Looking for some guidance. We have a business customer who wrote a check out to a vendor for a normal semi-annual bill. Check cleared and 6 months later the vendor contacts the customer and indicates their account is delinquent. Business customer pulls the statement and notices the check that cleared was altered. The business name was removed and made payable to a fraudster individual. We had the customer complete the Affidavit of Check Fraud and requested the item to be returned to the Depositing Bank. Our processor indicated that they are not able to return the check to the depositing bank due to the time that has lapsed> They indicated that a return requires a payor bank to return an item or send notice of its dishonor, before midnight of the next banking day following the banking day in which the item was received. (Uniform Commercial COD (USS)). They have to collect from the depositing bank. This is one of the mega large banks and I am wondering how we even go about trying to collect this $. Any guidance is appreciated.

Get your legal counsel to write them a letter in sixth grade English explaining the UCC to them.

Anyone have an example of a letter that they have used successfully?

can a FI use an Affidavit of Forgery in place of the Affidavit of Check Fraud

Without knowing exactly what those documents say and what the person is swearing too and the exact situation in which you are going to use them, you should ask your legal counsel.

There has been a whole flurry of posts lately on check fraud, alterations, washed checks, forgeries, etc. Since this sort of issue is on the rise, it would be in the best interests of every bank to sit down with their legal counsel to develop a coordinated plan of attack when it happens.

Our legal counsel advised us that it would be a "Hail Mary" to get this $ back from the Big Bank.

then i'd suggest getting new legal counsel because the law is clearly on your side to recover this

Can anyone provide the exact place to find the UCC verbiage so that I can forward to legal? Thanks!

Are you talking about an altered check or when the true payee never got the funds? Then § 4-208. PRESENTMENT WARRANTIES

altered check

I talked with our attorney the other day about this. One of the suggestions was, since it was happening to a lot of community banks in our state, that we take it to the state bureau of financial institutions to let them know that Mr. Big Bank is stiffing the community banks in the state. Not sure if they have any leverage, but it might be better to act as a group rather than fight it one by one. Our state association has a fraud group and I think it will be discussed on the next call. Or maybe even your state association would be able to help.

We even asked for the original check back (within 30 days) and the response was 'we don't have the original check'. Then how do you know it was counterfeit and not altered if you don't have the original check?

I though I would update everyone on my altered check issue with the Big Bank. I received a denial letter today with the following, "The check is counterfeit. This is not an altered item and there is no breach under UCC 4-208. Our review of other comparable items drawn by the maker demonstrates that the check is a counterfeit, and not an authentic item. As a result, we decline to pay the claim."

Pretty amazing how they came to this conclusion. The maker of the check is my customer. I can't see how Big Bank would have access to "compare items drawn by the maker." Also, when the check in question is compared to my customers existing checks it is clear that is was altered as the signature of the maker is exactly the same. Unreal.

Given that you should have access to transit checks over the last seven years by routing and account number, it's entirely plausible that Big Bank has access to numerous images of other checks drafted by your consumer. Based upon your description of the endorsement, it sounds like this was a check scanned then altered on computer and then reprinted or just mobile deposited in which case, it would be a counterfeit. An altered check should be the original check that was changed in some way. In the latter case, such alterations should be readily evident.

I have seen the identical letter from that bank, and on reviewing the checks in question in comparison with genuine checks drawn on the drawer's account, one could determine that big bank was correct - the checks were counterfeit. And yes, signatures were nearly identical or were actually identical.

Thanks for the responses.

We file without entry claims for fraudulent items discovered after the return window and have received a number of denials stating the check was a counterfeit and not an altered item. One bank in particular gave us a list of our customer's checks that were processed at their bank which they compared the item to in order to confirm their decision. In the majority of the cases the signatures on the fraudulent items looked close enough to our customer's signature to pass review and on others the differences between the counterfeit and the legitimate checks was minute (not noticable unless you scrutinized the checks).

Hm... I'm trying to follow the logic.

The check was washed/modified and deposited with the physical modification = altered; which puts responsibility on BOFD to detect alteration

The check was scanned, modified digitally, then reprinted with the digital modifications = counterfeit; which puts responsibility on drawee bank to detect the authenticty of it's customer's genuine instrument.

Man... if that's true you might have a real hard time definitively proving one vs the other in the age of photoshop. Then paying a LRC or without entry would come down to who is willing to play chicken if it gets in front of a judge.

If the check was mobile deposited, does that make a difference? I was thinking (or dreaming) that if the BOFD did not have the original check then they really couldn't prove it wasn't altered and were liable.

Thought or dream, you're correct, CloudShape!

Regulation CC, section 229.38(i) attempts to resolve this issue when an original check or original substitute check is not available for inspection—

"(i) Presumption of Alteration. (1) Presumption. Subject to paragraphs (i)(2)-(3) of this section and in the absence of a federal statute or regulation to the contrary, the presumption in this paragraph applies with respect to any dispute between banks arising under federal or state law as to whether a substitute check or electronic check transferred between those banks contains an alteration or is derived from an original check that was issued with an unauthorized signature of the drawer. When such a dispute arises, there is a rebuttable presumption that the substitute check or electronic check contains an alteration."

"(2) Rebuttal of presumption. The presumption of alteration may be overcome by proving by a preponderance of evidence that either the substitute check or electronic check does not contain an alteration, or that the substitute check or electronic check is derived from an original check that was issued with an unauthorized signature of the drawer.

"(3) Effect of producing original check. If the original check is made available for examination by all banks involved in the dispute, the presumption in paragraph (i)(1) of this section shall no longer apply."

But when BigBank tells CommunityBank that the check is a counterfeit, so it won't pay, CommunityBank may decide that suing BigBank may not be worth the monetary and hassle costs of litigation.