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Checking For Forged Endorsements

Question: I just read the first question in your Questions & Answers section of Volume XI, Number 5 of your newsletter. The question is about returning a check, which contains an incorrect endorsement. At the end of your answer you ask a question about why the bank is checking endorsements on anything except bank checks. We have debated this issue and done some research of other banks and their practices and can't come up with a consensus. What is "industry standard" practice for reviewing endorsements? Do you have any recommendations? What do other banks do? I can see a court case coming back to haunt us if we are not following standard practice but it seems like everybody does something different.

Answer: With the passing of the new Uniform Commercial Code, drawee banks are so well protected now against forged endorsement claims that almost all who are informed and up-to-speed are no longer checking endorsements. The liability on a forged endorsement is all on the negotiating bank, which guarantees that the endorsement is genuine. If there is any claim on that endorsement, according to the Code (law) it is the problem of the cashing (or negotiating) bank. There is NO liability on you for checks drawn on your customer's account, cashed or negotiated by anyone but you, where a claim is made for a forged endorsement. So why check the endorsement? In essence, it only helps to protect other financial institutions. Endorsements on checks drawn on you, sent through the work to you for payment, are their problems.

The only exception are those accounts that request endorsement review for exact or complete endorsements. Those accounts, such as insurance or health care companies, are on referral to review endorsements

Realize, of course, the other side of the coin says that when YOU accept a check drawn on another bank, payable to someone that you cash or negotiate the check for, YOU are then liable for that endorsement that goes through the work to the drawee bank for payment. If their customer says the payee didn't get it, and the payee says they didn't cash it - they will look to you to make them whole, because you guaranteed the endorsement was genuine.

In the case of bank checks - they're checks drawn on "your" account. Those endorsements you do want to check, to be sure the checks are endorsed by the payee, and as drawn. Bank checks are often in large amounts, and those endorsements - just as you would check endorsements on your personal account - should be checked, not for verification the endorsement is genuine, but for correct and complete endorsement, and to be sure the item is not altered.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 6, 7/01




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