Just need advice on this situation. I am a newbie to operations. My staff is seasoned but has not had this situation occur before.

On Sept. 26, 2016 our customer deposits a check for the amount of $4,550.00 into their checking account. We place a 7 day hold on the check. On Oct. 11, 2016, my bank receives notification that the check is being returned as Altered/Ficticious. Of course, our customer had already spent the money since the hold had already fallen off. My bank immediately filed a late claim return with FRB. FRB, as of yesterday, has said that the other banks reply to the late claim was" their customer received their bank statement and notified them that the check was not their check." The FRB has closed the case and said our bank needs to deal with the drawee bank directly now. I just wanted to get advice and see if what I am thinking is correct. When it is established that a bank has paid a fraudulent check against the account of it's customer, that bank becomes liable to its depositor for the amount of the check. So to me, the other bank is liable for the check...not my bank. Any thoughts I would greatly appreciate.

Your thinking is correct. The drawee bank had until midnight the day after the check was presented for payment. The FRB has chosen not to get in the middle of two banks disputing liability for a late return. The drawee bank's response is the equivalent of "Sue us." Before it gets to that you may want to draft a polite letter reminding them of their obligations under the state's Uniform Commercial Code. If that does not work, the next letter should be from bank counsel. (Or skip the nice letter and go straight to the not-so-nice letter from bank counsel.)

Thank you so much BrianC for you help and advice. It is greatly appreciated!!