What is "Endorsing" a cheque and why do you do it in the US?

Factual Questions
1

This thread on cheque endorsements (and a Simpsons episode I saw recently in which Krusty’s off-shore bank account got rumbled due to some issue with an endorsed cheque) has prompted me to finally ask: What is “Endorsing” a cheque, and why is this done in the US?

Here in Australia (and NZ), both the people who still use cheques for things just do the usual “Pay to the order of Fred Bloggs & Co the sum of $100.00 (One Hundred Dollars and Zero Cents), signed Arthur Putey” thing. The cheque is usually crossed “Not Negotiable” (ie, it can’t be used for any purpose except paying Fred Bloggs $100), and that’s it.

Fred Bloggs then takes the cheque to his bank and deposits it, and three days later the money comes out of your account and goes to his, with no further action required either from Fred or Arthur. I don’t understand how “Endorsement” works, especially since it seems un-necessary given that a cheque is basically a written instruction from you to transfer money from your account to somewhere else, and you’ve already signed it as proof of identity and as authorisation for the transaction. You’ve already signed off on it and the payee only has to take the cheque to the bank and put it in their account to get the money, Why the need for a further endorsement?

2

It’s endorsed by the payee as a modicum of proof that they are the actual one receiving the money, and not a thief.

3

How does that prove anything? Doesn’t the proof come from it being deposited into a bank with the payees name?

4

On the back of the check is a separate signature line for the payee. You take it to the bank, sign your name, and then the teller deposits it in your account … or gives you cash. Endorsing prevents someone from cashing a check and then turning around and claiming it was stolen.

If you’re super-careful you write “For Deposit Only” on the back of the check as soon as you receive it. This is an instruction to the teller that the check must be deposited in an account belonging to the payee, not exchanged for cash.

Can you cash a check in Australia? Or do you always have to deposit it in an account?

5

Generally, you have to put it into an account. However, there are exceptions. In many places, the local pub will be able to bank cheques made out to names other than their own, effectively making the pub a kind of bank branch for the regulars there (this is moreso in small places). But cheques are used less here overall these days than they are in the US. They’re mostly used by businesses (sometimes) and people over 50 or so. The rest of us do everything electronically. My own banking has been electronic since 1990 - I just withdraw a little “beer money” from the hole in the wall, but other than that all in-comings and out-goings are just numbers on a screen.

Martini Enfield, Australian tax refund cheques need endorsement. These are the only ones I’ve ever noticed needing it though.

6

No.
In the US, you can walk into a brach of the bank that the check is drawn on, sign the back of the check (endorse it), and they will cash it for you. The endorsement is really for the check-writer’s protection - if a check is stolen, you can complain to the bank that they gave your money to the wrong person. Back in the old days, the signatures were compared, but I don’t think that’s really done anymore.

7

So what happens when someone steals a cheque and endorses it themselves and has it cashed? What process occurs that wouldn’t if cheques weren’t endorsed?

8

Well, you can go to the bank’s fraud department and say that they screwed up, by not matching the signatures correctly. I think this is a holdover from the good old days, when everyone had a signature card, and there weren’t branch banks, but we still do it. Also, having a signature makes it forgery, which is an additional charge that can be thrown at the criminal.

9

Most banks, businesses, and people won’t cash a check at all unless they are assured that the person who’s cashing it is the person it’s made out to. They would probably at least want to see some other identification, preferably something else that has a matching signature. If they do accept it, and it turns out that the signature is a forgery, then the check is no good. Theoretically, the bank it eventually gets to could refuse to honor it.

If the check isn’t endorsed, it can only be deposited into the account of the person or business it’s written to. When my daughter was away at school I would often write her a check, payable to Daughter MLS, take that check to her bank and deposit it in her account. Five hundred miles away, after the check has cleared, Daughter can withdraw the money. A few times I’ve had the clerk ask me to endorse it, and I simply said I was not Daughter. Once or twice an inexperienced clerk balked, but a supervisor quickly straightened the matter out.

10

The short answer is “No”, but TheLoadedDog has mentioned the major exception- small town country pubs/general stores; where the proprietor/owner generally knows you anyway.

The idea of “cashable cheques” in Australia have largely been replaced with Money Orders, from what I gather. If you want to send a family member in, say, Perth money, rather than write them a cheque, you’d go to the post office, get a money order for the appropriate amount, then mail it to them. They take the Money Order into the post office and redeem it for hard currency.

FWIW, from what I gather, even when you could cash cheques here, they still weren’t required to be endorsed- you’d just show your driver’s licence (or be known to the bank staff) and that was enough. Different times, though.

We still get cheques from businesses through work, but they’re an inconvenient pain in the ass to deal with and try to encourage people to either use a Corporate Credit Card or Petty Cash where possible.

From what I’ve seen so far, cheque endorsements seem to serve no real useful purpose anymore, and are only maintained Because That’s How It’s Done…

Tax refund cheques? What are these “tax refunds” of which you speak? :smiley:

11

Going back to the OP, endorsement is essentially a transfer. A writes a check to B. B deposits check in bank. For things to balance, B’s bank submits the check to A’s bank for payment. Meanwhile, B’s bank may have credited B’s account for the funds, but this is really a loan. If the check is dishonored, the funds are debited. The endorsement can be specific (to B’s bank) or blank (to bearer). Either way, endorsement is what gives B’s bank the power to present the check (through a clearing house) for payment.

I’m describing the US system. No idea what Oz does. I presume there’s a stature or regulation which effects the transfer without endorsement. But I’d guess the old rule is what the pub owners are relying on when “cashing” a customer’s check. IOW, they get an endorsement, which entitles them to present the check to the paying bank. Or deposit it to their bank, which presents it.

