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Imposter Problem and Forged Indorsements: New Risks Under the Revised Uniform Commercial Code

NCJ Number
Journal of Security Administration Volume: 23 Issue: 2 Dated: December 2000 Pages: 13-24
Steven B. Dow J.D.
Robert L. Fischer Ph.D.
Date Published
December 2000
12 pages
This article attempts to assess the substance of the changes in the impostor rule under the Revised Uniform Commercial Code (RUCC) with regards to perpetrated check frauds and consider how these revisions will increase the risk of financial losses for both large and small business firms and other checking account customers.
The Nation's payment system is dominated by check transactions with the inevitable consequence of check fraud. The financial losses from check fraud are significant. A checking fraud preferred by outsiders is an imposture scheme. In this scheme, a person impersonates someone else to scam an individual or firm to issue a check to the impostor. For the last half of the century, the Uniform Commercial Code (UCC), Section 3-405 has governed the allocations of losses in these situations. The impostor rule has always made it important to determine the identity of persons to whom checks are issued. Recently, the UCC has undergone major revisions. Under the new changes, it is now equally important to ascertain the authority of someone purporting to act as an agent for the payee. The revision of the impostor rule has increased the risk of loss to businesses and consumers that use checking accounts. The magnitude of this increased risk has yet to be determined. This article attempted to evaluate the changes to the rule and the potential increase in financial losses, provide some background on the legal nature of a checking account, explain the basic operation of the impostor rule under the UCC, specifically forgery loss allocation, and consider problematic aspects of the newly revised impostor rule. These rule changes indicate a need for increased vigilance by all checking account customers when issuing checks to strangers.


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