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#1776923 - 01/16/13 07:12 PM check cleared twice
MidwestCFE Offline
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MidwestCFE
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wish it was the Smoky Mountain...
I did a search but coulnd't find this & I'm sure other banks are already running into it.
Customer wrote a check to Jane Doe. Jane scans it in her phone & deposits to the bank in October.
Husband finds the check at home in December and deposits again to their same account.
Now our customer wants us to pay them for the check clearing the 2nd time.
What law or reg covers this ? are we able to get our funds back from the depositing bank ? they won't release funds based on a hold harmless-I've already asked them.
Thx
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#1779028 - 01/23/13 05:29 PM Re: check cleared twice [Re: MidwestCFE]
MyBrainHurts Offline
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bump
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#1779528 - 01/24/13 05:55 PM Re: check cleared twice [Re: MidwestCFE]
Andy_Z Offline
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Copy and paste from a resource document I have. I don't know that it answers the question, but it might help get to an answer since there hasn't otherwise been much discussion here.

REMOTE DEPOSIT CAPTURE –RISKS AND SOLUTIONS

Risk Factors

Multiple Posting. A significant new risk introduced by remote deposit capture is the possibility a check will be deposited more than once as a result of mistake or fraud.

A customer who deposits a check electronically remains in possession of the original check. The customer could mistakenly deposit the original check after having deposited the same check electronically, or the customer or an employee of the customer could fraudulently deposit the original check, most likely at another bank ,after having deposited it electronically at your bank. They could even create multiple electronic images and deposit each of the images and the original at different banks.

A bank that creates a substitute check (in Check 21 Act parlance, the “reconverting bank”5) assumes the risk that arises from the creation of multiple legally enforceable copies of the same item. The reconverting bank warrants to each subsequent handler of the check that it will not receive multiple presentations of the checks such that it will be asked to make a payment based on a check it has already paid.6 Thus, if a customer electronically deposits a check at Bank 1 and later deposits the original at Bank 2, and if the bank on which the check is drawn pays both the original check and the substitute check created by Bank 1, the drawee bank has recourse against Bank 1 for its overpayment based on Bank 1’s Check 21 Act warranty . If the customer had made both deposits electronically, the drawee bank would have had recourse for its overpayment against either or both of Bank 1 and Bank 2(but only one recovery) , because each of them would have created a substitute check and thereby made the warranty. Finally, i f a check is deposited electronically at both Bank 1 and Bank 2 and the original is deposited at Bank 3, and if the bank on which the check is drawn pays all three checks, the drawee bank has overpaid by twice the amount of the check. It has full recourse for this amount against either or both of Bank 1 or Bank 2 under their warranties. The point to remember is that the act of accepting the electronic deposit and creating the substitute check is what places the responsibility for any multiple payments on the bank. If an employee of the customer manages, a month later, to get his hands on the original check and cash it, the liability falls on the bank that created the substitute check.

How can you minimize the risk of loss from the possibility of a check’s being deposited more than once? There are a number of possibilities:
· You can require the customer to endorse the check to the bank prior to scanning it for electronic deposit, e.g., “Pay to the order of X Bank.[Customer signature].” This will make it less likely the original check or a subsequently scanned image could be deposited at another bank . (Of course, i t does not eliminate the possibility the check could already have been scanned and deposited at another bank before it was endorsed to your bank.)

· Along the same lines, you can require the customer to mark the face of the check in some way, such as a “Scanned” stamp or a hole punched in the check.

· You should consider requiring the customer to retain the original checks for a reasonable period of time so that they are available if needed to aid in the clearing and collection process or to resolve claims of third parties. However, it is important that the customer be required to keep them in a secure location to minimize the possibility of fraud by employees and that they be destroyed in a manner approved by the bank when the retention period has expired.

· You can require the customer to use a scanner dedicated to your bank only. This may reduce the likelihood of inadvertent deposits of the same item at different banks and will at least complicate any conscious attempt to make electronic deposits at multiple banks.

· Your remote deposit service agreement should include warranties from the customer to you that track the Check 21 Act warranties you give to subsequent handlers of the check, and the customer should indemnify you against loss you suffer as a result of your Check 21 Act warranties.

5 12 U.S.C. § 500 2(15) and 12 CFR § 229.2(zz).
6 12 U.S.C. §§ 5004 and 5005 and 12 CFR §§ 229.52 and 229.53.
Last edited by Andy Z; 01/24/13 05:56 PM.
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#1779530 - 01/24/13 05:58 PM Re: check cleared twice [Re: MidwestCFE]
Andy_Z Offline
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Did you or the other bank instruct the person to denote "scanned" or "void" or anything on the check, which could be used against them in the redeposit?
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#1779955 - 01/25/13 05:47 PM Re: check cleared twice [Re: MidwestCFE]
John Burnett Offline
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The discussion about Check 21 warranties is fine insofar as a case involves substitute checks. But many of the current problems involve remote deposit capture of a check followed by physical deposit of the same check, without any reconversion of an item into physical form (a substitute check). In such cases, I believe, we are left with a paper presentment that cannot be returned once the midnight deadline has passed, and electronic (image) presentments that will be subject to whatever contractual provisions there are in the clearing house or between the presenting bank and the paying bank.

