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#213167 - 07/20/04 02:36 PM
Re: Returned Substitute Check Presented at the Teller
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Joined: Aug 2001
Posts: 21,939
Next to Harvey
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If I understand your question, I don't think Check 21 affects the answer.
Assume John writes a check to Andy and the check is returned to the bank of first deposit, and thus Andy, as "NSF." Andy may choose to go directly to the drawee bank and present the check over the counter. If the bank refuses to cash it for him even though the funds are available and Andy has identification which meets their normal requirements, John may allege "wrongful dishonor." My answer would be the same if it was the original check or a substitute check.
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#213168 - 07/20/04 04:46 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Nov 2000
Posts: 1,830
District of Columbia
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Ken,
My biggest concern with this is the fraud potential. I have been told that the bad guys are already ordering their NSF stamps in order to create fraudulent substitute checks to cash under the circumstances you describe. You have to assume a pretty high level of intelligence on the front line to know how to spot a fraudulent substitute check versus a ligitimate one. We are considering a "no cash" policy for these items, but I will need to run the "wrongful" dishonor thing by our General Counsel.
BC
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#213169 - 07/20/04 06:15 PM
Re: Returned Substitute Check Presented at the Teller
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New Poster
Joined: Jun 2004
Posts: 9
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BC
We were also considering a "no-cash" policy. I would be interested in hearing the outcome of your follow up with your General Counsel.
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#213170 - 07/20/04 07:03 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Nov 2000
Posts: 1,830
District of Columbia
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Slayman,
We have a Check 21 Fraud sub-group meeting on this tomorrow. I will let you know what I find out.
BC
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#213171 - 07/20/04 08:29 PM
Re: Returned Substitute Check Presented at the Teller
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Joined: Aug 2001
Posts: 21,939
Next to Harvey
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I'll also be curious to see what your GC says.
On the issue of cashing substitute checks representing return items, please keep in mind your potential for verifying that the original check was presented and returned before you cash the substitute check. In other words, with the degree of difficulty varying between banks, the teller could verify that a check with this number drawn for this amount was previously presented against the account and returned. That would partially authenticate the substitute check.
So far, I have not heard any credible rationale on why substitute checks are going to be prime targets for counterfeiting. Personally, I consider the greater risk inherent to Check 21 to be the possibility that electronic files will be submitted twice.
Readers: If I am wrong about this, I would like to hear it. In your bank, can a teller look at an account history (hopefully without leaving the window) and see that check #1482 in the amount of $685.14 has been previously presented against the account and returned unpaid and, therefore, making the presentment of a substitute check for that item at the window credible? (Not everyone is going to have the same answer.)
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#213172 - 07/20/04 09:05 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Nov 2000
Posts: 1,830
District of Columbia
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Ken,
Another option is to have the teller look at the back of the check to see if our bank "spray" is present. However, our trainers seem to feel this is something that is going to be difficult to train our folks to do.
The option of checking the system to see if the check was previously returned makes sense to me, but I am afraid the argument is going to be that it is too time consuming and will hold up the teller line.
BC
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#213173 - 07/21/04 01:10 PM
Re: Returned Substitute Check Presented at the Teller
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100 Club
Joined: Apr 2004
Posts: 163
The other windy city
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In most banks, a teller can view account history from their teller window. Some even have teller system fraud detection software that gives the teller a warning if the check number they are cashing is a duplicate.
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#213174 - 07/21/04 04:37 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Nov 2000
Posts: 1,830
District of Columbia
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Ken,
According to our GC, the UCC gives us until midnight of the next business day to honor a check. So, if there were any questions about an item, we could ask the presenter to come back the following day, giving us time to investigate the validity of the item before deciding to honor it. This could be a huge customer service issue, but an option that could be invoked if necessary. However, if the person attempting to cash the item did come back the following day, the bank would be required to honor the item if the funds are available, no stop payment, acceptable ID, etc.
BC
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#213175 - 07/21/04 05:44 PM
Re: Returned Substitute Check Presented at the Teller
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Joined: Aug 2001
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Next to Harvey
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Your counsel may want to review your state's version of 3-502(b)(2). Under the model language of the UCC, if a check is presented for payment over the counter and it is not paid by the end of the day of presentment, it has been dishonored. The midnight deadline does not apply to items presented over the counter.
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#213176 - 07/22/04 02:25 PM
Re: Returned Substitute Check Presented at the Teller
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Gold Star
Joined: Jan 2003
Posts: 318
NE
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Quote:
I'll also be curious to see what your GC says.
