Two Check Cashing questions

These two questions have to do with the US, but I don’t know if the answers vary by state. If they do, I live in Montana and we’re still eagerly awaiting the first signs of Spring.

  1. Let’s say my daughter, who happens to live in Oklahoma, sends me a check. I go to my local bank and cash it. I have plenty of money in my account to cover it, but that shouldn’t really matter. Because it’s a relatively small amount of money ($50) my bank doesn’t put a hold on the check and they just hand me the cash. It later turns out that my daughter’s check bounces. My bank is then out the money since they already paid me the $50. If my daughter makes good on the check then her bank will cover my bank and everybody is happy, but what happens if my daughter doesn’t make good on the check? Is my bank simply out the $50? They can’t now take the $50 out of my account, can they?

  2. Let’s say I have a rental condo and that instead of using a credit card a prospective guest wants to pay me in advance using a personal check. I receive his check for a few hundred dollars and deposit it, and after the 10-day waiting period the money shows up in my bank account. At this point is there anything that could happen that would allow my bank to withdraw the money out of my account based on something the prospective guest did, such as stop payment on the check? I want to make sure that once the money is safely in my account it can’t be taken out because the guest changed their mind. If he changed his mind I would, of course provide him a refund based on my refund policy.

  1. Yes they can take the money out of your account. And they will.

  2. I don’t think he can stop payment on a check after it has cleared. It’s not like a credit card where he can “contest” the charge and make things difficult for because he’s unhappy about something.

!. Yeah, like he said.

  1. No, he can’t put a stop payment after the money came out of his account. But suppose he didn’t have enough in the account to begin with, and his bank decided to dishonor it. That could definitely happen, and it might even take a long time. It might even happen after your bank has let you withdraw the cash. If this happens, your bank WILL take the money back out of your account, even if you end up with a negative balance. The “10-day waiting period”, or however long it is in any given case, is only an estimate, and a deadline for your bank to lend/give you the money on the PRESUMPTION that the check you deposited won’t come back.

There are scams that take advantage of this. They give you a check, ask you to deposit it, wait two weeks, withdraw it, and give them the money, minus a generous fee for you. What they don’t tell you is that the check was never good to begin with, and it is written on a bank that is so far out of the loop that it will take a month for your bank to realize that it’s a bad check. By that time, you will have given them free money, and you will be in the hole for it.

  1. If there is a claim that the check was altered or forged or that the endorsement is forged, the UCC allows the drawee bank (the bank whose name is on the check) to make a claim against the depository bank (the bank where you cashed or deposited the check) for up to three years.

Many states provide a shorter time period for an accountholder to notify his bank of a problem and the UCC requires that the check be returned within 30 days of when the problem is first discovered (but not longer than 3 years).

So in a hypothetical situation where grandpa is in a nursing home and one of his sons steals his checkbooks and goes on a checkwriting spree, a lot of checks could come bouncing back once his devoted granddaughter starts going through his accounts. The time limit will vary depending where grandpa banks.

There are common Craigslist scams based on mistaken beliefs like you have based on your first scenario. The scammer sends you a check for too much and asks you to wire transfer this excess to someone else. You check and verify the money is in your account and send the wire transfer. The bank finds out the check is no good and withdraws the money. You are now shit out of luck.

  1. Yes they can take the $50 out of your account, and if there’s less than $50 on that day, they can still take the money plus ding you for being overdrawn.

  2. If they do put a hold on the check (5 days is typical) that’s just an estimate of how long they think it will take to make 99% sure that the check is good. FDIC regulations say they have to let you withdraw up to $100 from those funds right away and they can hold the rest. But even after the hold has expired and you’ve already withdrawn the money, even weeks later, it’s still possible that the check will come back and then see answer #1.

And yes, there are scams which take advantage of this. Typically, they send you a money order for more than the price of the item you’re selling, and they ask you to refund the difference. Money orders have the illusion of being safer than checks (because, theoretically, they can’t bounce due to insufficient funds) but in reality they are more prone to forgery. But the scam also works with checks or even credit cards. You deposit their “money” into your bank and it takes weeks for your bank to find out that it’s no good. By that time, the scam artist is long gone, having taken your sale item and your refund, plus you get stuck with overdraft fees. Waiting for the hold to expire is no guarantee against this scam.

  1. As stated above, the bank can and will take the money from your account. It’s called “right of offset”.

  2. There are situations where a check can be returned after 10 days or more, for instance if the prospective guest forged a signature. The waiting period protects you (and the bank) against most situations where the check could be returned unpaid, but not all.

But they’ll send you a letter letting you know that they did it. You won’t get the letter in time to make up any overdraft it might cause, but you’ll get notification.

Really? That surprises me because it’s not like the pony express is moving this money around.

It’s done electronically and if Bank A gets a check written off Bank B, and they send an electronic request for payment, and the check appears legitimate (however that is determined these days) AND Bank B transfers the money to Bank A, and the money is deposited in your account how can they years later decide the check is not legitimate and then take the money out of your account as result? If this were the case then nobody would risk using checks to do ANY business transactions, and that’s clearly not the case.

