Am I stuck paying bank’s forgery foul-up?

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Dear Dr. Don,
Last year, I quit a job that I disliked very much. I even asked my employer to mail me my last paycheck so I would not have to go there again. After a month, when I did not receive the check, they canceled the old check and sent me a new one. I deposited the new check, which was $25 less than the original check because I had to pay the check stop-payment fee.

A week later, I saw that the bank had taken money out of my account for the original check, the one with the stop order. I asked them, “How can this be?” After some investigating, I found out that someone from my old workplace had stolen my check, forged my signature and cashed it at my bank. When the bank employees realized there was a stop order (after they had given the other guy the money), they realized I happened to have an account at their bank and took the money right out of my account to make themselves whole. They told me this was what happened.

They didn’t check for ID when they cashed the check; they just gave a thief the money. Is it illegal for a bank to take money away from me for a bad check that I never cashed? A check with a forgery that they cashed in error?! Is this a normal banking practice? Don’t worry, I’ve switched banks.

— Nate Negated

Dear Nate,
The issue here for the bank is that it cashed a check with a forged endorsement. The stop payment is simply what caused the check to be returned or rejected later. If the bank honored a check with a fraudulent signature that also had a stop payment on it, then its recourse is in chasing down the person who forged your signature.

If the bank made an error in cashing a check with a forgery, the bank is completely liable. It’s pretty simple when it comes to ownership of the check. The bank goes back to the last person to sign it, and that is whom they collect from. If the bank gave cash to someone, its recourse is against that person. If the bank can’t find that person, or if the person whose endorsement was forged signs an affidavit of forgery, then the bank is out the money.

Your old bank owes you the money. It didn’t have the right to raid your account to correct its error. You should approach the branch manager and explain that you want to be made whole and that you are willing to sign an affidavit of forgery concerning the fraudulent check. If the bank refuses, then you should complain to the Federal Reserve and the Office of the Comptroller of the Currency. Drop me a line, too.

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