ICL – Depositary Bank RDC Risk: The RDC Indemnity and Holder in Due Course

ICL Depositary Bank RDC Risk: The RDC Indemnity and Holder in Due Course

I hope that this has been five times you’ve gotten to hear my voice. And you notice, I don’t have my camera turned on.

So, today, we are going to talk about the risks involved with being an RDC depositary bank. We’re going to talk about the risks of being a paying bank when you run into the inevitable duplicate, and we’re going to talk about something that is sometimes very confusing to some people. I know it was the very first time I heard it, is holder in due course, so let’s get started.

First, I want to remind you again, as always, I’m not an attorney and not giving you legal advice. In certain specific circumstances, you want to consult legal counsel, compliance, make sure that you’re taking the appropriate action. But I’m going to give you all of the ammunition you need, the regulatory references and the state law, the UCC, so that you know where it says that and you can take the appropriate action. As always, we’re going to start out by reviewing the legal framework, which you guys already know, I hope, by heart.

We should have a test at the end of this, I think. We’re going to talk about the depositary bank risk and the RDC indemnity and then we’re going to look at the holder in due course and considerations to make when you’re a paying bank and you detect duplicates.

So again, just to remind you that check is governed by two bodies of law. The first being state law, Uniform Commercial Code adopted by each state, and it does vary from state to state, although articles 3 and 4, which are specific to check, are pretty uniform across the board. So, you do want to know what your state’s version is and bang articles 3 and 4 or favorites because there is a wealth of information there for you. We’re going to be, today, talking mostly about regulation CC, where you’ll find the definition of electronic check. You’ll find the Expedited Funds Availability Act, and you’re going to find the warranties and indemnities, which is what we’re going to focus on today.

So let’s look at those warranties to remind you again. These are things that if you have these memorized, you can think yourself out of just about every kind of situation that’s going to come up. And those warranties are not long and complicated. They’re very straightforward. There are presentment warranties that live in both articles 3 section, 417 and article 4-208 of UCC, and fairly straightforward. The presenting bank, which is always the depositary bank who originally takes that an accepted check and presents it through collecting banks to the paying bank, says, I am entitled to enforce this. So, essentially, they bought that debt from the payee. And they made sure that they gave credit to the payee and they warant that they’ve done so. They also make a warranty that the check is not altered and remember that UCC was written for paper check. We used to always only take paper checks. So the depositary bank was in the best position to know if a check was altered; they’re looking at that piece of paper and they can tell if it’s crossed out, changed acid washed, all of that stuff, and that warranty lives even though we are not always and probably mostly not accepting checks in paper form anymore.

Now, the depositary bank is not in the best position to know the drawer’s signature unless that check is drawn on them. So, any check that is not drawn on them, the depositary bank isn’t going to know the maker signature, the drawer’s signature. And so, they say in that presentment warranty to the paying bank that we have no knowledge that the signature of the drawer is unauthorized. Now, you’ll notice we talked about rule 9 previously, which is a rule for ECCHO exchanges, which does a 180 on this UCC presentment warranty. So, you do want to know if you’re a paying bank and you got to check that was forged or counterfeit, did you get it through the Fed? If you did, this warranty prevails and you have no recourse against the depositary bank.

We’re also going to look at reg CC and I gave you the reference here. It’s the no double debit warranty, we call it sometimes, because you’ll notice it doesn’t use the word duplicate. What it says is, no person will receive the transfer, presentment, or return, or otherwise be charged for an electronic check or an electronic return check, the original check, a substitute check, or a paper or electronic representation of a substitute checks such that the person will be asked to make payment based on a check it has already paid. In other words, nobody’s going to be asked to pay the same check twice.

So understanding that, when you’re an RDC depositary bank, you’re making those warranties, but RDC presents new risks; you don’t receive the paper, but you’re still making the presentment warranties we just talked about.

