If a check comes through on an account that is set up "two signatures required" and it only has one signature, do you take the time to call your customer to come in with another signature or do you return the check as "two signatures required"? It would be a courtesy to call your customer but since you only have a short time in order to return the check if you need to I wondered how most banks handled that.

I think it would depend on the amount. I would probably try to reach the customer by phone and authorize the check that way. Document the conversation though. If I couldn't reach someone on the phone I would probably send the item back if it were large or questionable. Say the check is on a girl scout troop, but payable to an adult film store. I would send this check back, but if it were made to the girl scout council I would probably pay it.

Alot of banks don't check signatures unless there is a problem with the account (they truncate or bulk file).

A lot of banks have also chosen not to allow TSR accounts - due to the cost and liability in checking each and every item that pays against the account.

Ditto Lestie. While the bank doesn't recognize it, they may allow the customer to do this for their internal controls, but with no liability on the bank's part.

I cannot agree with Andy's comment because a bank does have liability for paying a check with only one signature when two signatures are required UNLESS the bank's customer signs something stating the bank bears no liability for paying a check without all the required signatures.
The bank's liability for paying a check without all required signatures arises as follows:
UCC section 4401(a) provides that a bank may only charge an item against a customer's account if the item is properly payable. Official Comment Number 1 to UCC Section 4401 states: "An item is properly payable from a customer's account if the customer has authorized the payment and the payment does not violate any agreement that may exist between the bank and its customer."
UCC Section 4406(c) requires a customer to "exercise reasonable promptness in examining [their] statement or the items to determine whether any payment was not authorized . . . because a purposed signature by or on behalf of the customer was not authorized."
UCC Section 4104(c) states that the definition for "unauthorized signature" is found in UCC Section 3403.
UCC Section 3403(b) states: "If the signature of more than one person is required to constitute the authorize signature of an organization, the signature of the organization is unauthorized IF ONE OF THE REQUIRED SIGNATURES IS LACKING."

Most banks today pay checks without reviewing the maker's signature (the number of authorized signers are not microencoded on the check) because checks are paid by automated means.
If a bank pays a check without a required signature it is liable to its customer because the check is not "properly payable" as the check has an "unauthorized signature". The customer can still ratify the payment (see UCC Section 3403(a))but absent a ratification or some other viable defense (such as the same wrongdoer rule under UCC Section 4406) the bank is looking at a loss.

The way out of this mess is for the bank to have an agreement (as indicated in Official Comment 1 to UCC Section 4401) with the customer that nothwithstanding the customer's desire to have a 2 signature requirement (or even printing that statement on the check) the bank may pay the check with only one signature.

That agreement can appear in the Disclosure Statement that a bank gives to a new customer. Usually the signature card that the customer signs will contain some statement that the account will be govern by federal and state laws as well as the bank's rules and policies as set forth in the Disclosure Statement (or whatever a bank may call it). The signature card coupled with the Disclosure Statement becomes the contract or agreement between the bank and the customer.

The bottom line is that a bank must affirmatively do something to avoid liability for paying checks without all required signatures and that something is to have an agreement with the customer as indicated above.

I do agree with Andy. Clearly, if a signature card indicates two signatures are required, the bank has agreed to it and must monitor it. (I would also add, the bank should be paid for it, but that's a different thread). However, if the signature card does not discuss it, it is not part of the contract and a check with a single signature is properly payable.

Absent that, the customer is welcome to say two signatures are required as a part of its own internal controls, but those controls are for the customer to enforce among its signatories, not the bank. Giving the customer a disclosure where it acknowledges the bank will not monitor for two signatures would eliminate any future disagreement over the customer's understanding of the arrangement. My opinion is the disclosure is a good idea. Others might classify it as unnecessary because the contract in no way indicated two signatures were required anyway.

One might argue that unless the bank has addressed the issue in its contractual language and/or disclosure, the customer's addition of a "Two Signatures Required for Amounts over $500" legend over the signature line(s) could create a situation that would lean in favor of the depositor if the bank failed to check and the depositor lost money from a single-signature transaction.

I am in the crowd that's developing slowly here that advises having specific language in the customer contract that provides that, unless specifically agreed to in writing by the bank, the bank will not be bound by any multiple signature requirement expressed or implied, legends on checks notwithstanding. The bank could and should exact a price for taking on the monitoring requirement for a specific customer, and should have the ability to set reasonable expectations. It's obviously harder (and riskier) to check all items over $500 than it is all items over $5,000.

Quote:

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...having specific language in the customer contract that provides that, unless specifically agreed to in writing by the bank, the bank will not be bound by any multiple signature requirement expressed or implied, legends on checks notwithstanding.

