accrues.
Simply put - the payee of the check has three years from the date of endorsement to make a claim on the check. What you need to do now, therefore, is look on the back of the check to see when it was negotiated. If it's more than three years ago, there is nothing further to do. There is no claim that can be enforced against the negotiating financial institution.
Next - the Affidavit
In order for you to send this claim to the negotiating financial institution, you're going to have to have the payee fill out a Forgery Affidavit to send along with the check (substitute document) that will be attached to it. If you don't have a Forgery Affidavit in your office, you can get one by going to www.bankersonline.com and scroll down to the middle of the main page where it reads 'BOL Content Centers'. Under that you'll see 'Tools'. Under 'Tools' click on BOL Forms. Once there, scroll down to Miscellaneous Forms and Posters and you'll find Affidavit of Forgery. Make a copy of it and give it to your depositor along with the copy of the check and explain that it must be filled out by the payee on the check before you can send the claim to the negotiating bank. A notary's stamp is not always required, but it is preferable.
Important Note - At this point in the investigation, it may be that your customer/member has some knowledge of who negotiated this check. If you can get any information that will be of help to the endorsing/negotiating financial institution, make a note of it. Information could be of importance in the attempt to recover funds. This is especially important if the case is current and the negotiation is recent enough to capture deposits before disbursement. A call to the other bank will be as welcome as one to you would be.
Next - the Letter
When the depositor brings back the completed Affidavit of Forgery with the check attached, you'll now write, on behalf of your depositor, to the negotiating bank. You'll probably get the best results if you address it to a particular person, preferably one in operations. You'll get that information, usually, by going on the Internet and looking up the web site of the bank or credit union. We do a great job of advertising the names of our bankers and their positions. If you do not have a particular name, address your correspondence to the Supervisor, Bookkeeping Department or to the Operations Officer.
Your letter need not be long or complicated. It will include the information from the check and the date of endorsement by the bank to which you are writing. Just:
Dear Sir/Madam:
Enclosed please find check number _____, dated ____, payable to ______ in the amount of $_______, attached to the Affidavit of Forgery signed by the payee of the item. Under your guarantee of endorsement dated __________, please forward to the undersigned your check to our order in the amount of $_________.
Thank you.
Very truly yours,
Now, you wait. Not too long. There is no requirement for the negotiating institution to reimburse you within a set amount of time. Most will respond within a month or two. Beyond that, though, you need to do some follow-up with calls or letters. The UCC is very clear on this type of claim. The liability is on the endorsing financial institution.
Last - the Reimbursement
If at all possible, wait until you get your check from the endorsing financial institution before you credit your depositor. In a few instances, you may want to reimburse them earlier, but it's best to get your money before you give it back to your customer/member. They can then write another check to the original payee and the case is closed ... except, of course, for the negotiating bank which is sitting with a loss right about now, trying to recover their money.
Note from the Editor: To the subscriber who asked for this page - if I were to write a policy, it would be:1) Take claim 2) Get copy of check 3) Investigate and Research 4) Obtain Affidavit of Forgery 5) Write endorsing bank and send original check and affidavit 6) Reimburse customer upon receipt of funds from endorsing bank.
What Do I Do If... to be continued
Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 6, 10/10
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