Answer by Brian Crow: The BOFD who accepts these items (known as remotely created checks) warrants to the drawee bank that the items are authorized. If the items clear through the Federal Reserve, the drawee bank has up to 90 days to return the items as unauthorized. After that time, the drawee bank still have up to one year from the date the check cleared to make a without entry claim against the BOFD for breach of warranty if customer claims the check is not authorized. The BOFD will be liable for the check unless its customer has sufficient funds to charge the check back against.
Answer by John Burnett: Be aware, though, that if the drawee bank has a defense to its customer's claim that the item was unauthorized (for example, the consumer fails to notify the bank of the unauthorized item until after a contractual (or legal) deadline for that notice), then the BOFD or depositary bank has a defense against the warranty claim.
For example, if the drawee bank is a Florida bank that is subject to Florida's UCC Section 4-406, the legal deadline for notifying the bank of an unauthorized item is 180 days after the statement or items are made available to the depositor. If a depositor notifies the bank on the 190th day and the bank nonetheless honors the customer's claim, and then places a warranty claim against an Ohio depositary bank, the Ohio bank will have an absolute defense against the claim.
First published on BankersOnline.com 8/27/12