Typically, if your bank suspects that an endorsement is forged or is otherwise unauthorized, you must send notice of dishonor to the depositing bank by the midnight deadline established in the Uniform Commercial Code. You also must return the check in an “expeditious manner” to the depositing bank using the two-day/four-day test established in Regulation CC.

We note, too, that when the depositing bank cashed the check and passed it downstream to you as the payor bank, it made various warranties, including that “all signatures on the instrument are authentic and authorized.” The type of “signature guarantee” you have described may not give your bank any more rights or protections than the warranty already provides.

In addition, you could consult with your customer who wrote the check to determine if the endorsement is fraudulent (for example, perhaps it was a simple case of the check having been signed “John Smith” rather than “ABC Company, by John Smith, Treasurer”).

Finally, if you determine that the endorsement was fraudulent or suspicious, you should determine whether the bank needs to complete a Suspicious Activity Report.

For resources related to our guidance, please see:

• Illinois UCC, 810 ILCS 5/4-301(a) (“If a payor bank settles for a demand item other than a documentary draft presented otherwise than for immediate payment over the counter before midnight of the banking day of receipt, the payor bank may revoke the settlement and recover the settlement if, before it has made final payment and before its midnight deadline, it: (1) returns the item; or (2) sends written notice of dishonor or nonpayment if the item is unavailable for return.”)

• Illinois UCC, 810 ILCS 5/4-302(a) (“If an item is presented to and received by a payor bank, the bank is accountable for the amount of:  (1) a demand item, other than a documentary draft, whether properly payable or not, if the bank, in any case in which it is not also the depositary bank, retains the item beyond midnight of the banking day of receipt without settling for it or, whether or not it is also the depositary bank, does not pay or return the item or send notice of dishonor until after its midnight deadline . . . .”)

• Regulation CC, 12 CFR 229.30(a) (“Return of checks. If a paying bank determines not to pay a check, it shall return the check in an expeditious manner as provided in either paragraph (a)(1) or (a)(2) of this section. (1) Two-day/four-day test. A paying bank returns a check in an expeditious manner if it sends the returned check in a manner such that the check would normally be received by the depositary bank not later than 4:00 p.m. (local time of the depositary bank) of—(i) The second business day following the banking day on which the check was presented to the paying bank, if the paying bank is located in the same check processing region as the depositary bank; or (ii) The fourth business day following the banking day on which the check was presented to the paying bank, if the paying bank is not located in the same check processing region as the depositary bank.”)

• Illinois UCC,810 ILCS 5/3-416(a)(2) and 810 ILCS 5/4-207(a)(2) (“A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that . . . all signatures on the instrument are authentic and authorized . . . .”)

• FDIC Suspicious Activity Report Rules, 12 CFR 353.3 (“A bank shall file a suspicious activity report with the appropriate federal law enforcement agencies and the Department of the Treasury, in accordance with the form's instructions, by sending a completed suspicious activity report to FinCEN in the following circumstances . . . .”)