IF we are a paper bank - can someone explain to me how we could be subject to an indemnity or warranty claim by another bank?

If you never transfer, present, or return a substitute check (or a paper or elctronic representation of a substitute check in an instance where ultimately someone is given a real substitute check and suffers a loss resulting from it), you would not be an indemnifying bank.

Mary Beth - it must be the early hour, but I don't understand your answer. Could you possible give me an example?

If I understand this correctly then, since it would be almost impossible to NEVER transfer, present or return a substitute check, then it is possible that a paper bank would be an indemnifying bank. Is that correct? (I am sorry to be so dumb about this - I am just trying to get a good handle on how it will work since we won't be imaging.) Thanks for your help!

If you are a bank that returns paper checks to your customers, there will be instances when what you receive back for checks drawn on your customers' accounts will not be the original checks. Instead, they will be substitute checks. If you provide a substitute check to a customer, for consideration, you make substitute check warranties and are subject to indemnity claims. We'll leave it to another thread to discuss if you receive consideration when you return substitute checks in a statement.

If your customer deposits a check that is returned unpaid and you provide that item to your customer in substitute check form so the customer can attempt to redeposit it, cash it, or try to have the bad checkwriter prosecuted, you make the warranties.

If your bank provides imaged statements, there may be very few instances where you actually are providing a substitute check. The chargeback item scenario is one instance. Where a custoemr demands a substitute check instead of a copy (and you actually comply with the demand) is another.

The original question, I see now, actually asked about when one would be subject to indemnity or warranty claims from another bnak. For that to be the case, your bank would have to have transferred, presented, or returned a sub check to another bank. Under some circumstances, you could be subject to claims if you transferred, presented or returned a paper or electronic representation of a substitute check. The warranty starts with the reconverting bank and flows onward.

If you receive a sub check created by a nonbank (such as a commercial customer) you would be considered the reconverting bank, with all the attendant responsibilities.

Thank you!