12

That’s what happens here, minus the “essentially a loan” part- you don’t get the money until the cheque has cleared, so that US scam of “Send you more money than the purchase price, you cash it, send the difference back, then discover the cheque has bounced” doesn’t work here. Even if it did bounce, it would be the bank’s problem, not yours, assuming the cheque had been presented in good faith by you.

Thus, I still don’t see what endorsing a cheque made out in your name actually achieves…

I’m not entirely sure how it works in those cases, to be honest- I suspect the cheques are simply either made out to cash, or the system relies on the bank teller at the nearest bank simply knowing that Bob Smith is a regular at the Coach Hotel, or, more likely, the local pub/general store is also a sort of branch for one of the banks.
The thing is that, as TLD and I have both mentioned, no-one really uses cheques here anymore. They’ve been supplanted by EFT, and cheques are mainly used by businesses to pay accounts and so on.

13

Yeah that’s normally what happens here. Write someone a cheque and they deposit it in their bank so there’s no real need for further identity checks (it’s made out to Bill Bobberton and is being deposited into Bill Bobberton’s account.)

14

As for the main point, sorry but I can’t think of any clearer way to explain this. Endorsement is what enables B’s bank, a stranger to the check, to present it for payment. Rereading the OP, maybe this will help. You characterize a check as authorization to transfer money to B’s account. This isn’t quite right. It directs A’s bank to pay B a certain sum. If B presents the check personally at A’s bank, that’s what happens. If B deposits the check to another bank, that bank needs the right to present it for payment. Endorsement is what gives it this right.

The same analysis applies to business checks. If A pays by check for office supplies furnished by B, there still has to be a mechanism for B’s bank to present the check for payment. In the US, that’s an endorsement. In Oz, apparently it’s something else. But something has to fill the gap.

As for the loan point, what happens in the US is that an overnight electronic process confirms that A’s account has the funds, which are then provisionally debited. B’s bank is then confident enough to credit B’s account. But, full clearance of the check can take weeks. For example, it may not be until A sees a bank statement that fraud is discovered. Even if B is an innocent victim of this fraud, the check will be dishonored and B’s bank gets the money back. I’m not saying it’s impossible Oz uses a different rule, but I doubt it.

As for pubs cashing checks, the scenario described was cashing checks payable to the customer. For this, the endorsement point I made should apply. If the check is payable to the pub (or cash), we’re back the the original A writes a check in favor of B scenario. In any event, describing the pub as a branch of any bank is only true in a loose, colloquial sense.

BTW, third party checks raise a second issue, to wit, whether the endorsement to the person presenting or depositing the check is valid, but it is not a different kind of issue. When banks or businesses decline to accept such checks, it’s not because they’re not valid. It’s because the risk of fraud is harder to assess. A valid endorsement to a third party, though, is perfectly enforcable. As is the further endorsement of the third party to the presenting bank.

15

AFAIK, there’s another reason for endorsing a cheque. It must be done here too, even though you can’t cash a cheque (well, theorically, you could, but all cheques are preprinted in a way making them non-transferable and non-cashable. You have to order specifically cheques without these preprinted mentions and signs, and in fact pay for them in order to be able to write a cashable and/or transferable cheque. I’ve never seen one or heard of someone using them).

So, as I said, besides making sure that someone else won’t get the money, it would be (once again AFAIK) done also to make sure that the beneficiary actually allows the cheque to be deposited. Generally people are of course happy to see money deposited on their account, and most problems arise when money is undully taken away but there might be cases when you wouldn’t want someone to deposit money without your knowledge/ against your will, for instance with the intent of creating a proof that you accepted a payment for something.

16

Endorsing a check allows me give that check to my wife to deposit in her own account or to have it cashed without me present. This can be very handy.

17

Which means it’s required when you write a check to cash. Recently, I had BofA claim I hadn’t endorsed such a check when I had. It was a check for cash, written on my brokerage account, and deposited through the ATM. They claimed I hadn’t endorsed it, when I could even see my signature in the photostat that accompanied the letter, on the line that said “endorse here”. I will grant that the “endorse here” printed on those checks is so light as to be largely invisible, but I signed it in felt tip, for crying out loud - the signature was hardly invisible.

18

I haven’t endorsed any cheques, ever. I always deposit them in the ATM. They’re always honoured though. (BTW, this is Canada I’m talking about. And not just Nunavut, either. All over the place). Should the bank not be cashing my cheques?

19

I had thought it was a requirement that you endorse a cheque, but given the occasional time I’ve forgotten without problems you’re probably right. Nonetheless, out of habit I always (unless I forget :slight_smile: ) endorse cheques, and I also add “For Deposit Only” (North Americans don’t “cross” cheques like Brits and Aussies do).

20

Because of legal liability for the payor bank under US law.

So if you write a check to a plumber, and they have their wallet stolen, the thief can then cash the check. (Assuming you couldn’t stop payment in time). When your own bank charges your account, you will protest because after all, you will be stuck having to pay twice (since your plumber never got the original check cashed).

Because it wasn’t really your fault that the check was lost, your bank cannot charge you, and must credit your account back. See UCC §4-401 (properly payable rule).

So your own bank is basically stuck with the check – but your bank can recover the lost payment from the other bank (the thief’s bank) because when one bank presents a check to another, that bank is responsible for the accuracy of the indorsement.

So in other words, they make you endorse it, because otherwise the bank the check is written on will refuse to honor it, as it will be ‘screwed’ if the check was stolen. The signature protects the check signer’s bank.