Question & Answer

Question: We issued a Teller's Check to another bank's auto finance department for $11,000 to pay off a loan, and mailed the check ourselves. Today our customer told us the other bank is calling about a past due payment on the loan we paid off. We pulled the paid check, and found it was expertly altered and negotiated at a different bank - no identification on the check, just an endorsement of the payee. When we called the original bank payee, they tell us they have seen several problems like this and they think it is a problem at the post office.

Can we return the check to the negotiating bank as an altered item? Do we send it back through the normal check stream? Where can I go for help on this one?

Answer: No, you can't send it back through the normal check stream.

I'd suggest you first take a good look at the check. Is it an obvious alteration? Can you tell quickly just by looking at it that it has been altered? With the security features normally present in a cashier's check I would be very interested in knowing how the alteration was accomplished.

If you really can't tell that the check has been altered, then the other bank's defense may be that they accepted the check in good faith, and therefore are not at fault. The best you can do then is call the negotiating bank and see if they can help you make recovery. If they can help you recover any of the funds from this obviously fraudulent item, quickly send them a letter of indemnification. They should, at the very least, know who received the funds and this may be a small sign of a much bigger fraud.On the other hand, if it is a very obvious alteration - one that any normal teller paying out $11,000 should have noticed - you might have a better argument. You could return it on a without-entry basis with a demand for payment, based upon the presentment warranty under UCC Section 4-208, since the presenting bank warrants that the draft was not altered.

Have you contacted the postal inspectors? If it is a postal problem, either at your end or at the original payee bank's end, they'll want to know about it. And don't forget to file a Suspicious Activity Report.

Thanks once more to Hotline Advisor Mary Beth Guard, Esq. for her addition to this response.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 5, 5/01