A Resource to Refuse Claims from the Drawee Bank

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Question:

We are in receipt of two "Pre-Authorized" Bank Drafts not drawn on our bank, along with a an affidavit of unauthorized charge. These items were originally deposited to our customer's bank account in April. I believe that under the UCC I can refuse these claims and send them back to the drawee bank. Would you have a sample letter that I can send back to the bank or the section of the UCC that I should quote for refusing these claims?

Answer:

Unless both your bank and the bank on which these drafts were drawn are in a state that has adopted amendments to sections 4-207 and 4-208 of the UCC adding a warranty of authorization pertaining to these drafts, the drawee bank's chance to return the drafts expired on its midnight deadline. You can simply refuse the claims as late returns. If a warranty is attached to those items, however, you may be liable on it. Check with bank counsel.

As of July 1, 2006, Regulation CC attaches a warranty to all such items regardless of where the banks are located (if they are U.S. banks), and the paying bank will have up to one year to enter a claim on the warranty. If you accept such drafts for deposit from your customers, you should be getting those customers to sign a side agreement allowing you to charge back drafts if you have to honor a Reg CC, section 229.34(d) claim.

First published on BankersOnline.com 7/10/06