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Is there a time frame to return an unauthorized draft on account?

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Where can I find information on the time frame’ to return an unauthorized draft on account?

As the item is presented on paper rather than electronically, it is governed by the UCC, not the ACH rules. ("Unauthorized" is a term more accurately applied to ACH debits.) The language of the model UCC treats this item just like any other check. It could have been properly returned, "signature missing" prior to midnight of the banking day following the banking day of presentment.

A payor bank?s liability for an item is discussed at 4-302.

In general, the bank becomes liable for the item once its midnight deadline passes. The midnight deadline is defined at 4-104(10):

"Midnight deadline" with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.

Once the midnight deadline passes, the bank generally cannot revoke its settlement and the item is finally paid under 4-215.

Thus, like most checks where the payor bank cannot claim a breach of warranty, once it keeps the item past midnight of the banking day following the banking day of presentment, it is too late to send it back.

Some states, notably Texas and California, modified their versions of the UCC. They refer to this item as a "demand draft" and extend the time frame for its return if special conditions are met. A search of Bankers Threads using that term will unearth a variety of discussions and a rich vein of banker frustration on this point.

First published on 5/20/02

First published on 05/20/2002

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