Banking Litigation Involving Check Deposits Made at a "No-Envelope" or Imaging ATM
The author explains the process of how check deposits made at no-envelope, image-capable ATMs work, and discusses important issues that often arise in banking litigation involving check deposits made at these ATMs, plus some related forged endorsement issues, and how to handle them.
Here is an overview of how the process works when a bank customer deposits a check (or numerous checks) into their bank account through an ATM:
1. Systems that allow for the acceptance of check deposits at ATMs scan and read the checks that are deposited and create an image of the check.
2. The image of the check created when it is deposited at the ATM is usually printed on the customer’s receipt.
3. As the system creates the image of the check, it reads the pertinent information from the check and passes the information along to the bank’s server or mainframe computer, and therefore, into the bank’s back-office check processing and clearing system. This eliminates the need for the physical check to pass through the processing and clearing system.
4. This means that the image of the check is available at that point for the bank to view, if the bank chooses to do so. It is important to note that banks are not required to examine checks at this point, but they have to option of doing so if they feel that it is necessary for whatever reason.
5. The actual check that was deposited at the ATM stays in the ATM until it is picked up by the bank’s staff, who usually visit an ATM a couple of times a week to collect the deposited checks.
6. The actual checks are stored in bulk at the bank in case they have to be referred to for some reason. Otherwise, they simply are stored at the bank until they are destroyed. Most likely, banks that have ATMs that are capable of scanning deposited checks use the scanned images of checks in their check clearing process.
The central question in banking litigation involving check deposits at ATMs usually eventually get around to what is commercially reasonable in terms of a bank’s duty to its checking account customers to check for forged endorsements. Unfortunately, the answer is not crystal clear; but here are some facts that we know:
● Banks owe to their customers a duty to handle their customers’ funds in a commercially reasonable manner, and this can be established by examining what the bank did and comparing the bank’s actions to what another prudent bank would do under the same circumstances.
● Banks have an “out” on checking for forged endorsements due to their reliance on mechanized means for processing checks, which courts have held is reasonable in order to allow banks to offer faster and more efficient service. This applies to deposits made with a teller as well as deposits made through an ATM, whether in an envelope or not.
● Banks rely upon their checking account customers to review their monthly bank statements and insure that all of the checks that were cleared during the month were legitimate.
● Banks do not have a duty to people or entities that are not customers of the bank.
● To my knowledge, there is no clear-cut nationwide standard that reconciles a bank being allowed to use a high-speed processing system that obviates the handling of individual checks, yet also holds them responsible for their duty to check for forged endorsements. My impression is that the issue is looked upon differently in different areas of the country, and these regional preferences have to be researched in order to establish the industry standard for the particular area where the case is pending.
● Comparative negligence usually is a consideration in these types of banking litigation cases since the bank relies upon the customer to examine the check images in their monthly bank statement and determine that there was an improper endorsement by someone other than the intended payee. Sometimes the substitute check images provided to a bank’s customers in their monthly bank statements actually show a copy of the reverse side (i.e., the endorsement side) of the checks. Some systems only provide a copy of the front of the check, making it impossible for the account holder to check the endorsements on the checks.
● Comparative negligence practices differ in every state. In states where the "modified" comparative negligence theory is used, the bank customer is either equally responsible or more responsible for the damage, so the plaintiff will make no recovery whatsoever.
● A complicating issue is if a particular check in question is drawn on the same bank into which it is deposited. In this case, the bank is in the position of being able to see both ends of the transaction whereas their customer only has access to what is going on in their own account.
● More information on Forged Endorsements on checks will be covered in a subsequent article.
As you can see, there are many aspects of ATM check deposits and related forged endorsement issues for which there are no clear-cut black-and-white answers. These types of cases are difficult to handle and require an in-depth knowledge of banking technological capabilities, policies, and procedures in order to structure an effective defense.
ABOUT THE AUTHOR: Banking Consultant and Banking Expert Witness Don Coker
Expert witness and consulting services. Over 448 cases for plaintiffs & defendants nationwide, 107 testimonies, 12 courthouse settlements, all areas of banking and finance. Listed in the databases of recommended expert witnesses of both DRI and AAJ. Clients have included numerous individuals, 60 banks, and governmental clients such as the IRS, FDIC.
Employment experience includes Citicorp, Ford Credit, and entities that are now JPMorgan Chase Bank, BofA, Regions Financial, and a two-year term as a high-level governmental banking regulator. BA degree from the University of Alabama. Completed postgraduate and executive education work at Alabama, the University of Houston, SMU, Spring Hill College, and the Harvard Business School.
Called on by clients in 28 countries for work involving 57 countries. Widely published, often called on by the media.
Copyright Don Coker
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.