Generally, the bank is liable for checks that it pays that are signed by an individual that is no longer an authorized signer on an account. Because banks don't verify signatures on checks as they are processed, it's always best to close the account and open a new account, to help avoid this situation. Instructions provided by the account owner at the time the authorized signer is removed may impact the potential for loss here. If the account owner requested that the bank pay any checks signed by the authorized signer that was being removed that were dated before the date the authorized signer was removed, the bank would not be liable to the account holder for paying those checks.
Bank Liability if Authorized Signer Removed
If an authorized signer is removed from an account on 8/21/14 and outstanding checks issued on 5/2, 5/20, 6/5, 7/7, 8/8 & 8/18 clear on 9/3 by the removed signer, is the bank liable for paying those signatures after the signer was removed?
First published on 01/12/2015