When you get a check, you don’t have the opportunity when you get it through RDC for a deposit, you don’t have an opportunity to examine that physical paper, which makes it a little bit more difficult to determine if a check is not altered, but you still make that warranty. You still make the warranty that you are entitled to enforce, even though you can’t identify the person who is depositing the check, although with good RDC practices, that check is going into the payee’s account. And you want to make sure that whatever terms of endorsement you apply are met, such as restrictive endorsements – and we’ll talk about that in a bit – and you want to make sure that it’s valid. In other words, if the check is payable to your depositing customer as your depositing customer-endorsed it, if it’s not payable to your depositing customer, what’s the deal? Is it a check that bears a special endorsement? Okay, endorsed by the payee and made further payable to your depositor, understanding that your risk in such a thing, whether it’s in paper or remote deposit, you can’t verify the validity of the original payee’s endorsement. So that’s just a risk that you, that all banks take whether they accept a check with a special endorsement in paper form or RDC. And then the duplicate warranty is the one that really prevails in this scenario. You don’t get the paper item, but you are making that duplicate warranty and it’s important to understand that every bank that presents an image or to a paying bank makes this warranty. The greatest number of duplicates that I have heard of where someone had eight different bank accounts and deposited the same check at eight different banks. Every one of those banks that presented those images to the paying bank made this no double debit warranty. So, the big risk in RDC is that the paper is controlled by the depositor and the risk of them playing games, cashing that paper check at a check casher or depositing that paper check at another bank.

You can’t emphasize it enough. Every bank that presents a check to a bank, paying bank makes that warranty that no one’s going to be asked to pay the same check twice. Every depositary bank says, I am entitled to enforce, and what this means is with the RDC indemnity, the depositary bank risks an indemnity claim if another bank received the paper and suffered a loss because that was adjusted or returned back to them as having already been paid.

So, the purpose of that indemnity we saw that rise exponentially when RDC began to be universally adopted, particularly for consumers. We were seeing losses that occurred at depositary banks that took the paper check thinking I got the paper check, it’s cool, but it would come back to them as having already been paid, either as a return or adjustment and when they try to recover from their depositor, guess what? Their depositor’s account is empty. So that’s really why this indemnity was made and why it is something that everybody wants to be aware of, it’s to protect that bank that takes the paper check from a loss when it comes back as having already been paid and that means whether it’s returned timely or whether it’s adjusted. And the principle here is to encourage RDC banks to implement good RDC deposit practices. And we’ll talk about some of the ways to mitigate that risk. You’ve heard me say this before. I think you do not want to give RDC service to a customer just because they walk in the door, just because they have a pulse. Remote deposit capture is a risky service, and you want to make sure that you mitigate the risk. So, the RDC indemnity addresses the risk that the customer retains the original check and either intentionally or mistakenly deposits that paper check at another bank that RDC bank’s potential liability rises as we have spoken because it permits the customer to truncate the original check.

So here’s the text and I always notice these things when I’m doing the presentation. All of these regulatory references that you’re seeing here are in reg CC. So the RDC indemnity text is here. It says it is provided by a depositary bank, that is a truncating bank because it accepts the deposit of the electronic image, even though it doesn’t get the original check, it’s still called the truncated bank and is responsible for that check. It hasn’t received the original check. It got paid for it by the paying bank. It was not returned back to them as having already been paid under those scenarios that bank indemnifies a depositary bank that accepts the original check for deposits, for deposit, for losses that are incurred by that depositary bank if the losses due to the check having already been paid. So, what that that means is that depositary bank that took that paper is that check is returned, NSF, this indemnity does not apply. It applies if that check comes back to them as having already been paid.

Now there is an exclusion to that because if that depositary bank that took that paper check, took it and it that original check bore a restrictive endorsement inconsistent with the means of deposit, it can’t make the indemnity claim. For example, if that paper check border restrictive endorsement that said for mobile deposit only, or better yet, for mobile deposit to XYZ bank, and ABC bank takes that paper check, they’re not covered by this indemnity.

