Returning Fraud Checks Through Fed

Question: How long does a drawn-on bank have to return (thru Fed) a fraud check? We received old, high-dollar checks back (without notice) and the drawn-on bank is saying they have one year to return. We haven't heard of that or found it yet in the reg.

Answer: Whew! You won't find it! The "drawn on" bank has a slightly slanted version on the UCC, Reg J and CC! They have until midnight of the day following receipt to return a check through Fed on which there appears a forged or unauthorized signature of the maker. If the check is not started on its way by then, it is considered to be "paid" and can only be returned "without entry" (by mail). After that midnight deadline, the drawee bank owns the check.

Under UCC rules, the customer of the 'drawn-on' bank has up to one year to make a claim AGAINST the drawee bank on the check, claiming forged or unauthorized signature. The drawee bank can then attempt to obtain reimbursement from the endorsing bank by returning the check WITHOUT ENTRY (through the mail) with a request for reimbursement. These requests are very seldom of any use. (Which is why such claims are usually sent with a copy of the check, not the original.)

You have no obligation to honor claims of forged maker's signatures unless they are returned timely - that is, within the midnight deadline - unless there has been negligence on your part. You can help the drawee bank, but the ultimate liability is theirs. Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 2, 2/02