Counterfeit Check Responsibility

Question:

When a counterfeit check is not returned to the depositing bank within the required 24 hour period, who is liable for the loss, the drawee bank or their customer assuming the customer exercised ordinary care and notified the bank upon discovery during a timely bank reconciliation? There appears to be some evidence that the drawee bank can pass the risk of loss on all counterfeit checks to their customers through their deposit account agreement. However, this would appear to circumvent the banks responsibility to only charge a customer's account if an item is properly payable and signed by an authorized individual. Otherwise why even have a signature card?

Answer:

If a customer finds a counterfeit check and draws it to the drawee bank's attention through a timely reconciliation, the loss is generally the drawee bank's. A different result would require the bank to prove some complicity or negligence on the part of the customer.

I'm not aware of any evidence that drawee banks can unilaterally pass this risk on to their customers unless the customer fails on the timely reconciliation and notice issues. While the UCC allows banks to alter its rules by agreement, it prohibits the bank from disclaiming its own responsibility to be careful...

First published on BankersOnline.com 2/4/02