We've recently received two postal money orders returned as counterfeit items. One of the items was cashed, and now customer does not have enough funds in acount to charge back. What recourse does the bank have in this situation? For future purposes, if a postal money order is taken in a deposit, can a hold be placed? What exceptions reason can be used, other than new account, repeated Overdrafts, or reason to doubt collectibilty. I know postal money orders are considered next day availability items, but given the fact that counterfeit money orders are getting to be more prevalent, what can a bank do to prevent losses in these instances.

Exception holds, including large deposit hold, can be applied against US Postal Money Orders.

The USPS has also advertised the following, with a number to call at the end for verification:

oney Order Security Features

Things to check for to ensure a Money Order is authentic.

Postal Money Orders are safe to use because they have many security features that help distinguish between real and counterfeit notes. Just like our own U.S. currency, they are specially designed with different colored inks, watermarks, and security thread in the paper.

How to tell if it’s official
Hold the money order up to the light and look for the following security features:

Ben Franklin images (watermarks) repeated on the left side (top to bottom).
A vertical, multicolored thread that weaves in and out of the paper to the right of the Franklin watermark. When held to the light, the thread appears continuous with alternating horizontal dark and light bars behind it, and the letters USPS repeating backward and forward throughout the thread.

If either of these security features is not present when the money order is held up to the light, you are holding a fraudulent Postal Money Order.


Also be aware that
Denominations are indicated on two locations.
Discoloration of the denomination amounts indicates erasure (fraudulent).
Maximum value for domestic postal money orders is $1,000.
Maximum value for international postal money orders is $700. (Maximum for Canadian money orders is $1,000)

Notice 299 take-ones (highlighting money order security features) are available to order from the Topeka Materials and Distribution Center (1-800-273-1509). Or, you can download the Notice 299 (pdf) (htm) (October 2008).

To verify a postal money order, call the Money Order Verification System at 1-866-459-7822. If you suspect fraud, call the U.S. Postal Inspection Service at 1-877-876-2455 (select option 4).

Doug, tremendous help.

Thanks

Doug, one more question on the exception holds on money orders. What reason would you suggest, if it's not a large dollar items, a new account or repeated overdraft customer? I don't won't our teller putting holds on every postal money order that's taken, but still want to prevent losses and remain in compliance with Reg CC.

For PMOs, a new account hold won't buy you much, since the first $5,000 of next day items isn't affected.

If the customer isn't a repeat overdrafter, there isn't really much you can do unless you have reason to doubt the collectibility of an individual PMO based on the result of a phone call to the USPS or because the item fails one of the checks in the checklist described above. You cannot paint all PMOs with the same brush based on increased fraud incidents, although you can refuse to accept them for deposit.

Unfortunately, if it does not meet one of the exception hold conditions, there is not much that can be done from a hold perspective. If you're experiencing a lot of counterfeiting, then the tellers are going to have to go through the verification steps, and call the verification line phone number if they are still unsure.

Thanks John & Doug for your help. My thoughts exactly, appears more teller training is warranted.