I understand that the Originating Bank (BOFD?) is now liable for RCC's whereas previously it was on the Paying Bank with the midnight deadline in effect.

My question whether is it literally the Originating Bank or the BOFD that is liable now.

Example: Merchant creates an RCC and deposits it with into their account at Bank A. The Paying Bank returns it as Insufficient. Bank A, debiting the Merchant's acccount, turns the RCC over to the Merchant, as it normally would a check. Merchant then calls The Paying Bank to verify funds, finding that funds are available to re-present the check. Merchant takes RCC to The Paying Bank's local branch, who negotiates the item by issuing a cashier's check for the RCC, as he normally would a previously returned check.

Customer notices the unauthorized draft on her statement, notifies The Paying Bank of the RCC and files an affiavit to that effect. The Paying Bank then returns the check to Bank A as the Originating bank of the draft.

My question: Does the fact that The Paying Bank negotiated this in person change the liability from the Originating Bank to the Paying Bank? In other words, did The Paying Bank just buy the RCC?

Now, I do represent The Paying Bank in this case, so be nice. I am on the fence as to how this should be handled, because I see both sides of the debate.

The Regs don't seem to address this situation. To me, that means that The Paying Bank will be liable. To our CO, that means that the circumstances must have no bearing on the fact that Bank A "introduced the RCC into the banking system".

For the record, our CO and I "debate" like brother and sister, so being right, though it would mean that my bank loses out, means that I get to stick my tongue out at her. If I'm wrong and Bank A is liable, she gets to stick her tongue out at me, but we suffer no loss. It really is a win-win as well as a lose-lose situation.

Please post your responses when you can.

Thanks,
Jeremy

Jeremy,

Methinks the paying bank deserves to eat this one, since it is ridiculous for it to pay an RCC over the counter. Any paying bank with a reasonably smart fraud prevention department -- OK, so that means your bank and ten others -- would have a policy forbidding such a practice.

I don't think that the section 229.34 warranty goes away just because the item was bounced. So as the paying bank -- assuming I'm not so embarrassed that we paid the check to admit our error -- I would make a warranty claim against the depository bank. And then cross my fingers.

Well, having one of the eleven smart fraud prevention departments, I must admit that this had not been put into policy. It has been discussed, and I foresee this as being put into policy as I will be pushing for it. For the record, the BOFD (Originating Bank) has another of the eleven.

Thanks for your reply, John. Although neither of us has a clear-cut right to stick our tongues out at the other, you seem to back us up from the warranty standpoint. The crossing my fingers comment shows that my line of thinking was at least warranted.

We will submit the warranty claim and cross our fingers. Our CO had stated the same: That the warranty survives from one transaction to the next. The worst-case scenario is that we pay the item and lose the money. It's not much money and would be worth the lesson learned that hopefully will be echoed at least in our area with the other banks we deal with on a regular basis.

Being in Fraud, I'm not much for squabbling over technicalities. I am spoiled in that most of my cases are pretty much cut and dried. When regulatory interpretation comes into play, things get ugly.

Thanks again for your reply.

Jeremy

Don't forget that if your check came to you via the Fed you can use the Fed's adjustment process, which severely hamstrings the BOFD's ability to protest.