On the issue of cashing substitute checks representing return items, please keep in mind your potential for verifying that the original check was presented and returned before you cash the substitute check. In other words, with the degree of difficulty varying between banks, the teller could verify that a check with this number drawn for this amount was previously presented against the account and returned. That would partially authenticate the substitute check.
So far, I have not heard any credible rationale on why substitute checks are going to be prime targets for counterfeiting. Personally, I consider the greater risk inherent to Check 21 to be the possibility that electronic files will be submitted twice.
Readers: If I am wrong about this, I would like to hear it. In your bank, can a teller look at an account history (hopefully without leaving the window) and see that check #1482 in the amount of $685.14 has been previously presented against the account and returned unpaid and, therefore, making the presentment of a substitute check for that item at the window credible? (Not everyone is going to have the same answer.)
Ken, our tellers can see that kind of account history for about 2 statement's worth. If the person in possession of the checks waits for a while, tellers couldn't tell if it had been presented and returned.
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#213177 - 08/06/04 02:58 PM
Re: Returned Substitute Check Presented at the Teller
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Anonymous
Unregistered
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Our history does not reflect that checks were returned unpaid, so neither tellers nor back office can verify that. Our tellers can look at the history to see if that check number was already paid during the last 45-60 days.
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#213178 - 08/09/04 09:57 PM
Re: Returned Substitute Check Presented at the Teller
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Anonymous
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How about holding the funds that day and issuing a cashiers check within the 24 hour window if it checks out?
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#213179 - 08/10/04 11:26 AM
Re: Returned Substitute Check Presented at the Teller
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Joined: Aug 2001
Posts: 21,939
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Quote:
So my question is if the bank's policy is to require that Returned items be redeposited, and not cashed - does this represent wrongful dishonor?
This question is answered in this thread. However, it's early, I'm full of energy and ready to swim upstream; I want to question the widely held underlying philosophy that supports the question. That is, the belief that accepting substitute checks for cash or redeposit is the heart of the risk that Check 21 represents.
Today, if a non customer presented an on-us check that had been returned NSF would your bank attempt to authenticate the item; i.e. has your teller been instructed do anything to make certain that it had actually been presented against the account and was not completely fraudulent? If yes, then follow that process with the substitute check. If no, then why do you think the substitute check needs to be authenticated if an original check does not?
Today, it is entirely possible that a fraudster could use off the shelf software to create a dummy of a customer's check. It's possible that check could be altered to appear to look like it had been through the clearing system by adding a return reason stamp on the front and fictitious endorsements on the back. Why would the fraudster do that? Why wouldn't he just try to pass the clean check instead? Now, add to that the complexity of producing a substitute check and the assurance that a well trained teller will inspect the item carefully and that an untrained teller is going to be confused and perhaps refuse to cash the substitute check under any circumstance. Why would a criminal want to use the mechanism that draws the greatest possible amount of attention to the transaction?
I'd like to throttle the industry experts who keep decrying the substitute check's potential contribution to fraud at the counter, they do nothing but distract attention from the real risks Check 21 presents. They state the conclusion that the substitute check is the wellspring for fraud, but they never offer the arguments that should have preceded that conclusion.
The significant risks posed by Check 21 do not lie in this direction.
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#213180 - 08/10/04 02:50 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Nov 2000
Posts: 1,830
District of Columbia
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Ken,
Thank you for your insightful response to this issue. I think that the problem now (and maybe for a while after October 28th) is that an IRD will be something new and unusual, so fraudsters may take advantage of inexperience at the teller line and try to pass fraudulent items. No matter how well we try to train our front line staff, the bottom line is that the first time one of these things shows up, it is going to throw everyone for a loop. I can see crooks using that newness to get a few things past us - at least in the beginning. Once the IRDs are more common, I think it will become more difficult to fool us with fraudulent IRDs.
The answer, of course, lies in training. With the turnover at the front lines, I think it lies in ongoing training as well as initial training. I believe it will be a challenge, but not an insurmountable one.
BC
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#213181 - 08/10/04 03:45 PM
Re: Returned Substitute Check Presented at the Teller
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Joined: Oct 2000
Posts: 40,086
Cape Cod
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Bear Collector's observation is, I think, accurate.
One need only recall the recent experience of the Treasury's introduction of new currency features. There was an ironic flurry of counterfeiting that coincided with the introduction of the new notes that took advantage of people's lack of experience.
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#213182 - 09/02/04 08:54 PM
Re: Returned Substitute Check Presented at the Teller
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Diamond Poster
Joined: Jun 2002
Posts: 1,210
California
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Regarding "day of presentment" don't forget that you can have a 2:00 p.m. cutoff and if the item is presented OTC after that you have until the next day - still don't get to midnight of the next day, though. [3-501(b)(4)]
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