Written Policy: Using Rubber Stamps For Signing Business Checks

Question: We don't have a written policy for customers regarding the use of rubber stamps for signing business checks. The bank I used to work for years ago required a "hold harmless" letter from the customer before allowing the use of a rubber stamp. When we mentioned this to our customer, he objected and threatened to go to another bank. My concern is what kind of liability we would subject our bank to, should we allow this. I looked at the UCC and understand that it is permitted. I'm wondering if you know how other banks handle such requests.

Answer: If a customer chooses to use a facsimile or rubber stamp signature, a financial institution is not ordinarily relieved of liability if the stamp is used without the customer's authorization UNLESS :
1) the customer has given you an agreement to hold you harmless from any loss resulting from the improper or unauthorized use of the stamp or device, or
2) you can prove that the customer was negligent.

I noticed you said you needed the letter "years ago". Under the old UCC you had little defense against customer negligence. The new Uniform Commercial Code is very specific in citing the facts that the customer bears the same, if not more, responsibility for reasonable care than you. UCC 3-406, 'Negligence Contributing to Forged Signature or Alteration of Instrument', specifies that the customer "whose failure to exercise ordinary care?substantially contributes to?the making of a forged signature on an instrument is precluded from asserting the alteration or the forgery against a person who, in good faith, pays the instrument?" Translated, if the forgery happens because the customer is careless about where he keeps the rubber stamp, and if it and the checks are not kept in a safe place, but are instead available for fraudulent use, then the customer bears the loss - not the bank. In all fairness, your customer should be aware of these facts also.

Copyright © 2003 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 10, 1/03