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Liability for Check Returned Altered-Drawee Bank

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Question: 
My bank took a check for deposit that was returned Altered Check within the 24 hour deadline. The question then arose, "What would our liability be?" Say the drawee bank did not return it timely. Their client has 30 days from the date of the statement showing its payment to notify them. The bank then has 30 days to submit a claim to my bank. Is my bank obligated to pay this money back?
Answer: 

If your state uses the model language of the Uniform Commercial Code, Section 4-406(f) gives a customer one year to report an alteration to their bank. The bank then has 30 days after it is notified of the alteration to file a breach of warranty claim against you as section 4-208 allows the drawee bank to seek damages against you for accepting an altered check. Assuming the claim is valid, the bank of first deposit is responsible for reimbursing the drawee bank. You would than have to attempt to recover the funds from your customer.

First published on BankersOnline.com 3/5/12

First published on 03/05/2012

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