Relocating Customer Indorsements

Yes, we recommend moving the message stating “For Remote Deposit at [Bank Name] Only” in the middle of the back of the check to the “Endorse Here” section at the top. Relocating this indorsement line could help to prevent it from overlapping with subsequent indorsements applied to the middle of the back of the check.

Regulation CC requires your bank to conform with the indorsement standards for checks published by the American National Standards (ANS) Institute. (Regulation CC previously stated its indorsement standards in Appendix D, but the Federal Reserve recently removed Appendix D and replaced it with a reference to the various ANS standards applicable to paper, substitute and electronic checks, which are available to banks for a fee.) While we do not have access to the full ANS standards, based on the language formerly found in Appendix D, a depositary bank’s indorsement on a paper or substitute check should be located “on the back of the check so that the routing number is wholly contained in the area 3.0 inches from the leading edge of the check to 1.5 inches from the trailing edge of the check” — i.e., in the middle of the back of the check.

Our understanding is that the ANS requirements for the location of check indorsements are intended to prevent indorsements from overlapping each other, which could render the indorsements illegible — slowing down check processing times and preventing automated check systems from operating properly. Consequently, we believe that the middle of the back of the check should be reserved for your bank’s indorsements, and we recommend moving the “For Remote Deposit at [Bank Name] Only” indorsement to the “Endorse Here” area of the check reserved for customer indorsements.

Requiring Customer Indorsements

Whether you require your customers to indorse checks by stamping them at the “For Remote Deposit at [Bank Name] Only” line, in addition to the “Endorse Here” area, is a business decision for your bank. Requiring your customer to make these indorsements would protect your bank from liability in certain situations, as discussed below; however, your bank may decide to waive indorsement requirements for customers that present a low risk for fraud, or as an accommodation for certain customers, such as your customer who is depositing 100,000 checks. If you do waive indorsement requirements for a particular customer, your bank may wish to obtain an agreement from the customer that indemnifies you against certain types of errors that would have been preventable if the customer had stamped each check.

Under the Uniform Commercial Code (UCC), your bank could be held liable for an unendorsed check — when your bank transfers a check to another bank through the collection process, your bank has warranted to the transferor and the payor bank that the check had no missing or unauthorized indorsements, among other warranties. As a result, you bank could be liable to a payor bank if your customer’s endorsement is missing from a check and the payor has objected to the payment of the check for some reason.

Additionally, the “For Remote Deposit at [Bank Name] Only” indorsement, if stamped or signed by your customer, could further protect your bank. This indorsement addresses checks that are deposited through your bank’s RDC system and then presented for deposit a second time (such as at a check casher). Under recent amendments to Regulation CC, your bank generally must indemnify the second depositary bank in that situation. However, your bank would not be liable to the second depositary bank if the original paper check has a restrictive endorsement, such as “for mobile deposit at [your bank name] only.” The “For Remote Deposit at [Bank Name] Only” indorsement should similarly limit your bank’s liability for subsequent deposits of the same check, provided that the indorsement is printed on the paper check itself and has been signed or stamped by your customer.

As to the form of the indorsement, a stamp or signature by your customer would be required. However, we do not believe that it is necessary to require multiple stamps in the two indorsement areas of your check (the “For Remote Deposit at [Bank Name] Only” area and “Endorse Here” area). One signature or stamp by your customer should be sufficient.

For resources related to our guidance, please see:

• Regulation CC, 12 CFR 229.35(a) (“Indorsement standards: A bank (other than a paying bank) that handles a check during forward collection or a returned check shall indorse the check in a manner that permits a person to interpret the indorsement, in accordance with American National Standard (ANS) Specifications for Physical Check Endorsements, X9.100-111 (ANS X9.100-111), for a paper check other than a substitute check; ANS Specifications for an Image Replacement Document, X9.100-140 (ANS X9.100-140), for a substitute check; and ANS Specifications for Electronic Exchange of Check and Image Data – Domestic, X9.100-187 (ANS X9.100-187), for an electronic check; unless the Board by rule or order determines that different standards apply or the parties otherwise agree.”)

• Regulation CC, Appendix D [Repealed as of July 1, 2018, 82 Fed. Reg. 27552 (June 15, 2017)] (“(1) The depositary bank shall indorse an original check or substitute check according to the following specifications: . . . The indorsement, if applied to an existing paper check, shall be placed on the back of the check so that the routing number is wholly contained in the area 3.0 inches from the leading edge of the check to 1.5 inches from the trailing edge of the check.”)

• Brady on Bank Checks and Fund Transfers, Chapter 25.06, Indorsement Requirements of Regulation CC, Note 84 (“Although the entire indorsement of the depository bank need not be confined to the three-inch to one-and-one-half inch middle of the back of the check, confinement to that area should make it less likely that another bank will overstamp the depositary bank’s indorsement, making it hard to decipher. The one-and-one-half inch space from the trailing edge should leave space for indorsement by the depositor or any other nonbank person. . . .”)

