We have a business account that had fraudulent checks presented. We were notified after the midnight deadline. Are we liable to refund the business the amount of the checks?

The model language of the Uniform Commercial Code gives a customer up to one year in most states to report a forged or counterfeit check. This timeframe may be shorted by your account agreement. Unless your institution is planning to assert a claim against your customer stating that their negligence contributed to the loss, then yes. provided that notification was timely under the UCC and your account agreement you are liable to your customer for honoring checks that were not properly payable.

The result could be different if your agreement with the business customer includes a positive pay feature that requires the customer to notify the bank by its cutoff hour of any checks or other items covered by the positive pay feature are not to be paid.

Thanks. We have an ops person stating if we are notified after the midnight deadline there is nothing we can do. I believe the liability falls onto us and we need to take other action.

"there is nothing we can do."

This is a true statement in that you have no ability to return the check to the bank of first deposit. You ability or lack thereof to recover funds does not negate your obligation to your customer according to your account agreement or state law.

Thanks all for your input. Those are my thoughts as well. I think she is confused on the midnight deadline rule and that it does not pertain to liability.