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Question: We have always checked items payable on our customers for endorsements. When we return these for lack of endorsement, we are getting complaints. We are just trying to protect our customers. What should we do?
Answer: You do NOT have to check items for endorsement. The depository bank can transfer the item (as opposed to "negotiate") without an endorsement. It is making a warranty to you (the payor bank) that the item is properly payable. If it turns out that a wrong-doer got the check and it was not deposited into the correct account, the depository bank will be on the hook.
This change in procedures is all a part of the technology revolution and the need to speed processing up for expedited funds availability. The amendments to Articles 3 and 4 of the UCC permit a bank to assert that it has the right to transfer the item due to possession (as opposed to endorsement/negotiation).
As a matter of your own risk procedures, your bank may still want to train YOUR tellers to check for endorsements as they are processing deposits. But you do NOT have to monitor other depository banks.
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