Federal rules changing for check endorsements

Consumers should be aware of a regulatory change that goes into effect on July 1, adding a step to the process of depositing a check from your cellphone, while helping prevent fraud.

With the advent of convenient and efficient banking mobile apps and other “remote deposit capture” technology, the nation’s check collection system is quickly converting from all-paper to electronic. Remote deposit capture allows consumers and businesses to quickly deposit checks from anywhere at any time, by taking a picture of the front and back of the check.

Since the actual check remains in the depositor’s hands after a mobile deposit, regulators have noted a national increase in attempts to double-deposit checks. If the double deposit is successful, the financial institution is liable for any losses; at a not-for-profit credit union, that means all members bear the cost for others’ intentional or unintentional double deposits.

Starting July 1, many financial institutions will begin to shield themselves from liability, and make fraud attempts more difficult, by requiring a “restrictive endorsement.” That simply means that anyone depositing a check remotely must endorse the back with a signature (as always) and a note saying the check is for mobile deposit only, at a specific bank or credit union.

The exact wording may vary from one financial institution to another. STCU is asking its members to write “For STCU mobile deposit only.” Mobile deposits will be rejected if the check lacks that notation in legible handwriting. Checks with the notation cannot be cashed or deposited in person.

Some financial institutions may already require the notations. While unlikely, some may choose not to adopt the change and continue bearing the liability, should a double deposit be successful.

In May, STCU members processed 26,964 checks using mobile deposit. That’s a 63 percent increase over May 2017, when mobile deposit was used 17,107 times.