Eternal Vigilance Is Price of Checking
Some news stories can really make a consumer nervous. Look what happened to the California city of Inglewood. A janitorial service that cleaned the civic buildings stole a bunch of blank checks from the city’s finance department, filled in its own company name as payee and cashed them, for amounts up to $374,000, over a signature that bore no resemblance to the name of anyone authorized to sign.
Over $1.35 million was paid out of Inglewood’s account--a theft that escaped notice for five months because the city’s bank, Wells Fargo, apparently honored the checks without question, and because no one checked the city’s monthly bank statements. Inglewood, City Atty. Howard Rosten says, believed that banks “don’t take instructions on a person’s bank account unless that person gives the instructions.” Wells Fargo believed that the city was “in the best position to verify the authenticity of its checks.”
This may shock ordinary people who don’t have $1.35 million at risk but have the same unquestioning faith in signature cards on file at banks and more interest in reconciling their bank statements. What they don’t know is how much responsibility they may bear for protecting their own deposits against theft.
Few consumers realize, moreover, that an individual signature, or even a name, is no longer so important. This is apparent in other contexts, as one woman found when she got a bank Visa card charge for a recent $100 stay in a hotel and another $350 charge for a second stay. When she questioned the second charge, the bank sent a copy of the charge slip, signed by a different person, and warned her that “since this sales slip is signed, has an imprint of your card and you have not reported your card lost or stolen, we consider this charge to be yours.”
Have things so changed that anybody’s signature is as good as one’s word? In theory, no; in practice, yes.
There is some historic basis for the customer’s expectations. Merchant banks, San Francisco lawyer Roland Brandel says, once kept a customer’s wealth “in the form of tangible assets, like gold or diamonds. When you wanted to pay someone, you showed up or wrote notes for your employees to take there. Now it’s a sophisticated, elaborate collection system, but in basic elements it’s the same: The people holding your treasure for you have the obligation of being damn sure that the person presenting a check was authorized to do so.”
Over time, the customer was given more responsibility, according to the Uniform Commercial Code adopted by all states. With some qualifications, and a lot about the diligence due from both parties, the code gives bank customers the “duty to discover and report unauthorized signatures or alteration” of items in their statements. Given such evidence, Brandel says, they must “notify the bank that something’s going on.”
This shared responsibility became increasingly important with the decreasing possibility that checks would pass before human eyes. Millions of checks now move through regional clearing centers to home banks every day. “The idea of making a bank look at every check to decide if the signature or endorsement is legitimate is not reasonable,” Los Angeles lawyer George Schulman said.
In terms of exposure to the human eye, credit card transactions are similar. The merchant who takes the card is supposed at least to see that the name signed matches the name on the back of the card, even if he can’t expertly match handwritings. Yet, nowadays, “very few merchants even flip over the card,” said Ron Karlin, MasterCard’s vice president of member rules and policies. (It may take several calls to catch a human ear, but a mistaken charge will, of course, be reversed.)
Between transaction and billing, the system is so automated that there’s little chance of anything being caught. Rosten said he once signed “Mickey Mouse” on a credit card slip, and it was accepted and processed without question. Indeed, the cardholder’s bank knows there’s a problem only if the cardholder reports his card stolen or challenges a charge on his monthly statement.
There seems to be some room for negotiation in this assignment of responsibility. Inglewood and Wells Fargo are on the verge of litigation over the stolen $1.35 million. Wells Fargo rests on its contention that Inglewood was negligent in not reviewing its bank statements. The bank had noticed and “flagged” these checks as out of sequence in its monthly statement; had the city investigated, a bank spokesman said, “the loss could have been prevented.”
Inglewood contends that whatever it might have been able to catch and correct later, the bank’s “negligence in verifying the signature is the main issue,” Rosten said. If protection against forgery were made the customer’s responsibility, he added, “The banking business would be over.”
That case can hardly be decided here, but we can question the value of signatures in a day when no one looks at them any more. Apparently, consumer protection is more of a partnership than we thought, and in unexpected areas. Like God, the law helps those who help themselves.
