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Bank's Responsibility for Fraudulent Check Deposit
by John Burnett and Ken Golliher, BOL Gurus

Question: What is the responsibility of the bank when a customer deposits a fraudulent check in their acccount? The customer being the victim of a scam loses the money. What is the bank's legal responsibility? By when is the customer supposed to be notified of this?

Answer by John Burnett: The bank is the customer's agent in collecting the check. Unless the check is drawn on the depositary bank, the depositary bank incurs no liability to its duped customer. One of the most basic tenets of the UCC is that "he who deals most directly with the perpetrator of a fraud is in the best position to have prevented it, and will be accountable for the loss." Of course, if the funds have already gone "out the door," the depositary bank MAY write off an overdraft. But that does not change the depositor's responsibility for the item. The depository bank is responsible for notifying its customer of the dishonor of the bogus check in a notice delivered (mailed/telephoned/faxed) by the close of the business day next after the business day on which the bank learns of the dishonor.

Answer by Ken Golliher: I am offering alternative language, but the same response: If someone has written me a bad check my bank is in no position to tell me not to take it. Any responsibility to verfiy the authenticity of the item or the sufficiency of the funds to pay it is on me.

If the check is returned unpaid, my bank does have a responsibility to notify me. If the item is $2,500 or more the bank should have received advance notice the check was being returned. If the item is less than $2,500, then the bank will not know about it until it receives the item in its returns. As John notes, my bank is to notify me (which includes mailing notice) by the day after it actually knows the item will not be paid.

If my bank does not provide notice to me in a timely fashion, that does not make it instantly responsible for any loss I may incur. I have to prove the delay affected my loss.

For example, I sold a car and delivered it a few days later on the 5th of the month. However, the check I received was returned "NSF." If I can prove that the bank should have notified me of the check's return by the 4th, then the bank's delay was clearly a factor in my loss -- any judge would accept the assertion that I would not have delivered the car if I had known the check was no good.

However, if I should have received notice on the 6th (the day after I delivered the car), but did not receive it until the 8th, the bank's delay had no effect on my loss. Judges can see that pretty easily as well.

As John notes, if the issuer of the check is the wrongdoer, then the UCC logically places the risk of loss on the person who dealt with the wrongdoer. My wanting it to be the bank's fault does not make it the bank's fault.

Answer by John Burnett: Thank you, Ken, particularly for the example of how a delay in a bank's notice may or may not bring the bank liability for a customer's losses on a bad check.

First published on 11/17/03

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