Can you process a return upon notification even though you have not received the item?
Sure.
In fact you have an obligation to inform your customer of the notification of return. What better way than to just process the return and send the normal notification???
229.33(d) Notification to customer. If the depositary bank receives a returned check or notice of nonpayment, it shall send or give notice to its customer of the facts by midnight of the banking day following the banking day on which it received the returned check or notice, or within a longer reasonable time.
This requirement is similar to the requirement under the U.C.C. as interpreted in Appliance Buyers Credit Corp. v. Prospect National Bank, 708 F.2d 290 (7th Cir. 1983), that a depositary bank may be liable for damages incurred by its customer for its failure to give its customer timely advice that it has received a notice of nonpayment.
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