But let’s take a look at endorsements. You’re going to find those identified in UCC article 3, section 205 and 206. There are four kinds of endorsements that are described. First is called blank. That doesn’t mean there’s no endorsement. It simply means that the payee endorses with their name only and that becomes a bearer instrument with that endorsement. The special endorsement we talked about at the beginning is an endorsement that it identifies a person to whom the check is payable. So, for example, a check is payable to me. I endorse it, and then I make it payable to Nikki. That’s a special endorsement. Nikki comes into your bank or deposits that through remote deposit, you verify that it’s going into Nikki’s account, so that you can honor your warranty that you’re entitled to enforce, but the risk to you is that Nikki may have forged my endorsement. Unless I’m standing there with you, with Nikki, when she passes that in paper and you can verify my endorsement, a special endorsement is a risky thing. This is where you have to know your customer. We talked about anomalous endorsements in the past, where it’s endorsed by someone who is not the named payee. And that is most common with business checks, where the check is payable to ABC company and it’s endorsed by Fred Jones, CFO. Excuse me. That doesn’t mean that it’s not a legal endorsement. It just simply means someone other than the payee endorsed that. Now, some banks might call checks that come in with that kind of endorsement an irregular endorsement and they send it back if they catch it in time to return it, but just understand that your regular endorsement is not a thing. It’s not identified in UCC. They talk about anomalous endorsement and was the perfectly legitimate, kind of endorsement, it does beg the question: Why would someone do that? Because they really need to endorse as drawn and where it’s important here is depositary bank should encourage their customers, their depositing customers, to endorse has drawn to avoid any confusion. If endorsements are looked at by the paying bank or the drawer. And then the last one, the restrictive endorsement, that’s particularly germane to our conversation today and that’s where an endorsement limits the payment, or the negotiation to a particular condition. We most commonly knew restrictive endorsement as for deposit only so that check can only be deposited when it bears that kind of restrictive endorsement.

So let’s go through the terms of the depositary bank to receive the indemnity of it, if it accepts the paper, it has to have gotten the original paper check. So it’s not an image, it Bart. I’m sorry. It has to have gotten the original paper check. It doesn’t mean that it has to send the paper check to the paying bank. It has to have received the paper check for deposit. And again, if that check bears a restrictive endorsement that is contrary to the terms of the negotiation, then they’re not going to be able to make that indemnity. And here’s where, if you say to your customers when you’re an RDC depositary bank, we want you to put for deposit only on the back of that check. Well, if that paper check is taken into another bank and deposited that bank honored that restrictive endorsement because it wasn’t restrictive enough. That’s why you want to say, put for remote deposit only or for mobile deposit only on that endorsement. So that if the bank that takes that paper check, takes it over those terms there, where it says, for mobile deposit only. It is not going to be able to make an indemnity claim.

Now that paper depositary bank has to suffer a loss. Which means the check came back to them as having already been paid and they could not recover from their depositor. That’s an important component to understand this indemnity does not indemnification. The depositor, it indemnifies the depositary bank who took that check or deposit. And it does not indemnify other banks and the collection process. It’s really between the RDC depositary bank and the paying bank and the paper depositary bank.

So what are the indemnity amounts cover? The cover, the amount of loss up to the amount of settlement. Which means the amount of the check. If you have to fight to recover, then there might be additional costs that the indemnity will provide such as interest, reasonable attorneys fees, court costs, that kind of stuff.

Now, how do you determine when you are that paper depositary bank and you got that check back as having already been paid? How do you determine who the RDC depositary bank is, they got this through a Fed exchange. There’s an ITYP called INFO. You send that into the Fed, and they will tell you who the RDC depositary bank is, and you have to do so within one year of that return or adjustment. If it’s an ECCHO-governed exchange, the adjustment type is called source of receipt item identification. So you’ll send that in to learn who the depositary bank, the RDC depositary bank, was.

So, I’ve been going on here. Do we have any questions so far?

So far no questions.

All right. So let’s look at how this works. Here we have our famous Mr. Blue Guy. He’s an RDC customer. He has RDC service with BOFD A. He deposits an image of that check at BOFD A and the image is presented to the paying bank and paid and then indemnity then applies to any other bank that takes the paper check, which in this case is the BOFD B. where Mr. Blue Guy has an account. He goes in, deposits at paper check with a blank endorsement. Remember blank endorsement says that the payee simply endorsed it, so he endorsed it. Mr. Blue Guy. And that was it. Depositary bank took that check, gave credit to him. Excuse me. Just a second. Sorry about that.