For example, if the electronic item(s) are presented by the Fed, FRB Services Operating Circular 3, section 21.2 provides for adjustment claims against the Fed for the electronic items.

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#1779959 - 01/25/13 05:57 PM Re: check cleared twice [Re: MidwestCFE]
BrianC Offline
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Quote:
In such cases, I believe, we are left with a paper presentment that cannot be returned once the midnight deadline has passed


And this is why it is important to see if your core processor has a report that identifies possible duplicate items. We have identified a number of these items and have been able to return them the day after presentment.
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#1779997 - 01/25/13 07:10 PM Re: check cleared twice [Re: MidwestCFE]
John Burnett Offline
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It's almost become one of the standard "must-haves" for every paying bank to have -- the ability to identify duplicate payments, whether they come in via paper item (getting rarer by the day), via the ACH (as a POP, BOC, ARC, RCK or XCK entry), or electronically. The key fields are check (serial) number and amount, plus, of course, account number. If you can catch the paper item as a duplicate presentment before your midnight deadline and return it, life can be a lot simpler. It sure beats working on an adjusting entry later for the ACH or electronic entry. But it's also a comfort knowing that those ACH and electronic items can be returned if you miss the paper item and pay it.
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#1780062 - 01/25/13 08:37 PM Re: check cleared twice [Re: MidwestCFE]
St Louis Jeff Offline
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I watch our duplicate items report every day and it has been a life-saver. We regularly have remote deposited items from other banks clearing our customer accounts more than once, including a memorable one for over $80,000 ! John's point about returning it timely rather than doing an adjustment is well taken.

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#1780067 - 01/25/13 08:45 PM Re: check cleared twice [Re: MidwestCFE]
madukes Offline
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Duplicate paper items (not ARCS) can be adjusted through the fed (if that is the source) as a PAID case. You need the cash letter information from both items and a Duplicate Check Image Certification Form (found on the fed site). It is highly recommended to process as an adjustment and not a return. We have had cases where the fed mistakenly processed a cash letter twice, the depositing bank is not aware so when the duplicate is returned to them, they debit their customer's account. We do our returns electronically and there is no "duplicate" as a standard return reason.

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#1780071 - 01/25/13 08:49 PM Re: check cleared twice [Re: BrianC]
madukes Offline
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We have a duplicate item report but it only catchs them if the check number and amt are the same. We have seen many instances of a customer scanning a check in for the wrong amount and instead of telling us, they deposit the check a 2nd time over the counter - aargh! Our remote capture deposit service does not allow a customer to scan the same check twice, but if they put in wrong info...

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#1780127 - 01/26/13 12:56 AM Re: check cleared twice [Re: MidwestCFE]
BetsyS Offline
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On another note, we've had people come in to the bank and try to cash checks that were already paid via RDC. The tellers now verify a check hasn't been processed before cashing.
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#1780149 - 01/26/13 03:21 PM Re: check cleared twice [Re: MidwestCFE]
rlcarey Online
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"We have seen many instances of a customer scanning a check in for the wrong amount and instead of telling us, they deposit the check a 2nd time over the counter - aargh!"

Many instances? Well then you need to look at your training you are providing to the RDC customers at the time of set up or on-going. A customer should only get one crack at this error before their RDC privileges are revoked.
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#1783403 - 02/06/13 06:58 PM Re: check cleared twice [Re: MidwestCFE]
MidwestCFE Offline
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MidwestCFE
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wish it was the Smoky Mountain...
Thanks for all the help. To clarify, our customer wrote the check that was ultimately deposited twice at another bank-once via the payee cell phone, and the 2nd time was the actual paper check deposited at teller line.. Our core processor does not have a duplicate posting report so it was paid twice.
We did make the claim with depositing bank (both were at same bank) as adjustment item with the reason of "Photocopy & Original Paid".We haven't heard back yet.
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#1783412 - 02/06/13 07:14 PM Re: check cleared twice [Re: MidwestCFE]
MidwestCFE Offline
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MidwestCFE
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wish it was the Smoky Mountain...
well just found we DO have a duplicate report..duh...for some reason it got paid anyway..will be checking into that next...
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#1786736 - 02/15/13 05:06 PM Re: check cleared twice [Re: MidwestCFE]
John Burnett Offline
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Perhaps the right people didn't know about the duplicate report. It should be a relatively simple process to incorporate a review of that report in your "morning after" pay/return decision-making process.

