How would I handle this situation? We had a customer contact us and say that a check that cleared their account was forged. We had the customer come in and sign a paper attesting that it was a forgery, and we then reproduced an image of the check and returned it via the mail to the Fed to forward on to the BOFD.

The check cleared our customers account on a Friday, and he contacted us on Monday, but by the time he contacted us, we couldn't return it electronically, we had to send it via mail (which we did mail it the same day we were notified, which was before midnight of the business day after the check cleared).

We now (3 months later) got a notice from the BOFD saying that we had a late return and that we need to send them a check for the dollar amount that of forged check (since the Fed took the money back from the BOFD's account when we sent the check back).

Are we stuck with this forged check now? I haven't deal with this before so I am unsure as to what I legally can make the other bank do. The check was over 1,000.00.

All I see in reg CC is that we have until midnight of the next business day after the check clears to return the item...which I wouldn't think would help with very many forgeries. I would think that most forgeries would be found some time later when they are balancing their account or looking at statements. Is there another spot in the rules that I should be looking to help me out with this kind of situation?

You're not stuck. The BOFD has sent you a letter asserting a late return by you, and requesting payment. From your description of the fact situation, it sounds like you do not agree with their assertion. As such, the appropriate next step would be to send the BOFD a response explain why you believe the return is timely, and politely declining their request for payment. The next move is theirs- they will either drop it or sue you.

To comment on your last paragraph...
The midnight deadline isn't designed to protect against forgeries. The purpose of the midnight deadline is to ensure that the payment system functions properly. If any deposited item could be subject to return up to 15, 30, or 60 days after presentment, that would introduce an extraordinary amount of float into the system, which in turn would result in more fraud, more delayed availability, and more risk, to the point that doing so would render checks practically unusable.

While most forgeries are not going to be caught prior to the midnight deadline, it is appropriate that those that aren't caught are borne by the paying bank. The UCC distributes liability for different events based on who is in the best position to detect and prevent the fraud. The paying bank has access to the maker's signature, so it is on the hook for the authenticity of the maker's signature. That you choose (as all banks do) to process checks using an automated method is a result of a risk/cost analysis: essentially, it is cheaper to absorb the loss on an occasional forgery than it is to pay someone to check signatures on inclearing items.

Thank you for the info. I have one more question on the midnight deadline. Does sending it via mail before midnight of the day after presentment legally count?? Or does it make a difference when its mail vs. electronic? The way I read it, it just has to be send off in some way, shape or form... Am I correct???

Not sure that regular mail is an expeditious manner under 229.30.

If I follow the 2day/4 day test per 229.30, it would have to be at the BOFD within 4 days since it was a bank out of the our region in order for the BOFD to have to legally take responsibility of the check. Just for future use (since it is too late to get off the hook for this one as it appears), how could I have done this in a more "expeditious manner". In this situation, I suppose we could have next-day mailed the check to the Fed to speed things up. What other ways could it be faster...?

The "out of region" bit hasn't held any water since 2010, when the Fef's check processing regional were finally combined into one. So the 4-day test isn't available.

There's not a lot you can do in this sort of situation if the customer notice comes too late in the day to send the check back on the business day after presentment, except call the BOFD and advise them the item's being returned, then return it the next day. Document the heck out of that call, because it's evidence that the BOFD had the info sooner than you had to get it to them. Gives you ammo to refuse a late return claim.

If the notice from the customer was early enough, but he couldn't get there with the affidavit soon enough, you could send the item back unpaid in your regular returns with a code "L" as a suspected forgery. That return would be timely. If the check is represented, you'll have the affidavit that will allow you to send it back a second time "code Z" (forgery), again timely. Also, an affidavit can be faxed to you (if the depositor can access a notary).

Ok. Thank you.