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Question & Answer
Question: Would you please define the term, "positive pay", from the article entitled "Fraud in the Future" from Bankers' Hotline, Volume IX, Number 12? This term was used in reference to check fraud.
Answer: Corporations that write numerous payroll checks and expect their banks to cash them even if the payees do not have accounts at that bank can supply the bank with an electronic tape of all the checks that have been issued, including the check number, in what amounts, and even in some programs the payee. This information is loaded into the system, and as the checks are cashed or negotiated, they are removed from the list of checks yet to be presented. The teller can go right into the system and determine if the item is legitimate. If there are stolen checks, or counterfeit checks, or duplicate checks presented, they would not be on the approved list and would alert the bank and the corporation to the possibility of fraud immediately. It doesn't remove the necessity to identify the presenter, but it takes the guesswork out of knowing whether or not the check is genuine.
Editor's Clarification: On the Q & A page of Vol. IX, No. 12 I said "…if a check is payable "AND", it cannot be deposited into an "OR" account with only one endorsement…or with no endorsement."I should have made clear that you may elect to accept the check for deposit, but it increases your liability accordingly. If such a check is deposited without both endorsements, the UCC says the depository bank is immediately liable if there is a claim by the person whose endorsement is missing. In other words, you can't stamp such a check "credited to
account of within named payee" for missing endorsement if the account is an "or" account and the payees on the check are "and". The answer is better stated the check should not be deposited into an "OR" account with only one endorsement.
Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 3, 3/00
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