Returning an Unauthorized Paper Draft

If the draft meets the definition of remotely created check (RCC) in Reg CC paragraph 229.2(fff), the depositary bank warranted when it forwarded the check for payment, that the person on whose account the check was drawn authorized the check, authorized that it be payable to the payee stated on the check, in the amount stated on the check. [For warranty, see section 229.34(d)] If your customer signed a statement under the penalty of perjury that the customer (1) did not authorize the issuance of the check (2) in the dollar amount stated or (3) payable to the named payee, the bank may enter a warranty claim {return without entry) against the depositary bank. The depositary bank may raise a defense to the warranty claim if you were not obliged to reimburse your customer (late customer claim, for example). Your warranty claim must be made within one year.

Your customer seems to have notified your bank of the problem in a timely manner (assuming that your deposit contract hasn't shortened the customer statement review period to less than 25 days). If the check was presented to your bank for payment by the Federal Reserve, you have an added advantage. The Fed has a special rule allowing you to make an adjusting entry claim that gets you a quick credit to your Fed account. You can only use this special Fed service within 90 days of the date of the cash letter in which you received the Unauthorized Remotely Created Check (URCC). Follow the instructions for URCCs in the Fed's Check Adjustments Quick Reference Guide here.

First published on BankersOnline.com 6/30/08