Clearing House Rule 9 or UCC Code

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Question:

We recently received multiple Breach of Warranty claims for counterfeit items. We are the depositary bank. The claim is being submitted to us under "Clearing House Rule 9." Does our institution need to be a member of a National Clearing House Association or does only the paying bank need to be a member in order for Rule 9 to apply or would we abide by UCC code?

Answer:

"Clearing House Rule 9" is an agreement to alter the normal effects of certain UCC provisions relating to transfer warranties. In essence, the depositary institution adds a warranty that the check is not fraudulent (counterfeit or forged). But that warranty is limited as to time and amount -- if the claim is not timely or if the funds no longer remain in the depositary bank customer's account, there's no liability.

In order for "Clearing House Rule 9" to apply, both the depositary and paying banks must belong to a single clearing house that has adopted the rule or to clearing houses that have both adopted the rule and agree to reciprocity of coverage between clearing house associations. If your bank is not a member of a clearinghouse that has adopted the rule, you should simply inform the claimant of that fact and that you did not make the warranty under which the claims are made.

First published on BankersOnline.com 6/11/12