We had a customer deposit a check to his account on March 5th, we put a 7 business day hold on the account, the check came back today as RCC Warranty Security Breach. What is the time frame for the check to be returned for a RCC Breach. We tried to verify funds for this check before we lifted the hold and the bank would not verify, we also asked them to have their customer to call us and that didn't happen. Do we have any recourse for this?

Under Regulation CC § 229.2(fff), a remotely created check (RCC) is "a check that is not created by the paying bank and that does not bear a signature applied, or purported to be applied, by the person on whose account the check is drawn. For purposes of this definition, "account" means an account as defined in paragraph (a) of this section as well as a credit or other arrangement that allows a person to draw checks that are payable by, through, or at a bank."

Under § 229.34(b) of Reg CC, a "bank that transfers or presents a remotely created check and receives a settlement or other consideration warrants to the transferee bank, any subsequent collecting bank, and the paying bank that the person on whose account the remotely created check is drawn authorized the issuance of the check in the amount stated on the check and to the payee stated on the check. For purposes of this paragraph (b)(1), “account” includes an account as defined in § 229.2(a) as well as a credit or other arrangement that allows a person to draw checks that are payable by, through, or at a bank."

Under § 229.34(h), damages for breach of the warranties in § 229.34 are limited to the consideration received by the bank that presents or transfers a check.... plus interest compensation and expenses related to the check or returned check, if any.

Breach of warranty claims aren't normal returns. A paying bank can sue on a breach of the RCC warranty for up to a year from the time of the breach (§ 229.38(g)).

Did the check have words to the effect that the paying bank's customer had approved the issuance of the check, rather than the customer's signature? That is one of the key characteristics of an RCC. Your bank had to have reason to believe the check would not be paid, in order to justify that seven business day hold. The paying bank's customer has apparently signed an affidavit that the customer did not authorize the issuance of the check payable to the person named as payee in the amount stated on the check. When you processed the check as depositary bank and put it into your cash letter for payment by the paying bank, you made the RCC warranty.

Given the risk associated with remotely created checks and the length of time which they can come screaming back, the moral of the story is to not accept them for deposit at all unless you are allowing business customers create them and you have appropriately underwritten their ability to cover checks returned in this way and/or have appropriate collateral to cover potential losses.