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#381073 - 07/06/05 03:11 PM Reg CC Exception Hold-3rd Party Payee
Carrie Offline
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Carrie
Joined: May 2002
Posts: 74
Pittsburgh, PA
Is it permissible to place an exception hold solely on the basis that a check being deposited was made payable to a 3rd party payee (who endorsed the check)? Would this be considered placing an impermissible hold on a "certain class of checks"?

Thanks for any help!

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#381074 - 07/06/05 04:15 PM Re: Reg CC Exception Hold-3rd Party Payee
John Burnett Offline
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John Burnett
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Cape Cod
I don't see a reasonable cause to doubt collectibility in the fact that the check is endorsed by a third party payee. If you have reason to doubt the validity of the payee's endorsement, don't accept the check for deposit. But if you don't have reason to doubt the endorsement, you should not use a §229.13(e) hold.

Absence of information does not constitute negative information.
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#381075 - 12/28/05 05:29 PM Re: Reg CC Exception Hold-3rd Party Payee
GenerousLife Offline
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If the check is made out to party #1, then endorsed and signed by party #2, then Party #2 deposits the check into their own checking account, it no longer is under Reg CC limitations, right? (The original payee is not an owner of the account.)
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#381076 - 12/28/05 05:33 PM Re: Reg CC Exception Hold-3rd Party Payee
John Burnett Offline
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It's still under Regulation CC limits. The "deposited to account of a payee" rule only applies to section 229.10's rules on next-day items. For example, a cashier's check that is deposited by a third party transferee (not the payee) need not be given next day treatment. Instead, it's considered a local or non-local check as if it were a "normal" check drawn by a customer of the issuing bank.
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#381077 - 12/28/05 05:35 PM Re: Reg CC Exception Hold-3rd Party Payee
GenerousLife Offline
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USA
Oh, got it. Rats.
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#381078 - 12/28/05 05:49 PM Re: Reg CC Exception Hold-3rd Party Payee
Elwood P. Dowd Offline
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Elwood P. Dowd
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Next to Harvey
I'm regressing just a bit and may be missing the point of the original question because don't know what a third party payee is.

However, if the example involves Mary Beth depositing a check payable to John which John endorsed prior to Mary Beth's endorsement and presentment, then I would say the bank is entitled to an exception hold based on reasonable cause to doubt collectibility. My entire argument hangs on model form C-13's listing of:

--We are unable to verify the endorsement of a joint payee.

as an acceptable reason for an exception hold. The validity of the prior endorsement which it did not witness is no less important to the depositary institution as the validity of a joint payee's endorsement which it did not witness.

Before anyone cheers, please consider that the maximum hold you could gain from this maneuver is to the eleventh business day following the banking day of deposit. On the other hand, the drawee bank has up to three years to return the item for a forged endorsement. This isn't a workable risk management tool.
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