If the paying bank had interdiction capability to detect the duplicate presentment, it would have bounced the second deposit, which was probably of the paper item. That's what should have happened, IMO.
But I bet the dupl payment was caught by the check issuer, who rightfully demanded (and received) reimbursement after the paying bank had missed its midnight deadline for returns.
Under current rules, I don't think you are obligated to pay Bank#2. It's their bad luck that they took the check and that the Fed allows a PAID adjustment for an item deposited in paper form.
If the Fed proposal from earlier this year is included in the final Reg CC revisions (if they EVER get here!), you'd be on the hook as the RDC bank because your mRDC product adds risk to the payment system by allowing a check to be capable of being used more than once.
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John S. Burnett
BankersOnline.com
Fighting for Compliance since 1976
Bankers' Threads User #8