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Standard of Care for Adding Joint Owner

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A opens checking account in 1997 -- balance never over 7500.00. In 2001, A fills out Membership/correction/update form and adds B as a joint owner. A has forged B's signature to the update form. 5 days later Bank receives in mail a check payable to B for 82,000.00. B`s endorsement in blank appears on back of check. Later detemined that the endorsement is forged. Account is now empty. B never contacted by Bank and no statements ever received by B, since update form shows B's address but the address is actually A's address. What standards of care should bank have used, if any, to verify the signature of B on the membership update form and on the endorsed check?

A forged signature card allows a thief to convert a check payable to anyone else. Without it, the forgery on the back of the check would never be accepted. The proximate cause of your loss is the forgery of the signature card, not your acceptance of a check payable to an apparent account holder.

If your institution had a rule that all those signing signature cards must be present and identified or that absent signatories must have their signatures notarized, this loss could have been prevented. The fact that CIP compliance does not require such a practice is irrelevant; a defensible loss prevention program does require it.

Surprisingly, many banks still allow these essential documents to be executed without verification of the signatures. They are thus signed by "who knows who." Many of those same institutions would not dream of allowing loan documents to be executed in the same casual fashion. Yet, with a loan, the amount of the loss incurred because of a forgery is at least bounded by the amount of the note. With a deposit account, the amount of the potential loss is open-ended; e.g. this instiution has now lost $82,000 on an account where the prior balance never exceeded $7,500.

First published on 03/15/04

First published on 03/15/2004

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