Options for Receiving Return Credit (Counterfeit)

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Question:

What options for receiving a return credit does the bank I work for have if our customer reported a counterfeit check a few days after it posted to their account? The counterfeit check was a large dollar amount payable to an individual and then endorsed to a business. We have submitted a claim with the bank that accepted the deposit but I am worried that we will not get our credit back.

Answer:

Under the Uniform Commercial Code, the paying bank bears responsibility for recognizing its own depositor's signature, and becomes accountable for the amount of a counterfeit check if it misses the midnight deadline for returning it unpaid. Since it appears that your bank did not return the check unpaid within its midnight deadline, the depositary bank would be within its rights to refuse the late return (if you attempted one) or deny your claim.

Your only defense to your depositor's claim that the check was not properly payable from its account would be a claim that your depositor enabled the counterfeiting or forgery of the check through its actions.

Some check clearing houses have adopted a "check fraud warranty" provision in their membership agreements that changes the outcome under the UCC by providing that the depositary bank warrants to the paying bank the authenticity and authorization of checks it submits to the clearing house. Typically, these warranty provisions require the making of a claim within a relatively short "window," and are only effective if the depositary bank's account still holds funds that can be used to pay the claim. And of course the warranty is only available if both the depositary and paying banks are members of the clearing house or of clearing houses with reciprocal clearing privileges that both have the same "check fraud warranty" provision in their agreements.

First published on BankersOnline.com 10/1/12