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Large check returned late

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As security officer for my bank, I get to handle the bank's larger check fraud cases in an attempt to recover losses. I was just handed a $25,000 check that was deposited in June (today is July 27). Our bank received it back in yesterday's return item cash letter. The check was stamped "stop payment" and it has a processing endorsement of the paying bank that's dated 06-22-10. When I called the paying bank, I was told that their customer called in a stop payment on the check on July 20 after opening their bank statement and seeing the check. Isn't this a late return, and wasn't the paying bank's customer's stop payment order too late? Should my bank absorb this loss?

Sometimes late returns can be blamed on transportation delays or misrouting of a check (those excuses are getting rarer now that image exchange is being used for more and more checks), but the facts in this case make it a clear and blatant late return and a violation of the Uniform Commercial Code. If the paying bank processed that check on June 22, its depositor had until sometime on June 23 to stop payment. Any attempt to stop payment on the check after the close of business on June 23 would have absolutely been untimely. The paying bank had until midnight on June 23 to return the check (or send a notice in lieu of the return if the check wasn't available for actual return). Any return of the check after that hour is untimely. Your bank should refuse the late return and place the risk of loss squarely where it belongs in this case -- between the paying bank and its customer.

First published on 8/02/10

First published on 08/02/2010

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