Check Adjustment Timeframe Collection

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Question:

Our financial institution received a letter from another financial institution requesting a credit for an encoding error that happened in October, 2007. Back in 2007, we contacted this institution, and they let us know that they did not need the credit. Now, in 2009, we have already written that amount off. What regulation and section governs the timeframe of collection of check adjustments? I'm pretty sure it is a year, but I want to know exactly where it says that.

Answer:

The Federal Reserve's Check Adjustments Quick Reference Guide, which reflects the requirements of the Fed's Operations Circular #3, mentions two time periods. If a claim for an encoding error is received within six months of the cash letter or return letter date for the mis-encoded item, the Fed makes a same-day adjusting entry. If the claim is received after six months, but within one year of the cash/return letter date, the Fed will provide cash letter (sent/received) information and advise the claiming bank to deal directly with the bank that encoded the item.

After one year, the Fed won't help at all, and of course it won't help if it didn't handle the item in the first place. However, the UCC check-encoding warranty in UCC 4-209 is subject to the claims statute of limitations in 4-111, which is three years in most states (one year in some). It will depend on which version of section 4-111 applies to the bank that encoded the check.

First published on BankersOnline.com 7/20/09