And the paying bank gets that image of that check and says, hey, that’s a duplicate. So, they returned it. Depositary bank, as they do with all returns, are going to charge it back to the depositor except, whoops. No money in that depositor’s account. Now, they have suffered a loss. That’s when the indemnity applies or that’s when the identity claim is going to be made. So, depositary bank A is going to be obliged to return the funds back to depositary bank B.

Now, if that paper check has a restrictive endorsement. How does it work? Same way? Only depositary bank B dropped the ball, that paper check bore a restrictive endorsement. It said for mobile deposit only or maybe for mobile deposit only to be OFDA. They should not have accepted that check. They get that returned as a duplicate. And they can’t recover from Mr. Blue Guy’s account. And they think that they can make a claim. Now, here is something I should emphasize if you are a depositary bank who took a paper check and you make that indemnity claim, you want to include with that indemnity claim a copy of the check as you accepted it, front and back. The depositary bank A says there’s a restrictive endorsement. You are excluded from making an indemnity claim to us or we’re going to disclaim.

Still, consider some deposit agreements, considerations, when you are offering remote deposit capture service to your customers. Add some indemnity language that says, customer, if you duplicate this check, you’re going to be responsible. Consider requiring a restrictive endorsement, and the more restrictive you make it the better. We talked about if you put a restrictive endorsement for deposit only, that’s not going to protect anybody, other than it’s not going to be cashed. But if somebody deposited in another bank, they’ve honored that restrictive endorsement. So that restrictive endorsement asked to restrict the means of deposit to mobile deposit only, and if you add to the depositary bank, you’re being even more restrictive. So if it says for mobile deposit to XYZ bank and ABC bank is presented that paper check, they’re going to look at it and say, go away.

Consider also that you want to restrict certain types of checks from remote deposit. There are some greater risks for certain kinds of checks. For example, U.S. Treasury checks. I think I’ve said before that a U.S. Treasury check is a lot like a hundred-dollar bill. It bears all kinds of counterfeit detection devices. There’s microprinting, ultraviolet light detection, that kind of stuff. When a bank presents a U.S. Treasury check to the Treasury, they don’t make warranties, they make guarantees, which is essentially the same thing in 31 CFR 240, which governs the presentment of checks to the Treasury. And among those guarantees is that the depositary bank has made every effort to determine that that check is not fictitious. When you accept a Treasury check through RDC, you can’t do that.

Another check that is frequently used for fraud is U.S. Postal Service money orders. There are also detection devices there. Although there are ways for you to confirm whether or not a U.S. Postal Service money order is legit by calling certain numbers.

So, you definitely want to have heightened due diligence if you are accepting those through RDC. Another thing to consider is, do you want to accept an RDC through IRD through remote deposit. That’s a check that has already been returned back to the depositor. You dropped it to a substitute check. Now, do you want to accept that for deposit through mobile deposit because you still got that dishonored check in his hand? And that’s something you want to consider.

So, when we look at offering RDC service to our customers, consider the length of time that person has been a customer. What’s the history of their account activity? What kind of credit history do they have? The same kind of due diligence you would have for opening an account, you want to apply to offering RDC services, again consider enforcing a restrictive endorsement that is truly restrictive. Establish controls to review the RDC deposited items, and the higher the volume, the more of a challenge that is, so again, know your customer. If you’ve done this upfront due diligence on this customer, you should have reasonable belief that they’re not out to scam you, but consider reviewing the endorsements and rejecting items that do not bear the restrictive endorsement, with the full understanding that you might see that restrictive endorsement on the deposited image, but it’s not actually on the physical piece of paper. We know the scam. I take a picture of the front of a check. You require me to put a restrictive endorsement on the back of it. So, I take a picture of a back of a piece of paper that’s the same size of a check, and I put that restrictive endorsement on that piece of paper, but the actual check ends up not having the restrictive endorsement on it. And that’s an important thing. If you’re an RDC depositary bank and you get a claim and RDC indemnity claim, you don’t want to just summarily reject it because you see the restrictive endorsement on the image that you accepted. It’s all about is it on the paper? And consider also establishing daily and weekly deposit limits, the number of Items, the amount of the total deposits.