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That's a nice addition to the contract and renders the point moot.

As John has added the element about what the checks say vs. the what the contract says, I will agree that if the bank orders the checks to indicate "Two Signatures Requried", the water is muddy enough that I believe the bank should give a disclosure which requires the customer to acknowledge its receipt. (The same advice would be offered if the cutomer wants a legend "Void after 60 Days" preprinted on a check.) The agreement should clearly indicate that the bank is not responsible for enforcing the legend.

However, if the customer orders its checks from a third party and adds legends, I do not believe that makes the bank responsible for monitoring their requirements.

I believe I posted this or similar language before. Here is a sample clause from a Deposit Agreement we used:

Multiple Signatures. We do not establish any
accounts that require two (2) or more
signatures on any items drawn on the
Account. If, for example, you state “requires
two signatures if greater than $1,000,” you
acknowledge that such provision is solely for
your personal or internal control purposes.
You shall indemnify and hold us harmless for
losses due to paying any item bearing at least
one authorized signature.

Ken,
My disagreement with Andy's comment relates to how I interpreted his comment in connection with the original post.
The original post stated that the bank established an account with a two signature requirement. I interpreted Andy's comment as a comment that the bank that established the TSR account could treat it as an internal control for the customer with no liability to the bank.
My point was that a bank must affirmatively do something (like put something in its disclosure statement) to advise the customer that the bank will not be bound by any TSR otherwise if it sets up a TSR account it will have liability for paying a check without all required signatures.
Andy's subsequent post appears to agree with this point and his bank's language clearly moots the TSR liability issue.
I would agree with Andy's original post if its message is that a bank will not be bound by a TSR and can treat it as a customer's internal control with no liability to the bank provided such an agreement has been reached between the customer and the bank.
I think everyone is on the same page on this point and the "disagreement" may have to do more with how I interpreted Andy's original post.

Understood. We read it differently. I read it that Andy was responding to Leslie, not Anon. Sometimes it's hard to tell who's talking to who!

If you hold your mouse pointer over the bold subject, in this case, Re: Returning Checks Two Signatures Required a post number will show in a second or two that was replied to. Sometimes a user will add to the last post on a thread but discuss something way above. I was responding to Lestie. The post with my Deposit Agreement cite better establishes my intent and confirmation of her post.

Sorry for the confusion.

Thanks for the tip. Sorry for any confusion I caused.

Intriguing discussions are what this is all about. Your points may well have raised an awareness in any number of readers who have now benefited. Thank you!.

We allow TSR accounts... yes, that is another thread!!... and sort out checks for review. We call on checks that do not meet the requirement and assess a $15 fee for the call. (We've done this for a couple of years.)

We recently started assessing a per item fee of .35 on TSR accounts for "Signature Review". Many customers changed their account to an "internal policy of 2 sigs" but bank requirement is only one signature.

We are going to revise our account disclosures to state:“Signature Requirements: If you indicate on your signature card or other accounting opening documents that more than one (1) signature is required for withdrawal, that indication is for your own internal controls or procedures. It is not binding on us. We may pay out funds from your account if the check, item, or other withdrawal instruction is signed by any one of the persons authorized to sign on the account. We have no liability to you if we do this.”

Then sending new disclosures to the current accounts this would affect. Do we need to follow the 30 day advance notice requirement?

If you are talking about the 30 day notice requirement in Regulation DD, no. This was not a required disclosure.

Review your signature card; account terms and conditions; whatever documents might reflect the terms of your contract with the consumer. If it provides that you may unilaterally change the terms of the contract, it is likely that it would require you to give advance notice.

Either way, advance notice requirements are nothing but good manners reduced to writing.

Would it also be a good idea to obtain new signature cards that eliminate the 2 signatures required language?

A thought concerning your proposed revision to your account agreement - since you say "may pay out funds" based on 1 signature, that suggests you might from time-to-time honor the 2 signature requirement.

Do you want to consider adding something to the effect that if you decide to honor the 2 signature requirement, such decision does not obligate you to do so in the future (or otherwise constitutes a waiver of your statement that any multiple signature requirement the customer indicates is not binding on you)?

Also, you may want to check with your bank counsel as to what your state law provides when a court appoints co-fiduciaries for a probate estate, guardianship or conservatorship. Some state laws provide court appointed co-fiduciaries must act together and not independently. If that is the case in your state, then can your account disclosure language trump the state law? If a Court may be inclined to rule that your account agreement is ineffective with respect to court appointed co-fiduciaries and state law controls that they must act together on all matters, you may want to consider adopting a policy not to open fiduciary accounts when a court has appointed co-fiduciaries.