• UCC, 810 ILCS 5/3-416(a)(1) and 810 ILCS 5/4-207(a)(1) (“A person who transfers an instrument for consideration warrants to the transferee and, if the transfer is by indorsement, to any subsequent transferee that: (1) the warrantor is a person entitled to enforce the item . . . .”)

• UCC § 3-416 cmt. 2 (“Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements.”)

• Regulation CC, 12 CFR 229.34(f)(2) (“A bank described in paragraph (f)(1) of this section shall indemnify, as set forth in §229.34(i), a depositary bank that accepts the original check for deposit for losses incurred by that depositary bank if the loss is due to the check having already been paid.”)

• Regulation CC, 12 CFR 229.34(f)(1) (“The indemnity described in paragraph (f)(2) of this section is provided by a depositary bank that

(i) Is a truncating bank under §229.2(eee)(2) because it accepts deposit of an electronic image or other electronic information related to an original check;

(ii) Does not receive the original check;

(iii) Receives settlement or other consideration for an electronic check or substitute check related to the original check; and

(iv) Does not receive a return of the check unpaid.”)

• Regulation CC, 12 CFR 229.34(f)(3) (“A depositary bank may not make an indemnity claim under paragraph (f)(2) of this section if the original check it accepted for deposit bore a restrictive indorsement inconsistent with the means of deposit.”)

• Regulation CC, 12 CFR 229.2(ww) (“Original check means the first paper check issued with respect to a particular payment transaction.”)

• Regulation CC, Official Interpretations, Paragraph 34(f), Comment 2(b) (“Depositary Bank A offers its customers a remote deposit capture service that permits customers to take pictures of the front and back of their checks and send the image to the bank for deposit. Depositary Bank A accepts an image of the check from its customer and sends an electronic check for collection to Paying Bank. Paying Bank, in turn, pays the check. Depositary Bank A receives settlement for the check. The same customer who sent Depositary Bank A the electronic image of the check then deposits the original check in Depositary Bank B. . . . (b) . . . the original check deposited in Depositary Bank B bears a restrictive indorsement ‘for mobile deposit at Depositary Bank A only’ and the customer’s account number at Depositary Bank A. Depositary Bank B may not make an indemnity claim against Depositary Bank A because Depositary Bank B accepted the original check bearing a restrictive indorsement inconsistent with the means of deposit.”)

• Regulation CC, Official Interpretations, Paragraph 34(f), Comment 3 (“A depositary bank may, by agreement, allocate liability for loss incurred from subsequent deposit of the original check to its customer that sent the electronic check related to the original check to the depositary bank.”)

• Federal Reserve Bank Atlanta Whitepaper, Remote Deposit Capture for Consumers, pages 6–7, notes 15–16 (“With commercial RDC, banks have required certain visible markings be placed on the paper checks that have been imaged and deposited to help reduce item duplication, such as restrictive endorsements and franking. Franking refers to printing ‘Electronically Presented,’ ‘Processed,’ or other similar language on the front of the original check that has been scanned for conversion to an electronic image. The purpose is to indicate that the paper check has been processed electronically and should not be deposited in physical form. Similarly, some banks offering consumer capture require a restrictive endorsement before the check is scanned. A restrictive endorsement is a signature placed on the back of the check with instructions to deposit to a specific bank or account, such as ‘Jane Smith, Account #12345678.’ This type of endorsement limits the risk of fraud by restricting the deposit to the specific account indicated.”)

• FDIC Supervisory Insights, Remote Deposit Capture: A Primer (2009) (“Most legal risks associated with offering RDC services can be mitigated through the use of appropriate contracts and customer agreements. The RDC service agreement should describe the responsibilities and liabilities of the financial institution and its customer, including record retention periods for the original deposited items, physical and logical security measures protecting the RDC scanner, and proper disposal of the original deposited items once the retention period has expired. The agreement also should describe the types of items that can be deposited remotely, individual item dollar limits, overall per-day dollar limits, and minimum image quality standards.”)

• UCC, 810 ILCS 5/3-204(a) (“‘Indorsement’ means a signature, other than that of a signer as maker, drawer, or acceptor, that alone or accompanied by other words is made on an instrument . . . but regardless of the intent of the signer, a signature and its accompanying words is an indorsement unless the accompanying words, terms of the instrument, place of the signature, or other circumstances unambiguously indicate that the signature was made for a purpose other than indorsement. For the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a part of the instrument.”)

• UCC, 810 ILCS 5/1-201(37) (“‘Signed’ includes using any symbol executed or adopted with present intention to adopt or accept a writing.”)

• UCC Section 1-201, Official Comment 37 (“‘Signed.’ . . . This provision also makes it clear that, as the term ‘signed’ is used in the Uniform Commercial Code, a complete signature is not necessary. The symbol may be printed, stamped or written; it may be by initials or by thumbprint. . . . The question always is whether the symbol was executed or adopted by the party with present intention to adopt or accept the writing.”)