Stop Checking Endorsements?
by Mary Beth Guard Guru BIOS
Question: We are finding it less and less practical to return checks for missing or improper endorsements.
Many banks treat them like “bad checks” and charge them back to their depositor immediately, which causes all kinds of obvious problems for both the payee (their customer) and the drawer (our customer). We end up being the goat for returning them. Should we just stop
looking at endorsements on behalf of our customers altogether?
Answer: It’s all a matter of risk tolerance. Typically, but not always, the risk of loss on a check bearing a
forged endorsement will be on the depositary bank. As a practical matter, how would you, as the payor bank, even know if an endorser’s signature is forged by looking? Unless the payee was also a customer of your bank, you wouldn’t even have a specimen signature.
You could tell quickly, however, if the endorsement didn’t match the payee, or if there should have been multiple endorsements from joint payees and one or more of them is missing.
Keep in mind that if it is a double forgery (where both the drawer’s signature and the endorsement are forged), the drawee bank will usually get stuck with the liability. Would checking an endorsement in that instance lead you to spot a forged drawer’s signature,
perhaps, while examining the check? If a check bears a forged endorsement or is not endorsed as drawn and you believe you have a warranty claim against the depositary bank, remember that it is only that: a claim. It is not an automatic chargeback. Once you
get beyond the midnight deadline, all you can do is nicely ask the other bank to cough up the dough. They may decide they have a valid defense to the breach of warranty claim and may decline to return your funds, which leaves you in the position of having
to sue.
So, perform a cost/benefit test. What does it cost you to check endorsements? What benefits (dollar-wise) are you realizing from doing so? What losses have you historically incurred on checks you have paid that have had forged endorsements? Should you set a dollar
amount above which you will examine endorsements? It boils down to a business decision based upon risk.
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