Do check the parameters of the report -- how does an item appear on it? Does it cover not only image/paper duplicates like you've described, but also ACH check conversions/image/paper (any combination), and over what period is the data for the report maintained? (Will a check paid last month when it was electronically presented be recognized if it is presented for payment as an inclearing image/ACH/paper item today?)
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#1786954 - 02/15/13 09:47 PM Re: check cleared twice [Re: John Burnett]
madukes Offline
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Our report only covers a week's span. Amazing how many duplicates show up within that timeframe and it only catches paper (not ARCs). We still get the occasion dupe that comes through several months after the fact.

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#1791498 - 03/05/13 05:53 PM Re: check cleared twice [Re: Andy_Z]
MrsSmithCRCM Offline
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Originally Posted By: Andy Z
A bank that creates a substitute check (in Check 21 Act parlance, the “reconverting bank”5) assumes the risk that arises from the creation of multiple legally enforceable copies of the same item. The reconverting bank warrants to each subsequent handler of the check that it will not receive multiple presentations of the checks such that it will be asked to make a payment based on a check it has already paid.6 Thus, if a customer electronically deposits a check at Bank 1 and later deposits the original at Bank 2, and if the bank on which the check is drawn pays both the original check and the substitute check created by Bank 1, the drawee bank has recourse against Bank 1 for its overpayment based on Bank 1’s Check 21 Act warranty . If the customer had made both deposits electronically, the drawee bank would have had recourse for its overpayment against either or both of Bank 1 and Bank 2(but only one recovery) , because each of them would have created a substitute check and thereby made the warranty.

We had a business account/customer accept a third party check. We have the actual paper cehck, but apparently this customer also took a picture of the check & did RDC that way via his phone. The paying bank is returning our deposit even though we have the paper check. the Fed told us the check was a direct presentment and that the paying bank could choose which to return... we got this return 2 weeks later and were told they had up to 60 days. Can anything be done? Fortunately this check is small, and the business will make it good, but the potential here is huge. New customers could do the same thing, we could put our 10 day hold on, but if they have 60 days to dispute, .. what can be done to protect our bank? Anything?

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#1791500 - 03/05/13 05:55 PM Re: check cleared twice [Re: MidwestCFE]
MrsSmithCRCM Offline
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Here for the moment
And just to clarify- the check was accepted electronically at a different bank, not ours. So bank A took the phone image and submitted the deposit, we took the actual check and submitted the deposit.

thanks all for any help!

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#1792313 - 03/07/13 03:54 PM Re: check cleared twice [Re: MidwestCFE]
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#1798047 - 03/25/13 05:20 PM Re: check cleared twice [Re: MidwestCFE]
dfrance Offline
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We have a similar situation. A check came in through ACH using SEC code POP. The next day the paper item came in, but we did not catch the error in time to return the paper check. Our system does not catch these duplicate postings and we do not have a duplicate report, though I have asked for one multiple times. We typically return the ACH item using R37 which requires the customer's signature on a Written Statement of Unauthorized Debits form to return the ACH item. Our customer is refusing to sign the form stating he only authorized the item once and our system limitations are not his problem. I agree with him. Why can't we just return the ACH item when it's obvious that the item cleared twice? Why must we make our customer jump through hoops? Why is it considered a rules violation if we return an item that posted twice without a form being signed? We're just trying to correct an error!

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#1798092 - 03/25/13 05:49 PM Re: check cleared twice [Re: MidwestCFE]
John Burnett Offline
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I doubt that anyone other than NACHA can answer your question. The return for "source document presented for payment" - R37 - specifically calls for the WSUD, according to Appendix 4. If the bank has the documentation showing that the payment was made twice -- once by POP entry and once by check with the same serial number for the same amount -- I can't fathom why NACHA rules would require the WSUD.

If you don't obtain the WSUD as the RDFI and if the ODFI presses the case, you could get tripped up by a rules violation. That's a risk management decision, I think.

If you're not dealing with a consumer, you have some leverage, since the NACHA rule mandates the WSUD, and you could tell the customer that without the form or at least an email from the customer your hands are tied.
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#1798146 - 03/25/13 06:42 PM Re: check cleared twice [Re: MidwestCFE]
dfrance Offline
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Thank you for your quick response. I do plan to follow up with NACHA so hopefully I can get a better understanding of this requirement.

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#1798397 - 03/26/13 05:44 PM Re: check cleared twice [Re: MidwestCFE]
Sallaia Offline
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dfrance, I'm not sure if it is applicable since it is technically backwards, but could you try contacting the other bank and see if they will do an R06? They didn't catch this duplicate presentment either so they may be willing to work with you on this one.

Someone let me know if I'm way off base with this thinking.
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#1798407 - 03/26/13 06:01 PM Re: check cleared twice [Re: MidwestCFE]
John Burnett Offline
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Something else to check out -- did the check payee and the company ID in the POP entry agree? If not, you may need to talk with your depositor again to figure out what happened.
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