Hi,

Question: We are deciding whether or not we should discontinue the endorsement review because the Bank (we) are not the first bank of deposit and the items have already cleared our customers' accounts. Currently, if we notice that the endorsement does not match the payee or has a guaranteed stamp, we contact branch personnel to ask if they would like to pay or return for proper endorsement. The branch then attempts to contact the customer for verification. If the branch cannot contact the customer, the branch decides if they would like to pay or return it. If they do return the check, operations creates a manual return (which kicks the check back to the 1st bank for the correct endorsement) and makes entries to credit the customer.

We are wondering if we keep in place the checking our customers signatures, encoding errors and stale date if we can stop checking the endorsements since we are not the first bank of deposit and the items have already cleared our customers accounts?

Can anyone provide some guidance on the necessity of this procedure and pros/cons of discontinuing it?

"the items have already cleared our customers' accounts. Currently, if we notice that the endorsement does not match the payee or has a guaranteed stamp, we contact branch personnel to ask if they would like to pay or return for proper endorsement. The branch then attempts to contact the customer for verification. If the branch cannot contact the customer, the branch decides if they would like to pay or return it. "

1) What a waste of time. The endorsement is guaranteed by the bank of first deposit. How many checks do you actually return and how many are never returned for collection? Since the bank would not be the one to suffer the loss, what is your net gain on doing this process?

2) I am surprised that you have any customers left. If you returned one of my checks because you could not contact me and returned it to the person I wrote it to, who had actually received it, it would only happen once. Talk about inconveniencing your customers and possibly creating bad will between your customer and the depositor. Endorsement standards are left to the bank of first deposit, as they are the ones on the hook.

I tend to agree with your comments.

Can you provide me a citation of where I can provide my collogues information? I would like to provide them a regulation versus I heard it from a forum.

Cheers!

Refer to the UCC:

§ 4-207. TRANSFER WARRANTIES.
(a) A customer or collecting bank that transfers an item and receives a settlement or other consideration warrants to the transferee and to any subsequent collecting bank that:

(1) the warrantor is a person entitled to enforce the item;

(2) all signatures on the item are authentic and authorized;

(3) the item has not been altered;

(4) the item is not subject to a defense or claim in recoupment (Section 3-305(a)) of any party that can be asserted against the warrantor; and

(5) the warrantor has no knowledge of any insolvency proceeding commenced with respect to the maker or acceptor or, in the case of an unaccepted draft, the drawer; and

(6) with respect to any remotely-created consumer item, that the person on whose account the item is drawn authorized the issuance of the item in the amount for which the item is drawn.

Also 4-205 (Depositary Bank Holder of Unindorsed Item):

If a customer delivers an item to a depositary bank for collection:

(1) The depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of Section 12A-3-302 of this title, it is a holder in due course; and

(2) The depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer's account.