Our customer deposited a check on Wednesday. After 6:00 p.m. on Friday, when our bank was already closed, we received a fax from the paying bank stating that it would be returning the check. Is this considered a late return?

Yes, we believe that the paying bank returned the check late and that your bank has a claim of late return against the paying bank.

Under the Federal Reserve’s rules, a paying bank “may send . . . a returned check that a Reserve Bank did not handle for forward collection only if it sends the returned check within the deadline of Regulation CC and the Uniform Commercial Code” — i.e., the midnight deadline. The Uniform Commercial Code (UCC) midnight deadline is midnight of the next banking day after receiving a check (with certain limited extensions permitted under Regulation CC). Since your customer deposited the check on Wednesday, and the paying bank did not send notice of the return until after your bank’s closure on Friday, we believe that your bank has a claim of late return against the paying bank.

The Federal Reserve’s Operating Circular 3 provides that a depository bank’s claim of late return “must be received by a Reserve Bank within two calendar months after the sender [the depository bank] was charged for the returned check.” The paying bank then has “twenty banking days after the Reserve Bank charged the bank for the claim of late return” to send a statement providing “that the paying bank returned the check within its deadline under the Uniform Commercial Code . . . and show[ing] the banking day of receipt and the date of return of the check by the paying bank.”

For resources related to our guidance, please see:

Federal Reserve, Operating Circular No. 3, 15.1, page 17 (November 15, 2021) (“A paying bank may return a cash item to us for which it has previously made settlement to a Reserve Bank only if it returns the item within the deadline of Section 210.12(a) of Regulation J, Section 229.31(g) of Regulation CC and the Uniform Commercial Code. A paying or returning bank may send to us a returned check that a Reserve Bank did not handle for forward collection only if it sends the returned check within the deadline of Regulation CC and the Uniform Commercial Code.”)

Federal Reserve, Operating Circular No. 3, 20.14, page 30, footnote 9 (November 15, 2021) (“This deadline is generally midnight of the banking day following the banking day of receipt of the check by the paying bank (Uniform Commercial Code Section 4-302 and Regulation J Section 210.12(a)), except as the deadline may be extended under Section 229.31(g) of Regulation CC. This deadline applies to checks returned with entry for any reason, including forged endorsement or forged drawer signature.”)

Illinois UCC, 810 ILCS 5/4-302 (“Payor bank’s responsibility for late return of item.

(a) If an item is presented to and received by a payor bank, the bank is accountable for the amount of: (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank . . . retains the item beyond midnight of the banking day of receipt without settling for it or . . . does not pay or return the item or send notice of dishonor until after its midnight deadline . . .

(b) The liability of a payor bank to pay an item pursuant to subsection (a) is subject to defenses based on breach of a presentment warranty (Section 4-208) or proof that the person seeking enforcement of the liability presented or transferred the item for the purpose of defrauding the payor bank.”)

Illinois UCC, 810 ILCS 5/4-104(10) (“‘Midnight deadline’ with respect to a bank is midnight on its next banking day following the banking day on which it receives the relevant item or notice or from which the time for taking action commences to run, whichever is later.”)

Regulation CC, 12 CFR 229.31(g) (“The deadline for return or notice of dishonor or nonpayment under the UCC or Regulation J (12 CFR part 210), or § 229.36(d)(3) and (4) is extended to the time of dispatch of such return or notice if the depositary bank (or the receiving bank, if the depositary bank is unidentifiable) receives the returned check or notice— (1) On or before the depositary bank’s (or receiving bank’s) next banking day following the otherwise applicable deadline by the earlier of the close of that banking day or a cutoff hour of 2 p.m. (local time of the depositary bank or receiving bank) or later set by the depositary bank (or receiving bank) under UCC 4–108. . . .”)

Federal Reserve, Operating Circular No. 3, 20.14, page 30 (November 15, 2021) (If a sender believes that the paying bank returned late (after the paying bank’s deadline under the Uniform Commercial Code, Regulation J, and Section 229.31(g) of Regulation CC) a check or electronic item in the amount of $100.00 or more, the sender may dispute the return by furnishing us with the returned check (or a legible copy of the front and back of the returned check) and a signed statement that the bank believes that the paying bank returned the check late. This procedure may be used only once for each return, and only if the check or electronic item has been handled by a Reserve Bank for forward collection or return. The statement must be in a format we prescribe and must be received by a Reserve Bank within two calendar months after the sender was charged for the returned check. The sender’s Administrative Reserve Bank will provisionally credit the amount of the returned check to the sender’s account.”)

Regulation J, 12 CFR 210.2 (“Sender means any of the following entities that sends an item to a Reserve Bank for forward collection— (1) A depository institution, as defined in section 19(b) of the Federal Reserve Act (12 U.S.C. 461(b)) . . .”)

Federal Reserve, Operating Circular No. 3, 20.15, page 31 (November 15, 2021) (The sender’s Administrative Reserve Bank will revoke the credit provided under paragraph 20.4 given to the sender (and a Reserve Bank will recredit the paying bank) if: . . . b a Reserve Bank receives the returned check or the copy the paying bank received with the Claim of Late Return and a statement as provided below from the paying bank within twenty banking days after the Reserve Bank charged the bank for the claim of late return. The paying bank’s statement must be in a format we prescribe that is signed by an officer of the paying bank and: 1) state that the paying bank returned the check within its deadline under the Uniform Commercial Code and Regulation J or Section 229.31(g) of Regulation CC; and 2) show the banking day of receipt and the date of return of the check by the paying bank.”)