Assume a business customer signs a contract to establish a service, and decides within a 72-hour termination period to cancel the contract. The vendor initiates a paper item to debit the business customer for the initial deposit of $500. The customer comes into the bank and requests the item be returned because he "revoked the authorization" for the deposit debit within the allowable termination period. The company has told him it will take 30-60 days for a refund; therefore, he wants the bank to return it.

I assume this would require an affidavit of forgery since the debit was a paper item. Is this the proper way to document this return or is it not permissable since he did actually authorize the debit?

Whoa!
First of all, when did the customer ask that the item be returned? If it's after the so-called "midnight deadline," you're really too late to send it back as a conventional return item (the customer is giving you a stop order). Of course, some banks would ignore this rule, and return the item anyhow. If this is a business account (you said it is) and the items are ACH debits (you said they aren't), the same general rule applies.
If the customer contacted you BEFORE you were accountable for the item(s)in question, you can return them for "not authorized by customer" or words to that effect. No affidavit needed, IMHO.

He is stating it is a forged item, because he never authorized the debit to his business account. I think I get confused because the item doesn't have a signature line on it. I think under state law he has six months to report a forgery to us.

Your customer may be saying it's forged. It's not. It's unauthorized. It would have to include a phony signature to be forged. And if it were a forgery, he would have one year to enter his claim under the vanilla version of the UCC. Check your state law and any contractual adaptations of the time period in your deposit contract. Of course, if you'd finally paid the item and he entered his claim in time, your bank would be the one holding the bag.

Folks:

To clarify forgery -- according to most states' criminal statutes:

1. "Forgery" is the signing of a real or fictitious person's name (physically or electronically);
2. To a document that will transfer title, goods, property or money from one person/entity to another;
3. Without the person's/entity's knowledge, permission or consent; and
4. With the specific intent of defrauding the intended victim.

Please don't get forgery confused with other financial crimes. Although forgery is used to commit many financial crimes, it is a separate and distinct crime by itself.

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Dana Turner
Security Education Systems
danaturner@bankersonline.com
830-535-6500

[This message has been edited by Dana Turner (edited 10-22-2001).]