We have a situation where we returned a check as "altered/fictitious" after 21 days, when our customer notified us that they reconciled their books and realized there were counterfeit checks on their account. If we receive a notice of late return from the bank where the check was accepted, are we required to repay them the check amount because of the late return, even in the event of fraud?

It would seem there should be some exception for this situation, but I've looked and don't see anything. Knowing how far behind Reg CC is, I'm not hopeful of this. Any thoughts or other considerations?

If the item was a "counterfeit," the problem with the check was that your customer never signed it, not that it was altered. Your bank has the responsibility for identifying the forgery of its customer's signature and returning the item before midnight of the banking day following the banking day of presentment. While your signature card may shorten the time period, the UCC would generally give your customer a year to draw the forgery to your attention.

The loss falls on your bank.

Reg CC has no bearing on this issue.

Thanks Ken. I feel like I should know this after being in banking for almost 30 years, but how can a bank validate the signature on every check in order to return it on time in this instance? Or do most banks just take the risk because its impossible to validate every signature?

'Back in the day' banks did validate every check (think before computers), but now they take the risk. The cost of actually performing this now would be astronomical.

What she said.

I assume risk when I drive above the speed limit. Banks assume risk when they pay based only on the accuracy of the MICR line.

There are some check clearinghouse associations (such as ECCHO) that include a "Rule 9 Warranty" provision in their membership agreements. That rule modifies the outcome under the UCC (people can and do modify the application of the UCC to their agreements all the time). Under a Rule 9 warranty, the depositary bank warrants to the paying bank that the signature of the drawer isn't forged or unauthorized and/or the check is not counterfeit. ECCHO allows its clearinghouse participants to opt out of the rule.

Here is an ECCHO document about Rule 8 and Rule 9 warranties. Rule 8 is essentially the same as the Reg CC warranty on Remotely Create Checks: https://www.eccho.org/uploads/Rules%208%20%209%20White%20Paper.pdf

Thanks all. Appreciate the feedback on our situation.