If you don’t include a phrase to this effect, a bank can reject the endorsement attempt. The best way to do this is to follow the instructions provided by your bank’s app, as they may vary from one another. If you decide to do so, you’ll need to check with your bank first to make sure it’s possible. If it is, then this can be a way to hide your identity and process the check anonymously.

This assures any third-party that the bank will back the obligations of the creator of the instrument in the event the creator cannot make payment. Sometimes, it may happen expressively when the endorser specifies the intention for the underlying instrument. Consequently, it prohibits further negotiation on that instrument. As stated above, that instrument no longer meets the definition of a negotiable instrument. In summary, restrictive endorsements are used to limit the use of a check, and other approaches involve endorsing the check to specific instructions.

The three ways to process a check are blank, restrictive, and special endorsements. The reason check endorsements exist is to protect the money of the payer and ensure the intended recipient collects it. The vast majority of checks will have to be endorsed to be used. Endorsements provide extra security for your funds so most banks will be reluctant to take a check that hasn’t been properly endorsed.

The common use of it is depositing a check in a bank account. A restrictive endorsement limits use of the check to whatever purpose is stated in the endorsement. Many businesses have a stamp prepared with such an endorsement. A restrictive endorsement prevents unauthorized person from cashing the check if it is lost or stolen[2]. (b) By Service Center Directors and District Directors, Internal Revenue Service.

If there are no RE terms on the actual check, then there are ways around the clause by the creditor. (b) Bearer securities or securities are those which are payable on their face to bearer, the ownership of which is not recorded. They include Treasury bonds,Treasury notes, Treasury certificates of indebtedness, and Treasury bills. (d) By Service Center Directors and District Directors, Internal Revenue Service, for redemption, with the proceeds to be applied in payment of taxes (other than securities presented under paragraph (c) of this section). Your details won’t show up on images of the processed check online, so there’s no risk of giving away your account number or signature.

• The information in this publication does not constitute legal, tax or other professional advice from Wise Payments Limited or its affiliates.
• A
  person paying the instrument or taking it for value or collection may disregard
  the condition, and the rights and liabilities of that person are not affected
  by whether the condition has been fulfilled.
• Learning to endorse a check is a basic part of financial literacy, so be sure you know how the system works.
• This will prove that the creditor saw the terms and cashed the check.
• For example, if a check has been restrictively endorsed “for deposit only,” it can only be deposited into the account of the person or business named in the endorsement.

Legal Explanations is a free legal dictionary and resource site to help you with any legal documents or questions. Select a letter from the list below to read all of the definitions we have in our database that begin with that letter. On this page, you’ll find the legal definition and meaning of Restrictive Endorsement, written in plain English, along with examples of how it is used. In the other states, the program is sponsored by Community Federal Savings Bank, to which we’re a service provider. Grasp the meaning of APY in banking and CDs with our in-depth guide. Discover how APY impacts your financial choices and maximizes your savings.

Defining the restrictive endorsement

A blank endorsement is the least secure way of endorsing a check but it’s also the most common. Sign your name on the back of the check and tell the bank teller whether you want to deposit it to a particular account or cash it. You can also use a blank endorsement when you deposit a check in an ATM. This isn’t a very secure way to endorse a check but you can limit the possibilities for fraud if you sign it just before you deposit it.

In that situation, you would need their written approval of your settlement/payment before issuing a payment. Some states allow a creditor to cross out the RE and cash it “under protest,” so you need to tread carefully when dealing with these types of settlements. Getting a dialogue with the creditor beforehand is very practical to ensure success. Unmatured coupons attached to restrictively endorsed securities should be canceled by imprinting the prescribed endorsement in such manner that a substantial portion of the endorsement will appear on each such coupon. If any such coupons are missing, deduction of their face amount will be made in cases of redemption, and in cases of exchange, remittance equal to the face amount of the missing coupons must accompany the securities. With this restrictive endorsement, the check can only be deposited into the business bank account of “Emily Designs”.

Restrictive endorsement- The holder of a check may wish to prescribe a little more carefully how the check is negotiated. A restrictive endorsement limits the use of the instrument to a means specified by the endorser. In theory, a restrictive endorsement ends further negotiation of the check. The most common restriction is “For Deposit Only”, which limits the negotiation of the endorsed check to deposit in an account. By ending the instrument’s transferability, a restrictive endorsement renders the instrument no longer negotiable.

Example of a Restrictive Endorsement

An example of a restrictive endorsement is the “For Deposit Only” stamp used by most companies on the back of a received check. This stamp effectively limits further action on the check by the stated payee to only being able to deposit it. Special endorsements on checks can be a powerful tool if done right.

Restrictive Endorsement Definition and Legal Meaning

One of the most common forms of restrictive endorsement is a check that includes a restriction. Usually, this restriction allows the payer to limit how the payee uses it. With this endorsement, the payer calculating the intrinsic value of preferred stocks may prohibit the payee from depositing the check to their account. For example, the payer may include the phrase “For Deposit Only” to ensure the restrictive endorsement applies to that check.

§ 3-206. RESTRICTIVE INDORSEMENT.

While this might be the fastest and most convenient way to endorse a check, it can be a risky method too. It’s recommended that you only endorse a check this way if you’re close to your bank and plan on depositing it shortly. Bear in mind that some banks won’t allow you to sign a check over to someone else, due to fraud concerns. For businesses, the only person who can endorse a check is the company’s owner, unless another employee has been authorized to manage the business finances. With online transfers becoming increasingly popular, it’s understandable if you don’t know how to cash a check.

The idea is that the indorser is transferring any rights they have in the instrument, but  they are not warranting that the payor of the instrument will honor it. While a qualified indorsement makes it more difficult for a thief or embezzler to cash an instrument, it does not affect or limit the ability to further transfer or negotiate the instrument. This is often the case with checks that are given as wedding gifts.

It can be a good idea to accompany this person to the bank to provide proof of identification. Banks frequently won’t accept checks endorsed this way unless the payee is present. It’s possible to endorse a check in other ways whether you’re passing the funds on to someone else or cashing it. You can use a check made out to you to pay someone else by telling the bank to pay it to that individual. You can also use a blank endorsement and tell the bank teller in person where you’d like the money to go.

Signing a check on the back is referred to as an endorsement. You’ll typically have to endorse a check to deposit it in your bank account or to cash it, but how you will do so depends on the type of check, how you’re depositing it, and how you want to use the funds. •Medical debt collection accounts under at least $500 will no longer be included on consumer credit reports.