Do we have any questions so far?

Nothing yet.

All right, you guys are good. All right. Let’s talk about holder in due course. That’s defined in UCC 3-302.

Now, the holder, remember, we talked about, is the person with the check, payable to them or payable to a bearer. Now that they have taken that check to, let’s say, a check casher. That check casher, if they took that check for value in good faith, without notice that the check is overdue. And I’m going to stop there. Overdue is defined in UCC as greater than 90 days from the issue date. It doesn’t mean the check is not negotiable. It just gives it a different legal status. If that check is greater than 90 days from the issue date and that check casher takes it, they do not qualify for holder in due course status. If that check has been dishonored. for example, it’s an IRD and they cash it, they do not meet the requirements to be holder in due course, so it’s important that everybody understand the criteria for being a holder in due course.

Now that party that took that paper check for value in good faith. It wasn’t overdue, it hadn’t been dishonored. They have no notice that that check contains any unauthorized signature, and they can see it has not been altered. If that check was altered and they accepted it, they are not qualified as holder in due course. And without notice of any claim to the check or that any party has a defense or a claim. So consider this. If I walk into a check casher with a piece of paper check, and I’ve got a restrictive endorsement on the back of it for mobile deposit only, and that check casher cashes it, they have noticed that another party has claim to it. So again, they’re not going to qualify as holder in due course. So, the holder can enforce the check against the drawer. So I write a check to Nikki. Nikki can enforce that check, enforce me to pay it. The way she does it, is she presents it, she gives it to her bank, who presents it to my bank, because I’ve made an order to them, my bank, the drawee bank to pay it. Remember that a check is an unconditional order to pay. So I’ve ordered my bank to pay that. If there are no funds in my account and it gets returned back to Nikki as NSF, she has a legal claim against me because I wrote her a check that was dishonored. So that party that met all of these terms and get that check return back, they can enforce that check against the drawer, and that’s where you want to be aware of the risk when you have duplicates. So it could result in the drawer paying the same check twice. The drawer did nothing wrong. They gave it to somebody who stole from them, essentially.

So here’s my favorite example, A guy walks into a bar cashes, the check. He’s the holder.

The bartender cashes the check for him and sells him a couple of beers. That bartender is now holder in due course because he essentially purchased the debt, the holder, the drawer wrote the check owed the holder money and rather than the paying bank that bartender gave the payee that money. So now that bartender, if you met all those criteria that we just talked about, is holder in due course. And that legal status applies when he took that check and accept and met those criteria. It does not, it is not in evoked when the check has returned. But he’s going to act on it when it is. So here’s the check is returned. He’s not happy. Now, why doesn’t he go after the holder? Why doesn’t he go after the guy, who went with the pot on his head? Well, he could, of course, he certainly could. But remember that guy’s a moving target. He walks into a bar. He cashed a check. The bartender took a risk by cashing the check knowing that if this check comes back to me, NSF, payment stopped, account closed, whatever, I can enforce this check against the drawer, the person who wrote the check.

So, again, the holder is the person in possession of the negotiable instrument, payable either to bear, which is not very common these days, or to a specific person who has that possession.

So he took the check in good faith for value without notice that it was overdue or dishonored, without notice that it was altered, and certainly without any notice that the signature was not authorized, and without knowledge of any claims against it. He doesn’t see a restrictive endorsement or any other things that would say that someone else has a right to that check.

So basically, what it means is that financial intermediary such as a depositary bank, a collecting bank, a check casher, or a grocery store, a liquor store, whoever cashes checks or for anyone, should not be affected by disputes between the drawer and the payee of the underlying transaction. Remember that you write a check to someone because they did something for you. And that person to whom you wrote that check cashed that check, but you put a stop payment on it or you don’t have enough money in your account or you wrote him a bum check, that party that accepted that check is not the party that should suffer the loss. And that’s really what holder in due course, is all about. It permits that party to make the claim and force the drawer to pay it.

