Question of the Week
Friday, August 17, 2018 8:15 AM

Question:  What is a restrictive endorsement on a check and how will it protect my credit union if we use remote deposit capture?

Answer:  A restrictive endorsement is an endorsement by a payee that limits the negotiability of the check. This most commonly used restrictive endorsement is  “For Deposit Only”, which prevents future negotiation of the check past deposit into the payee’s account. 

This differs from other endorsements such as a blank endorsement that includes only the payee’s signature, permitting any future holders of that check to negotiate the it in any way they wish.  A payee can even endorse the check over to another payee for payment, known as special endorsement.

In regards to recent changes to Regulation CC, any financial institution that accepts a check through remote capture indemnifies, meaning that it is responsible for, paying any financial institution should the physical  copy of that check be presented for payment in the future.  However, if the financial institution requires that a remote depositor use a restrictive endorsement on the check during the mobile deposit process, it is not liable to any future party to which that check is presented.

As a best practice, it is also advisable to have your member destroy physical copies of a check after mobile deposit to prevent future presentment.