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The norm is for banks or other financial institutions to request that anyone with a check or a bank draft establish his or her identity by proffering some method of identification before the instruments will be honored. In some cases, the instrument issued to the bearer may have the inscription "pay to bearer," in which case the implication is for the financial institution or whomever the check is addressed to pays the money to the bearer without any request for identification. This lack of identification is the choice of the payer for the instrument, who may choose to make the request not to ask for identification on behalf of whomever the instrument has been made out to.
Using the case of a bank check, which is a sort of negotiable instrument, some of the visible aspects are the features of the checks. The name of the financial organization will be written on the check as well as the name of the person who owns the checks. Some of these checks have a printed inscription "pay to bearer," in which case the owner of the checks or the payer has the option of either endorsing the check or not. In some cases, the owner of the check may print the words "pay to bearer" manually if the check does not have the inscription to the same effect as that which is printed with the inscription.
Where this is the case, the issuer of the check may be required to endorse it in several ways, including a signature and date. In some cases, the reason why the issuer of a check might resort to requesting for the financial institution to pay to bearer without any form of identification may be as a matter of expediency in a situation where the person or company to which the check is made out does not have that identification at the time.
Some banks still take further precautions before they pay out the money specified in the checks or bank drafts with the pay to bearer inscription, sometimes due to their own policies or as a consequence of instructions by the owner of the checks who may have requested that checks beyond a certain specified monetary amount must be cross checked with him or her before the bank can honor it. The reason for this is to prevent the possibility that some kind of fraud may occur where the signature from the owner of the checks may be forged.
@Melonlity -- There are some very good reasons to make a check out as "pay to bearer." Let's say, for example, a friend needs a loan. You don't have any cash and your friend doesn't have a checking account at your bank or even in the same city.
Making a check out as "pay to bearer" means your friend can take that check to your bank and turn it in for cash even though he or she does not have an account there.
That's just one example and I am sure there are more.
As for theft, what are the chances of a "bearer" check being stolen? Even if a check is made out to a person, isn't there the risk of forgery if it is stolen? I'm not sure you should be so worried about theft.
Why would anyone want to make a check out this way? If you don't make the check out to a specific party, isn't there always the risk of anyone grabbing the check and cashing it?
Seriously, under what circumstances should a check be made out "pay to bearer" instead of to a specific person, company or organization?
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