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"For Deposit Only" checks with no personal endorsement

Question: If checks are presented to our bank for payment, through the exchange, and they've been endorsed only "For Deposit Only", with no personal endorsement, we've been returning them for endorsement. Should we be doing that? We're starting to get a lot of complaints from our customers.

Answer: : It seems we periodically get the question on verifying correct endorsements and returning the checks timely through the work.

When the negotiating (depositary) financial institution gets the check back, most often if it is returned for endorsement, and IF they check and find it went into the payee's account, the Return Item Department will simply stamp the back of the check with a stamp that reads, "Credited to the account of the within named payee. Prior endorsements guaranteed". It still doesn't have a personal endorsement, but unless the customer requires a personal endorsement, that stamp is sufficient.

However, let's see what happens in the Return Items Area. They'll look at a returned check and yank it for charge back if it has been returned for a "can't pay" reason - e.g., stop payment; forged; stolen; signature does not agree; account closed. If returned for nsf, or endorsement, and the check is under $100 or $200 or whatever their cutoff is, Returns will simply stamp it, ("Credited…") turn it around, and put it back through. They're taking a chance that on the second time through it will pay. It very often does.

If the check is over that cut-off amount, they'll often charge the check back to the depositary account - possibly overdrawing it, charge a fee for the charge back, even if the account isn't overdrawn, and mail the check to the depositor. That payee is now pretty ticked off. He probably complains to the maker - and that's where your complaints are coming from!

Let's go back to the original concept of checking endorsements. Why would you, the drawee bank, want to check endorsements on other than the few accounts such as insurance, medical, pension, benefit, etc. which must be checked for personal endorsement? (And if you provide that service, you probably charge extra for it. If you don't, you should!)

Under our banking laws, the negotiating bank (also known as the depositary or endorsing bank) is totally liable for the endorsement. By accepting the check and "endorsing" it themselves by putting their number on the back, they are themselves guaranteeing all prior endorsements. If the original payee's endorsement is missing, or forged, it's their problem - not yours. If your customer comes in and says the endorsement is no good, you simply go back to the endorsing bank, provide them with the original check and an affidavit attesting to the fact that the endorsement isn't any good, and they'll pay you for the check. You then give the money back to your customer. That check and claim go back to the depositary bank without entry - through the United State mail, not through the work. And the customer can come back and have you make that claim to the other bank for three years from the date the depositary bank guaranteed the check. That would be the date they stamped on the back of the check. (UCC 4-406) Now, having said that, we hear of banks that won't handle claims under $100 - nor will they send them out. They simply absorb the loss. And they probably would not honor your claim if the check is under $100. But the exposure is so limited, it isn't worth the man-power and the time you put into checking endorsements.

Signatures are another matter. Financial institutions regularly check their own customer's sig- natures on checks over a certain amount - standard of the industry would be the area you're in. For instance, in New York City they seldom check signatures on checks under $25,000. However, in Salina, Kansas the going cutoff figure is closer to $2,500. You might want to check with the banks around you and see what cutoff is in other Bookkeeping Departments in your area.

Copyright © 2001 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 11, No. 9, 9/01

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