Why Is My Bank Holding a Third-Party Endorsed Check and How to Resolve It

When banks place a hold on a third-party endorsed check, it is often to ensure the funds are legitimate and the identity of the endorser is verified. This article will explore common reasons for holds, the risks associated with these checks, and how you can address the issue.

Risk Factors for Third-Party Checks

Banks closely monitor third-party checks due to several risk factors, including:

Fraud Prevention: Third-party checks are more prone to fraud, so banks hold them to verify the check's legitimacy and the identity of the endorser. Insufficient Information: If the bank cannot easily verify the identity of the endorser, they may hold the check longer to confirm its validity. Check Amount: Larger checks often trigger longer holds as banks ensure there are sufficient funds in the writer's account. Regulatory Requirements: Banks must follow specific regulations regarding holds, which can vary based on the check's type and amount.

The Hold Process: A Two-Week Example

Consider a scenario where a bank places a two-week hold on a third-party endorsed check. Here, the bank is trying to verify the legitimacy of the check and the endorser's identity. However, the endorser, who is a woman who has moved, is no longer available to assist.

Steps to Take When Facing an Extended Hold

If you find yourself in a situation where the hold is extended for an unusual amount of time, follow these steps:

Contact Your Bank: Speak with a customer service representative or a branch manager to clarify the hold's reason and potential steps to expedite the process. Documentation: Gather any relevant documentation, such as emails or messages from the endorser, to prove the legitimacy of the check. Alternative Solutions: If the hold continues, ask your bank about reissuing the check or providing an alternative form of payment.

Risks and Prevention of Forgery and Stolen Identity Checks

Third-party checks can also be a target for forgery or stolen identity. These checks can result in your account being charged back months after the check is presented. The Federal Reserve rules allow banks to be vigilant against such fraud by using longer hold periods.

One of the classic schemes is presenting a legitimate-looking check from a company, signed by the actual account holder, with a request to return a portion of the value or even the entire check. The check is not legitimate, and the false check is later discovered, leading to chargebacks.

Conclusion

Understanding the reasons behind bank holds on third-party checks and taking proactive steps can help you resolve these issues more quickly. Always communicate with your bank and gather necessary documentation to ensure the legitimacy of the check.