So, the drawer as we talked, means the person who signs the draft in orders of payment. The holder in due course is the person who cashes that check and assumes the debt, right?

So what do you do now? Here’s how I first heard about holder in due course.

I got a call. I was at a bank and I got a call from a check casher who said that, that we had returned to check stop payment back to them and he is holder in due course. He’s going to make us pay it. What are you talking about?

Well, I learned a little bit more about holder in due course, but what I learned is that the paying bank is not the drawer, the paying bank is not the party who orders the payment. The paying bank is the party who is ordered by the drawer to pay it. So the paying bank is not subject to the holder in due course claim. The drawer is. So what do you do when your account holder is getting demands for payment from a holder in due course? And those holder in due, course, check cashers, they know how to send letters that are threatening and they’re going to freak out the drawer. And what the drawer did was put a stop payment on a check and that’s what’s really important. Stopping payment on a check does not cancel the obligation of the drawer because it is a dispute between the drawer and the payee doesn’t mean that, by putting a stop payment, all the legal obligation goes away. So, that payee or the party that, now this is important, that payee can be holder in due course, because they accepted that check in good faith for value, right? The exchange something, they gave you a motorcycle for it, whatever that party can be holder in due course. The payee and the drawer in the holder in due course, have to resolve this outside of banking channels. And that usually means in court or the threat of civil litigation.

So, here’s a perfect example. Mr. Blue Guy again. He buys a Rolex from a salesperson, and he writes him a check. Salesperson deposits that check was his bank. Mr. Blue Guy realizes he bought a copy watch. It’s not a Rolex. So, he puts a stop payment on it. Paying bank returns it. Goes back to salesperson’s bank, who charges it back to salesperson’s account, but no money in salesperson’s account. What happens next? Here’s where the depositary bank can actually pursue the drawer and say I’m holder in due course. Hey.

So the depositary bank, in this case, they took that check in good faith for value without notice that it was overdue, without notice that anybody had a claim to it. They met all those conditions, they’re holder in due course.

So again, the depositary bank can be a holder in due course. Depositary banks don’t generally invoke that. They usually go after their depositor because they have an agreement with them, but they can if they met all those criteria.

So how is it a good thing? The holder in due course is protected from a dispute between the drawer and the payee. The financial intermediary has legal recourse. And the risks to the drawer is that they are not released from their obligations.

When there is a dispute between the drawer and the payee or they are unable, the paying bank was not able to pay it because there were no funds in the account.

I’m going to stop there. Are there any questions?

I’m going to get off from you, but not currently. There are not any questions, okay?

All right. So let’s look at where duplicates come into play here. And I apologize. I have a frog in my throat. So, bear with me here.

So here we have depositor who makes a mobile deposit to BOFD A and the electronic check is sent to the paying bank posted to the drawer’s account. He goes and takes a paper check to a check casher, who met all the criteria that we just discussed and is now holder in due course.

That check casher doesn’t have to deposit the physical paper with a depositary bank to be holder in due course. He does it through remote deposit. Check image is sent to the paying bank close to the drawer’s account. The paying bank is notified by the drawer, hey, that’s a duplicate, or the paying bank detects that it’s a duplicate. And so what it does, this is a second presentment, which they say now that’s a duplicate. They return our adjusted back to the depositary bank who charges the holder in due course’s account, just like they would any other depositor.

Holder in due course now says I’m going to make a claim. They contact the drawer and they say, you gotta pay this or I’m going to take you to court and I’m going to ruin your credit and all kinds of threatening stuff in the letter. So the drawer realizes, he might talk to his attorney and realize they have no defense. So he pays the holder in due course claim. Now what just happened? The drawer paid that same check twice now. The drawer is not covered under that reg CC double debit warranty, no double debit warranty, but the paying bank obligated to reimburse the drawer because a duplicate item is not properly payable. We’ll talk about that.

So instead, they reimburse the drawer, and now the paying bank has paid that same check twice. Now, what they can do is go back to the first presentment, which was the RDC depositary bank and do an adjustment as duplicate. And that’s where it should have gone in the first place because the RDC depositary bank and a customer who was a bum and that guy was stealing from the drawer. And so it should go back to the account of that RDC depositor.

