Forgery Returns

by Mary Beth Guard

Question: How can we deal with checks being returned as forgeries by paying banks after their customers have received them in their statements, returned obviously beyond the midnight deadline, in regular return item letters? It is my understanding from reading the Fed Operating Letter #3 that banks can return these items (midnight deadline issues) without entry and that is typically done by direct US Mail. I would be hard pressed to charge back an item like this to our customer. If they come in regular return item letters and are mixed in with a multitude of items, they are coming in with entry. I almost feel like it is hoped no one is looking and therefore it is becoming the norm. No one seems to care about this but me, however from what I have seen it is becoming fairly common practice. You have to have a sentry on duty at your charge back desk.

Answer: You are correct that these items should be returned directly to the depositary bank on a without entry basis. Many banks, however, will try to circumvent that procedure and simply return the item through the Fed, although they are not supposed to. In many cases, I think it's deliberate, rather than a case of ignorance, and there's no easy way to make them stop. I would urge you to evaluate each of these items on a case-by-case basis and determine whether you should pass the loss back to your customer (the depositor/payee) or refuse to take the loss. If the industry is going to cut down on losses from forgeries and similar items everyone must do his part. These returned items may give you valuable insight into your customers, in some cases. For example, you may have a customer who is perpetrating a scam, or who is the target of scammers in their business. The sooner you figure that out, the quicker remedial action can be taken. If you have a customer that is a grocery store, for example, which has taken forged items and you cannot tell from the checks that the clerk ever asked to see identification or anything else, passing on the losses to the grocery store under the terms of your deposit agreement would probably encourage them to work harder on their end to prevent the fraud. On the other hand, where it appears your customer was an innocent victim who could not have done more to prevent the fraud, catch the late return and refuse it!

Originally appeared in the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 9/17/01