Is This Bank Making Up Its Own Rules?
We receive a steady flow of questions about a wide variety of issues. We recently received this question from an ISO who notes that they are selling a collection service and had recently been stumped by a customer's problem.
"A bank just returned to one of our customers a copy of a check that they had deposited three months ago. The paying bank had rejected the check for insufficient funds, and our customer's bank debited their account. The account officer at our customer's bank said that a bank may return a check up to seven years later. Can it really do that?"
Our answer was a simple "No."
Here is why:
A paying bank that receives a presentment of checks has two choices: it can either honor the individual checks or return them. Article 3 of the Uniform Commercial Code (UCC) specifies that a bank has until midnight of the next banking day to return any checks it plans to return. The Federal Reserve's Regulation CC allows a bank to hold a check slightly longer-if it then returns the check more quickly.
Let's assume that a merchant deposits a check on Monday, day zero in our model. The check may not reach the paying bank until Wednesday, day two. (Clearing banks including the Fed deliver almost all checks to U.S. banks within two business days.) The paying bank may hold the check until Thursday. If the bank returns the check on Thursday, day three, it should reach the originating bank on Monday, day seven, two business days later.
The above example covered seven calendar days. Even if we allow several additional days to cover real-world delays, we are a long way from the three-month delay noted by the question. If the paying bank does not return the check expeditiously, UCC Article 3 and Reg CC decree that it must honor the check. Plain and simple, that's the rule.
In fact, if the returned check is more than $2,500, Reg CC requires the paying bank to send the depositing bank a notice of non-payment. The depositing bank must "receive" this notice by 4 PM of the second business day after the paying bank returned the check. (This deadline applies only to non-local checks.) In our above example the paying bank returned the check on Thursday. The depositing bank must have received the notice of non-payment by 4 PM Monday, two business days later.
Finally, the ISO stated that the bank returned only a copy of the original check. We suspect that the paying bank mislaid the check, and simply wanted someone else to pay for its mistake. Proper action would be to return the check to the bank and tell it to reverse this illegal transaction.
