Situation where our customer wrote a check to an individual last year and the individual deposited the check via mobile. There is no endorsement on the back of the check, no spray, nothing. This year, the individual deposited the check at a different financial institution, thus our customer's account was debited twice. The customer is not happy at all about this and says that we should have notified them quicker. (Check was cashed the 8th and they were notified on the 12th) What are some good points to make as far as the risk of this happening, beside telling them that if they don't want the risk of this situation, they should stop writing checks and make all payments electronically? What regulatory protections are there for this customer?

It is not a customer problem - it is bank problem. You paid the same item twice - you owe him the money.

Got it. So we have to credit the account, absolutely. Can we try to return the check to the depositor's bank and recoup our loss? Or go after that person? and what regulation governs this scenario? Is it Reg CC (with the new rules and do those rules technically apply since the check was remotely deposited last year) or UCC? Thanks!

Refer to 229.34(f) Remote Deposit Capture Indemnity

229.34(f) is not relevant to the paying bank's rights. It's the electronic check warranties in 229.34(a) that could give the paying bank a claim against the RDC bank. But it doesn't apply to electronic checks presented before 7/1/18.

You absolutely can recover from the second bank if the check was processed through the Federal Reserve System. You initiate a "PAID" adjustment entry, which is a claim that the check was presented and paid twice. You will have to do that within 6 months of the date of the cash letter in which the check was presented to you for payment. Be sure to comply with whatever documentation requirements FRBServices has for the PAID claim (which will include information on how and when you received the OTHER item (the check image you paid last year). You should receive credit for the claim the same day it's received at the Fed.

If it's longer than 6 months since the check was presented for payment (you didn't say which month it was paid) the Fed will reject your claim and tell you to deal directly with the depositary bank.

If the check came to you via a clearinghouse instead of the Fed, see if the clearinghouse has an adjustment service similar to what the Fed offers. If not, your only avenue is to make a claim directly against the second depositary bank.

There's no indemnity claim involved in your recovery of the funds. There may be an indemnity claim by the second depositary bank against the first depositary bank under the section that Randy cited.

Other than the potential indemnity provision that Randy pointed out, Reg CC doesn't control. Instead, if the Fed handled the item, it will be Reg J and the Fed's Operating Circular #3. And once the second item got to you, Article 4 of the UCC and your deposit contract will protect your customer from having the same check paid from your customer's account more than once.

is there anything else I can look at? Something in the UCC? Rainman, its not an electronic check, its a mobile deposit, it seems like 229.34(f) would apply. To me, I FEEL we should be able to go after the person that presented the check twice? But facts don't care about my feelings so if I'm wrong, mea culpa. There was no restrictive endorsement on the back of the check presented in 2017. But I am not sure if that requirement for indemnity purposes comes along with the Reg CC amendments. I see no such language on the regulation as I am reading. Reading the official Interpretation on example (a) it gives me an impression that we may make an indemnity claim against the other bank because there was no restrictive endorsement on the mobile deposited check (from 2017).

The 229.34(f) indemnity is between a depositary bank that took the check in a remote deposit capture (which includes mobile deposit) and another depositary bank that took the original check for deposit. The paying bank simply isn't involved in the 229.34(f) indemnity at all.

As paying bank, you can usually go against either depositary bank (except it's been more than a year since the first depositary bank presented the check) via the Fed or clearinghouse. Or you can go directly against the second depositary bank on its transfer and presentment warranties under UCC 4-207 and 4-208.

FYI, the indemnity provision in 229.34(f) is new as of July 1, 2018.

So, here are the questions you need to answer -- When did the second presentment take place and how did it get presented to your bank? Was it via the Fed? Via a clearinghouse? With that information, we can better suggest a plan of action.

You can always go after the individual that got paid twice for the same check, if nothing else under state law causes such as unjust enrichment.

For Reg CC purposes, it probably is an electronic check (certainly at least the RDC version) because it was presented as an image and data from the original check. The second version could be a paper check (but I doubt it), a substitute check (again, unlikely) or an electronic check. What form was it in when it hit your bank?

The electronic check warranties and the RDC indemnity in 229.34 only went into effect on July 1, 2018. If either or both presentments occurred before that, 229.34 is not relevant to that presentment. If the second one occurred after July 1, 229.34(f) would be relevant, but not to your bank. That indemnity runs from the RDC depositary bank to the paper depositary bank.

UCC 4-207 is not relevant because transfer warranties are made to other collecting banks but not to the payor bank. UCC 4-208 does not contain a warranty against double-presentment.

Note that if the RDC transaction had occurred after July 1, 2018, you would have a claim against the RDC bank under 229.34(a)(i)(ii).