Help! I think my CEO has gone crazy. We are a relatively small community bank in Georgia, and all of a sudden we have been faced with a ring operating in our area - causing us to have a large loss due to a forged customer's check that we cashed for the supposed "payee". Their ID was right on target and met our criteria, the signature on the check was absolutely perfect (we have on-line signature verification). An officer even signed off on it. My CEO has now decided that he wants our new policy to be that we will not cash any checks drawn on us if the person cashing the check is not a customer. I think this is 1) crazy 2) illegal 3) a knee-jerk reaction to a growing problem of ID theft and fraud in our industry 4) a public relations nightmare, etc. etc.

My understanding of code is that so long as the person presenting the instrument "has title/authority to present the instrument", "gives reasonable identification" and we have "no notice of forgery or alteration" we must accept the instrument unless we dishonor it for insufficient funds, stop payment, etc. or we refuse payment because the "presentment doesn't comply with the terms of the instrument".

He swears that some of the "big banks" have these types of policies.

Am I crazy or is he?

Since your competition will not have the same policy, look out.

I think your boss has a point, in that there is no ID that really can be depended on - 100%, except when the payee is known to someone in the bank. If I were you, I'd try a compromise based on dollar amount with checks over a specific amount requiring customer contact. Small checks should not be a problem, as long a ID is checked - perhaps one of those thumb print set ups should be considered - that procedure may scare the bad guys away.

You can always ask the non customer to go to their bank and have their Endorsement Guaranteed.

My sweet heart writes me checks on a regular basis, some of which are quite large as I purchase wine for him. The "big bank" that he banks with cashes them for me requiring only that I go inside the lobby (no drive through) give a finger print and have proper id.

The other "big bank" that I worked at had the same policy. We didn't refuse if we could verify signature on the check, as well as follow proper id procedures unless it was a very suspicious item.

I live in Alaska, he's in Texas and it's easier for me to cash them sometimes verses hitting a cash machine and paying fees for the foreign transaction. If they didn't cash the checks, I'd suggest firmly to him that he find another bank. I would think your clients may do the same thing.

Can you imagine going into the bank to cash your payroll check and find out that the bank it's drawn on won't cash it? Or the check granny gives you for your birthday...etc.

Why don't you consider tightening up on your id requirements during the time it takes to find the culprits. Ask for two pieces? Take fingerprints? This will go over alot easier than the other option of not honoring your own checks.

And that...is my "knee jerk" reaction to the idea

Suggest to your boss to look into implementing a finger-print program for non-customers wishing to cash checks. It's not a 100% solution, but many fraudsters will decline to leave a fingerprint and go try someplace else.

Don, I'm not sure that would have helped in this case. My understanding of the original post is that the maker's sig was forged.

"1) crazy 2) illegal 3) a knee-jerk reaction"

1) Not so much, he has to explain the loss to the board. The unfortunate part is that if procedures were followed, this is a cost of doing business or the procedures are not effective. How do you prevent future losses? You change the procedures.

2) Illegal, no. We've had many discussions about banks that refuse to cash checks for noncustomers, even items drawn on that bank. Or they charge a fee. Obviously a fee is not a loss deterrent.

3) Knee-jerk, likely, but point 1 was, he has to explain it and discounting it as a cost of doing business for a good procedure leads to criticism. It may be that the procedure is fine and this was a rare occurrence. But if a group finds a flaw and you have many branches, they'll go branch to branch exploiting it as long as they can. Then you have real explaining to do.

You can come up with a reasonable revised procedure and attempt to both protect the bank and solicit new accounts. Do you charge a fee for noncustomers, solicit them for accounts and if so, does it work? Sell him on your recommendation.

The poster indicated that the check was large. In these cases you can consider calling your customer to ask them if they issued a check to the individual that is presenting it. That would have caused them to run out of the bank! On large checks you can also have your tellers verify that the check number is in the range of check numbers being used by the customer. Often times the forged check number is out of sequence.

While I understand your CEOs reaction, it is knee-jerk and will cause you problems WITH YOUR CUSTOMERS when they learn that you won't cash a check that they wrote to someone. He needs to think about this.

EVERY bank faces these issues. Fingerprinting non-customers is known to deter fraud and something you should consider.

It's always advisable to tell the boss, "Great idea" then immediately go to work on some modifications that bring it in from the ozone. Otherwise, ditto grist.

He's right, some banks do not cash checks for noncustomers, but they are generally in major cities. You are not. It's not the payee's opinion that concerns you, it's the call from the customer who says, "Joe Blow just came in here and said my checks no good!!!" (It will happen.)

How about: We don't cash checks for noncustomers above $XXXX and, as previously suggested, investigate the thumbprint signature program for those you do cash? In my opinion, the thumbprint signature is valuable only as a deterrent; my goal is not to catch them, I just want them to go away.

Try a search for non customer. We have debated this many times over....I don't know that there is a clear cut decision but it would give you more ammunition and more to think about! Good Luck

Oh my, I could have wrote this two weeks ago! The same thing happened with our bank. After two weeks of not cashing checks drawn on our bank for non customers, except for payroll checks upto $2,000.00, the policy was changed yesterday to cash any check drawn on our bank upto $1,000.00 with proper identification.

I am at a very small bank and we do not cash checks for non customers whether the check is drawn on us or not without the customers OK. The customer writes something on the back of the check before giving it to whomever and if that is not on there we telephone the customer to get approval. If the checks are payroll checks, the customer gives each employee a payroll cashing card and that card must be presented to the teller before we will cash the check.

Thanks to all of you who posted - the item in question was $7,000. We are a high end bank serving high net worth individuals and businesses - it is not uncommon for us to cash high dollar items drawn on our bank - including high dollar payroll checks.
In this instnace, we called the customer to try to verify that they had indeed written the check - but the "office manager" was not in, we called the account officer who normally handles this account - he was not available, the check # was right in sequence with the checks that had been written, and the signature was exact! Turns out this was a ring that also got to 3 other banks.

I'll keep you posted on the outcome.

Sure sorry you got hit with the loss, but I would tend to believe your high end customers might get a little upset when their employees tell them you won't cash their payroll checks because they are not a customer.

I hate it when the crooks win! We took alot of losses a few years back due to a great scheme. In the long run...well we still had the loss ut the folks were caught and they're losing a bit of personal time sitting in the clinker. I guess that's all you can hope for!