Timeframe for Return of Unauthorized Telephone Drafts

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Question:

Our customer, upon reviewing his statement, found a draft that he had not authorized. He brought the draft to the bank to be returned as unauthorized. We got stuck with a late return. What time frame do we have to send back a "Telephone Authorization Draft" if it is fraudulent?

Answer:

Unless more of the states adopt language in the UCC that adds transfer warranties and presentment warranties that these drafts are authorized, you are stuck.

There are numerous threads on this site dealing with so-called consumer drafts or preauthorized drafts or unauthorized drafts. What they all boil down to is -- paper drafts must be caught and returned by the same "midnight" deadline that applies to overdrafts, stop payments, and forged drawer signatures.

Only if the depository bank and the drawee are both in states that have adopted the added warranties may the drawee return the item later for failure of authorization.

First published on BankersOnline.com 09/15/03