All right. So let’s walk through this, in words. A paying bank pays the same, the same check twice. It was accepted by BOFD a as an RDC deposit. It was accepted in paper form by BOFD B or by a check casher without a restrictive endorsement. The drawer’s account is charged twice.

The drawer makes the claim against the paying bank and the paying bank is obligated to reimburse them because in UCC 4-401, as we’ve talked about in the past, a bank, may charge its customer’s account for a check that is properly payable, meaning authorized by the customer, customer does not authorize that check to be paid twice. They were forced to pay it by the holder in due course, and they charged, they were they had to pay it when it was presented by the RDC depositor, eBay. So paying bank has to reverse them. Paying bank then suffers a loss there, but they can make the duplicate presentment warranty back to the RDC depositary bank.

So, here are some considerations when you are paying bank, and you detect a duplicate. Remember that the depositor of the paper check may have holder in due course rights. So if you have a duplicate detection system, remember that it detects duplicates. You don’t want to just automatically return the item that is detected as duplicate, even though that’s the easiest way. You should do some research.

Determine if you can see in the endorsement that one of those parties might be a holder in due course. For example, if you see one of checks that was presented to you as the paying bank and it bore a restrictive endorsement, for mobile deposit, only. That’s going to tell you that that was probably presented by the RDC depositary bank. If that endorsement says, ABC check-cashing company, probably don’t want to do that adjustment or return back to that party because that party may have holder in due course rights.

So what you really want to do is get that duplicate back to the RDC depositary bank, that debits the source that debits the depositing customer who caused the duplicate. And that debits the depositary bank who provided the delivery service that facilitated the duplicate. This is why RDC depository banks should really practice good, good RDC practices, develop good RDC practices, so that they know their customer.

And either duplicate check can be adjusted as paid. Remember that every bank that presented the check to the paying bank made that no double debit warranty. So if it came from the Fed, it would be a paid adjustment. If it came through an ECCHO-governed exchange, it’s called a duplicate.

All right, so let’s run through it again.

Remote deposit capture sends the item through the paying bank. Then a check casher presents that check or accepts that check from the payee deposit with their bank. The image of the bank is sent to the paying bank of the drawer. Our customer notices, sees, that the check was paid twice. Your customer tells you about it. What’s the best thing to do here? Whether your customer tells you about or whether your process detects a duplicate, what’s the best thing to do here? The best thing to do would be to get it back to the RDC depositary bank if you can tell. And you might not be able to tell by the endorsement. And it says RDC depositary bank. What the other endorsement may say ABC check cashing company. That’s the one you do not want to do the adjustment or the return. Get it back to the RDC, BOFD. That’s the best place to go. That way you can avoid all that drama of holder in due course and put your customer the paying bank’s customer through all of that. Threatening letters and so forth.

And, of course, I always want to remind you, that, if you are paying bank, you have a responsibility to return a check timely, which means that you return it. So that it gets back to the depositary bank by the second business day, following the banking day in which that check was presented to the paying bank. It’s a checklist for more than 5,000, you are required to notify the depositary bank, but the expeditiously return itself can serve as the notice. And always remember that the Treasury or any or U.S. Postal Service money order, or a check drawn on any unit of government are exempt from these expeditious return requirements.

All right. Do we have any questions?

So far, there are no questions.

Either that was too boring for words or it was crystal clear.

I think you were crystal clear Dal.

Hey, you guys, I really apologize for the coughing. I have a frog in my throat and that always starts just when I do a webinar but thank you for your attention. Thanks for participating. I hope this made sense and I hope that what you take away from this is, don’t rely only on duplicate detection systems to tell you that an item was presented that had already been paid. Don’t necessarily act on that second item, do a little investigation before you adjust or return, and that can save a lot of trouble. So, if you have any questions, here’s all the ways to get a hold of me. And if you don’t have any questions and thanks for listening.

Thank you, Dal. Thank you everybody for coming to the webinar today. We have one more next week, and we’ll talk to you then. Thank you.