I was just reading about the new version of the Nigerian e-mail scam:
http://www.snopes.com/inboxer/scams/carsale.asp
Apparently, they target people selling high dollar value items online (like cars), send you a phoney cashier’s check for an excess amount, WHICH YOUR BANK WILL APPARENTLY ACCEPT, then apologize for the excess amount and, preying on your honesty, get you to write them (or a third party) a check for the difference and steal that (real money)
What bothers me about this story isn’t the scam itself, it’s the bank. Apparently even though the cashier’s check is fake, Snopes indicates the bank will release the funds within a day or two because of some FDIC rule, after which you write a real check to the scammer. Then 2-3 weeks later, the bank discovers the cashier’s check is fake and removes the funds. How the hell is that possible?
Maybe I don’t understand monetary instruments, but I thought a cashier’s check was secured by the bank and that there was some way to instantly verify if they were real or not. It seems to me that if the bank is releasing the funds they have officially ‘blessed’ the monetary instrument and you should be in the clear to use the money, and they should eat the cost of a fraud, not the consumer. Otherwise they should withhold the funds longer to protect both parties. It seems to me this is a detrimental reliance kind of situation. Any lawyers care to comment on that?
And if this is true, do I have to now live in fear of eBay transactions paid with a cashier’s check. I was thinking about selling my car online this summer and would not have ever worried about this prior to reading the story. If a guy said he was interested in my car, brought a cashier’s check, and the bank said it was good, I would let him drive off with the car…no questions asked. Am I now understanding it right that my bank can tell me a cashier’s check is good, I can rely on that information, and then they can screw me 2-3 weeks later?
I was shocked by this too. Once that money appears in my account I assume that the bank has cleared it. If they later change their minds, I would question this with them.
I’m in the UK though, so rules might be different!
AFAIK, banks have always accepted cashier’s checks just like cash (they made reference to that in Catch Me If You Can, set in the 60s). It used to be extremely hard to forge a bank check, but that’s probably easier nowadays, especially since checks no longer seem to be printed on magnetic ink.
In any case, I’ll bet if you read the find print on your bank agreement, it gives them the right to deduct the amount of the check if they find they can’t collect on it, cashier’s check or not.
I believe that the UCC does put a time limit on when banks can return a check to you. If you do a couple google searches, I’m sure you will find the story of Patrick Combs who deposited and received credit for a phony promotional check. The story mentions some kind of deadline, I believe.
It seems to me, however, that if the bank credits your account before that deadline, and the item is returned, you’re on the hook.
For example, since I’m an attorney, my banks will usually credit my account instantly when I deposit a check. But if the check didn’t clear, I assume I’d have to eat it.
A cashier’s check (AKA bank check, AKA official check) is a payment obligation of the issuing bank. You pay the bank “good” funds from your account and they give you a check representing “good” funds in their account. 99.9% of the time everybody’s happy.
As for the 0.01% when it doesn’t work, nothing is perfect. A bank check can be stolen or counterfeited just as can cash. There is no national (or local) registry of bank checks issued. If the counterfeit is good there is no reason for the bank not to accept it. The rub, from the bank’s perspective, is Federal Banking Regulation CC (Reg CC) which, among other things, limits the amount of time various funds can be “held” when deposited. Bank checks are listed as “next day availability”. That means that, except in specific situations outlined in Reg CC, a bank CAN NOT hold funds on a bank check.
As for debiting your account after the fact, why should a bank be held accountable for bad funds you deposited? Say you were a business owner. I pay you with a check which you know to be good at that instant (say you called the bank and verified funds). You stamp my invoice “PAID” and send me on my merry way. In the meantime, before you deposit my check I withdraw all the money in my account. My check is returned to you stamped “Non-Sufficient Funds”. You’d come after me for the money, correct? Even though you “cleared” my account by stamping my invoice paid? Same principal with the bank. They accept your checks for deposit but have no way to know whether the check is good until notified by the issuing bank. In effect, if a bank gives you immediate access to those funds it is giving you a short term loan. You get to use those funds for what could be several days before the depositing bank gets paid by the isssuing bank. It’s known as “float”. Technology is shrinking the time a check floats, but it’s nowhere near instantaneous.
The vast majority of the time when someone gives you a bank check, it’s good. If, in the case of the scam mentioned, someone asks you to do something clearly out of the ordinary, use extreme caution. Tell them that you will refund the overage when the check clears their bank (not yours). Or better yet, return the excessive check and hold your merchandise until the check is cut properly. Honest people will understand.
A colleague of mine once asked me to deposit a cashier check for US$4000 since I had a US dollar account and he didn’t. He expressed some doubt that the check was good, but didn’t know how to find out except by trying to deposit it. So I mailed it to my US bank with a note of explanation. They duly credited my account, but of course I didn’t use the money. Sure enough several weeks later the check was returned unpaid. No problem, not even any NSF charge (which my friend would have paid). Then I got my bank statement and discovered that I had been credited with a month’s interest on the money! My friend explained that for that month the bank’s capital had been increased by that amount, so the amount they could legally lend and collect interest on had been increased by several times that amount and I should just take the money and run. Which I did (took it, not run).
So, as the receiver of a cashier’s check, can I call the bank that it’s issued from and find out if it’s legit?
Again, maybe I’m an idiot here, but I ask the same question. What about when I sell my car this summer? Forget the scam for the moment, where they get me to write them a check for the excess. Let’s say a guy wants to buy my very real 1996 Impala at the end of the summer, pays via cashier’s check, which is exactly what I would expect, then asks to take off with his new (used) car?
Do I let them? Apparently, to be completely safe, I am supposed to tell him/her “Sorry, but I have to hold on to your money for a few weeks to make sure this check is legit, even though the bank is releasing the funds to me”. What pisses me off about this is that the bank gets to screw me on a whim. It hardly seems fair to me, because what if the car was a piece of crap, say…worth $300. Now I go in to a bank and get HARD CURRENCY for it, and when they find out 2-3 weeks later they were screwed, there’s nothing they can do.
Yet somehow, just because I have an active account at the bank and deposit the funds, that gives them the right to turn around and take the money back.
If this sort of scam really has happened to people to the tune of $10s of thousands of dollars, I can’t believe someone hasn’t sued some bank over this policy.
Absolutely! This is exactly what Yarster should do when he sells his car.
I fail to see how you’re getting screwed by the bank. If a check you deposit is good, you keep the money. If not, you don’t. If you get screwed it’s by the person giving you the check. The bank is nothing more than a middle man.
There are only 2 ways you are going to get hard currency for your check:
- You cash the check at the bank where you have an account. If the check is returned your account is debited. It doesn’t matter that you cashed the check instead of depositing it.
- You cash the check at the bank where the check is drawn. They verify that it’s a good check, verify your identity and give you the cash.
Either way the bank is covered. Banks have a legal obligation (known as fiduciary responsibility) to protect themselves, their customers and shareholders from losses due to fraud. They can’t stop all fraud but the rules are there to minimize it.
In some cases it gets even worse than that:
Couple duped with bogus check can’t have truck back, judge rules
http://www.post-dispatch.com/stltoday/news/stories.nsf/News/21D46F474BDC551786256D7C00191111?OpenDocument&Headline=Couple+duped+with+bogus+check+can’t+have+truck+back,+judge+rules+
Of course, in that case it was a STATE LAW that protected the bank, not a bank policy.