Just need to confirm my thinking is right on this. A non-customer deposited a check in our ATM, it came back NSF, we processed a disbute through our ATM service provider(MPS) and sent the check to the customers bank (normal procedure). The check was re-deposited by the other bank and was again returned NSF to us. We can not process a dispute twice on the same transaction, so we can't use that means to collect on the item. I told our operations department to do a "Not our Item" check adjustment through FRB since we were not the BOFD the second time the check was NSF. The customer's bank clearing stamped the check as BOFD the second time it was processed. Does that sound right??

You are correct, it's a not our item scenario.

Did you blank out your endorsement as you gave the check back to the non-customer?