Local library just found that they had a fraudulent check created on their account in December. Notified us in February. The payor's signature on the front was "imaged" and looked legitimate so there is no way we would have known. We tried returning as fraudulent in February but of course they countered with "late return". Are we on the hook for this $15,000 check? Or the bank whose customer cashed it? Since the consumer is king, I doubt the library/victim is responsible - and not sure we want the bad PR of making them take the hit. We are a community bank and BOD is Chase - so I'm not very hopeful. Our correspondent said to fill out a form to release them & Fed from it so we can deal directly with Chanse. Anyone have any insight? Experience? thanks.

Our terms and conditions states that we aren't liable if we use normal banking practices and when looking at the check, it doesn't raise suspicion.

Well, if you do not want to stick the local library with the loss or come to some agreement as to how much of the loss, if they exceeded the timeframe as set by your depositor's agreement to notify you, then the bank is left with pursuing action against the perpetrator, with or without the assistance of the BOFD..

You used two conflicting terms in your question. First you said there was a fraudulent check created against their account. Second you said you couldn't tell the endorsement looked "legitimate."

Was the library's authorized signers signature forged on the front of the check or was this a check payable to the library and the endorsement on the back was forged? Liability is different depending on the answer to that question.

My apologies. I will edit that. The payor's signature on the front of the check was imaged from another check and then printed on the fraudulent check. It looks legitimate, so I guess should be called a forgery.

Thanks. So, as you already found out from attempting the late return, you would have needed to identify the forgery by your midnight deadline to return the item. Chase has no liability as it is the responsibility of the drawee bank to identify a forgery. So as Randy noted, you have to look at your deposit agreement to determine liability. Most state Uniform Commercial Codes give a customer up to one year to report a forgery and recover funds from the bank. This timeframe can be limited by account agreement. If you are not sure, since this is a state law and a contract law question, you should ask legal counsel to review each and determine if the library has any liability.