IBA Compliance Connection

Your go to source for compliance!

I’ve been taught that if a customer makes a deposit in-person, we should have the customer sign their endorsement before depositing the check. But our tellers and personal bankers are asking whether we can quickly stamp any checks deposited in-person, without requiring signatures (particularly if a customer is depositing six or more checks).

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Yes, it is possible to accept a customer’s check for deposit without their endorsement, although your bank is taking on some potential liability when doing so. The Uniform Commercial Code (UCC) provides that your institution, as the depository bank in this situation, is entitled to enforce a check deposited in person “whether or not the customer indorses the item.”

When forwarding the check to the payor bank for payment, your bank will be warranting that the check was paid to the proper payee or deposited in the payee’s account and that your bank is entitled to enforce the check (meaning that there are no missing or unauthorized endorsements). Consequently, if the drawer of the check contends that the check was not paid to the proper payee, you may be liable to the drawer or to the payor bank. For that reason, many banks manage this risk by requiring endorsements on deposited checks that are larger than a certain cutoff dollar amount.

Before changing your policy to follow this practice, however, we recommend checking your account agreement to see whether your institution has agreed to examine customers’ checks for missing signatures or endorsements.

For resources related to our guidance, please see:

  • Illinois UCC, 810 ILCS 5/4-205(1) (If a customer delivers an item to a depositary bank for collection: (1) the depositary bank becomes a holder of the item at the time it receives the item for collection if the customer at the time of delivery was a holder of the item, whether or not the customer indorses the item, and, if the bank satisfies the other requirements of Section 3-302, it may be a holder in due course; . . .”)
  • Illinois 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.”)
  • Illinois 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. . . .”)