The Perception: “I don’t need check security. I’m already protected by my bank.”

The Reality: Anyone who accepts your checks can pursue you for losses they incur.

The Issue: Holder In Due Course

Some check issuers feel that check fraud only affects the acceptor of a bad check. Or, because they utilize verification systems like Positive Pay through their banks, they think they are immune to losses associated with fraudulent check activity. This is a misconception that can cost an organization dearly.

Any subsequent owner of a negotiable check, note or other document who has accepted it in good faith and given something of value for it is considered a “holder in due course.” The UCC articles that govern checks and other financial instruments generally grant innocent holders of an instrument the right to collect the face amount from the payer or the institution from which it was drawn. In short, when someone accepts a check in good faith and has no means of verifying the item is real or fake, the acceptor has a legal claim against the issuer of the item, even if the item in question is a counterfeit! When a check issuer fails to perform ordinary care by including authentication features on the check, and there is no way for the acceptor to distinguish between a real and a fake, then the acceptor has a legal claim against the issuer.

The attached link references a case where a check issuer defeated a due course claim by demonstrating that they followed ordinary care and did provide the acceptor with authentication tools that would have prevented the loss. Tools, such as warning bands, heat-sensitive inks and safety paper, made it possible to detect the crime had the acceptor attempted to authenticate the item. However, the acceptor did not use the tools and was found liable. The link also references another case where an issuer failed to follow ordinary care and did not provide authentication tools on the check. In that instance, the issuer was held liable.

Your Standard Register sales associate understands the nuances of check security and can assist you in protecting your organization against fraud and losses. To gain a full understanding of your risks and the steps you can take to mitigate them, contact us now.

* The content presented here is for information purposes only and should not be considered legal counsel. Contact your attorney for specific legal counsel on this and all check-related liability.

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