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Handling Return Items

Recorded on December 06, 2018

Return items come in so many different forms. There are incoming and outgoing returns, ACH items, images, and yes, even the occasional paper check! Whether your bank will be sending or receiving one of these items, you need to know how to handle it, what your options are, and what the repercussions might be if a return is mishandled. It's all about correctly serving your customers and protecting your bank from losses. This presentation will help you make the right return item decisions.

  • A customer calls to stop payment on a check on his account. You look the check up and see that it was presented yesterday as an in-clearing item. Is the stop payment timely, and can you return the check?
  • How should you return a check drawn on an account that has been attached by a creditor?
  • You received a check returned for insufficient funds, but not until three weeks after your customer deposited it with you. Who is at fault?
  • Can you return a check that your customer claims was never authorized if, instead of a signature, the words "Authorized by your customer, no signature required" appear?
  • Last week, one of your customers deposited a cashier's check drawn on another bank. The check has now been returned to your bank stamped "stop payment." What should you do? Would your options change if the check was four months old when it was deposited?
  • Who's liable if your business customer claims that he's found 15 checks on his account that she thinks were forged by her office manager six months ago?

Handling return items at the paying bank is a lot more than reviewing the overdraft lists for checks to be returned. There are stop payments, remotely created checks, checks presented both in paper and ACH format, and checks presented for payment as electronic images. That's just the fun stuff! You need to know the legal framework for your bank's liability for paying altered or unauthorized checks, too.

Depositary banks must deal with items that have been returned unpaid. Do they have to notify their customers of the unpaid items, and how soon? Are there items that the bank should not charge back? If the returns weren't handled properly by the paying banks, what should the depositary bank do about it?

In this presentation, we'll look at each of the major forms that items can take and provide solutions to help your institution handle returns of those items efficiently. We won't dwell on every detail, but we will cover the essentials for returns of paper checks, ACH items, electronically-presented check images, etc. As we do that, we'll be discussing:

  • checking endorsements
  • standard return reasons
  • the "midnight deadline" and which return items must meet it
  • adopting a "cutoff hour" for stop payments
  • warranties by returning banks
  • unauthorized drafts vs. "buyer's remorse"
  • expeditious methods for return
  • returns of ACH items
  • providing notice to the depositary bank of large dollar return items
  • returning items "with entry"
  • returning items "without entry;" i.e. "bank to bank"
  • when the other bank refuses: alternatives to "without entry" returns
  • sample letters for "bank to bank" returns
  • sample affidavit of forgery or alteration
  • sample "unauthorized" affidavit for remotely created checks
  • a way to handle duplicate payments
  • defenses against returns of "unauthorized" remotely created checks
  • advising depositors of returned items
  • re-presenting return items
  • clearinghouse rules affecting forged check claims
  • sample contract addendum for acceptance of remotely created checks

Who Should Attend:
Operations and customer service staff who handle items, Audit