SPOTLIGHT ON?Return Items, Part II

On our last training page we talked about the reason for returns. In some cases, that reason is for "Payment Stopped".

Official Checks
Official checks, Cashiers checks, Tellers checks and the like, drawn on the financial institution, should never be returned marked "Payment Stopped." A financial institution cannot place a stop payment on a bank obligation. It can, however, mark the check "Payment Refused" in some cases. For instance, under the revised Uniform Commercial Code if an official check is past the 90 day 'wait' period after having been replaced following the statement and signing of the affidavit by the purchaser and/or the payee, the drawee bank has the right to refuse the check. (Which is why we caution our teller line to be suspicious of any official checks that are over three months old.)

Dropped Stop
If the check comes in for payment and is stopped by your bookkeeping department and you return the check, in most computer systems the stop drops off the system - it's no longer there, having been resolved. You stamp it, mark it "Payment Stopped" and it goes back to the depositary bank, which charges it back to the payee.

In some cases, the payee will simply take the check and deposit it again, this time in the middle of a bunch of other checks. The teller taking the deposit doesn't notice it, and usually it will just fly right through the work and come in to you again. This time it will be paid, resulting in a very unhappy customer.

In other systems, the stop does not drop off right away, even if the check is returned. It will stay there for six months and then drop off. All financial institution systems will drop a stop after six months if it has not been renewed by the depositor. If they choose to renew it, they're charged again for placing the stop payment, so many times the stop is not renewed. Some unscrupulous merchants, knowing this, will hold the check that was returned to them for reason "Payment Stopped" for six months, and then will redeposit the check. (Note: under the new Uniform Commercial Code rules, there really is no 'stale dated' check, so the fact that the check is over six months old doesn't figure in this!)

A simple solution - if you are returning a check for the reason of stop payment, punch a hole right in the middle of the account number. That way it will reject on it's way through proof and transit, and will no longer be a problem to your depositor or to you.

Another return item problem
At the beginning of the last training page, I wrote about the time limit that a financial institution has to start a check on its way back (?midnight of the day following receipt).

Sometimes a banking officer, in trying to protect his financial institution will bounce checks late. For instance, a depositor will call and say he didn't realize his checks had been stolen two weeks ago, and now he finds there are funds out of his account due to the bank paying stolen and forged checks. Upon investigation, the banking officer finds there are indeed checks in the file that have been paid over the last two weeks, all bearing forged maker's signatures. His bank is liable for all those checks because all but yesterday's and today's are past the midnight deadline. However, the banking officer may 'play the odds' and simply return all the checks in the file through Fed without marking them as a late return. The reason this is done is because in many cases the depositary bank's return items area does not realize they are late returns and simply charge them back to their depositor - many times successfully, particularly if the depositor is a supermarket or a large department store. They then will take the loss.

However, if the depositor realizes it's a late return, and comes back to the depositary bank to complain and demand reimbursement, the depositary bank now has a problem on its hands it should not have had to deal with at all. Resolving such a situation is time consuming and aggravating.

Historically, returning checks in this manner, though unethical, is, for the most part, successful! The well trained return items person will catch it every time, though, and will simply turn it around and send it back through Fed as a late return - refused. This skill becomes particularly important in the case of a kite, where the checks tend to be very large items.

From a Subscriber?
"I read with interest your training page on return items. And I have a question. What does "Refer To Maker" really mean? It used to be that the only checks returned for this reason were credit card convenience checks. My understanding is that convenience checks are really lines of credit, so they can't be returned for Insufficient Funds.

"I'm a fraud investigator for a large credit union. I am also responsible for returned, deposited items. Of late, more and more checks are being returned unpaid for "Refer To Maker." It's not just convenience checks any more - it's personal checks, and it is not inherent to one financial institution. They're coming back that way from everywhere! It's like a catch-all reason.

"I don't know about other fraud investigators and their police departments, but I can't file a bad check charge for a "Refer To Maker" check. Most police officers will tell you that a check returned for that reason must be a civil matter. Our customers don't understand what it means either.

"I'd like to see checks returned like they were in the 'good old days' for real reasons that I can use, like "NSF" or "Account Closed!" And I'd like to know if there are others with the same complaint."

Thanks for listening.
Delice Murphy, CFE
Fraud Investigator

NOTE FROM EDITOR: On the last training page on Return Items I said that "...there are some circumstances where you must call the bank you're returning the check to if it is over $2,400." Thanks to all who called. My fingers tripped. Of course it is $2,500.00.

This is the second of a series that will address several areas and positions in financial institutions.

Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 8, 11/03