IBA Compliance Connection

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What is our liability if we allow a non-customer to deposit a check into a customer’s account? One example of this situation occurs when a non-customer is a tenant of a customer and wishes to deposit a rent check into the customer’s account. In such a case, we would stamp the check and deposit it without the customer’s indorsement.

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We do not recommend depositing a check into your customer’s account without their knowledge and indorsement.

Under the Uniform Commercial Code (UCC), your bank could be liable under its presentment warranties to the payor bank (the non-customer’s bank). When forwarding the check to the payor bank for payment, your bank is warranting that there are no missing indorsements. In this case, although your bank has stamped the check, the payee customer has not indorsed (or otherwise authorized) the deposit. Consequently, if the non-customer changes his mind about the deposit, he could pursue the issue with the payor bank, which may then turn to your bank for breaching its presentment warranty.

In addition, your bank also may face liability to your customer under your account agreement, unless it expressly permits your bank to deposit checks without the customer’s knowledge or indorsement. Your customers might prefer to reject certain payments and otherwise control the money deposited into their account. Thus, unless your account agreement permits your bank to deposit checks presented by someone other than your customer without your customer’s authorization and indorsement, your customer may make a breach of contract claim against your bank.

For resources related to our guidance, please see:

  • UCC, 810 ILCS 5/4-205(2) (“If a customer delivers an item to a depositary bank for collection: (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.”)
  • UCC, 810 ILCS 5/3-417(a)(1) and 810 ILCS 5/4-208(a)(1), Presentment warranties (“If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft. . . .”)
  • UCC § 3-417, comment 2 (“Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements. . . .”)