The fact that I waited the mandatory time for the bank to verify the check was good, and even though they had the money in their coffers a few minutes (seconds?) after they requested it, they can then decide days, weeks, years later that there was really something wrong with the check and yank the money back. Exactly what did I do wrong? I guess accepting personal checks is always a bad idea.

Somebody has to lose the money and you’re the easiest target.

Assuming the account can cover it, the bank has very little way of knowing that a cheque is a forgery until the account owner notices there is a problem, and if the account owner doesn’t regularly check his transactions it may take a month or so before that happens.

Let’s turn it around. You get your monthly statement from the bank. You see that at the beginning of last month a check was cleared that you don’t recognize. Or maybe the amount of the check was altered. You march down to the bank and demand that they do something about it. They say “tough luck, dolphinboy. The money’s gone.”

I know that someone is going to say that they check their bank balance every day. Good for them. But that gets old after a while and most people have a lot of other stuff to worry about and just run out of time for obsessive bank balance checking.

Accepting a check is a risk. And 99% of the time (made up number) nothing goes wrong and the worst case only happens .0001% (another made up number) of the time. Getting out of bed and crossing the street is also a risk (as is staying in bed and refusing to cross the street). Some business owners make the decision that accepting checks helps their business more than it hurts it and others come to the opposite conclusion.

If I were you, I’d accept only a cashier’s check for the deposit, not a personal one.

That’s going to be my policy going forward… I don’t see any reason why I should take all of the risk here. Since this would be a personal check sent to me in the mail I have no way of verifying the signature or even look at their picture ID. I have to trust that the check is good, and now I know I can’t trust my bank to verify it for me.

If they can’t manage a cashier’s check, money order or credit card transaction then I guess they can find someplace else to stay.

According to Wikipedia, a cashier’s check isn’t guaranteed, either.

The article goes on to counter checks and certified checks.

It comes down to how much risk you want to accept. There is a risk associated with accepting payment by cheque; you can elminate the risk by not accepting payment by cheque, but at the cost of losing the business of people who want to pay by cheque. If that’s a cost you are willing to pay in order not to be exposed to the risk, then the rational course is not to accept payment by cheque. On the other hand, if you calculate that the amount of business you will lose will cost you more than the occasional bouncing cheque, the rational course is to accept the cheques and carry the risk.

In much of the world, payment by cheque is virtually obsolete (or, in some places, actually obsolete), at least for consumer transactions. I live in Australia; the last time I wrote a cheque was eight years ago; the time before that, ten years ago. It’s all credit cards, debit cards and bank-to-bank transfers effected though the internet. Is there a reason why this hasn’t happened in the US?

Ok, regarding money orders and cashier’s checks : I thought these were rock solid.

That is, assuming the check or money order is verified by the numbers on the document as valid, then the institution that issued the check/money order is guaranteeing the money is there.

Like if I go to the store and purchase a money order that says “Western Union” on it, using cash at the register, then the person I give the money order to knows that western union is backing up the transaction (so long as that person has a way to get confirmation from the institution that it isn’t a forgery)

Is this true?

And, for that matter, what are the alternatives? Checks can be bad, but credit card payments eat 3-5% of the transaction off the top, do they not? If you accept cash, it could be counterfeit or you could be robbed of your safe with that day’s cash stash before it gets to the bank.

I guess the question is, out of all 3 common payment methods, what costs you the least as a business owner per transaction?

Cash - how much, as a percentage of each sale, are the armored car fees, the costs of the safe, and the cost of insurance against a robbery going to cost you?

Check - telecheck offers a form of insurance against bad checks, doesn’t it? What does that cost?

Credit card - 3-5% fees gets skimmed from every transaction, right? What about when someone chargebacks, don’t you get screwed there as well?

Pretty much the same here in Canada. The last time I wrote a cheque was in 2010.

I remember buying a buncha traveller cheques for a car trip to California in '95 or something, and what a pain that was signing them all at the purchasing counter in front of the seller. Then I had to sign all the ones I didn’t use all over again back home. Looking back it seems antediluvian.

Now, hardly anyone accepts them. They don’t even know what they are.

Western Union is a relatively well known name. But there are a lot of money order issuers out there that nobody has ever heard of. A lot of them have names designed to remind you of Western Union or American Express but stopping just short of infringing on the trademarks.

I remember one frequent poster hear who recently posted about receiving a money order issued by one of these no-name companies and couldn’t even locate the company.

I also googled “how to verify a Western Union money order” and the only advice I could find was to call Western Union and a few people who tried calling various numbers and couldn’t get through to anybody at Western Union. Maybe someone else can find a number for verifying Western Union money orders that actually works rather than some general corporate headquarters number? Other advice was to take the money order to a seller of WU money orders and try to cash it there. That’s not helpful if you want to decide whether to let a customer walk out of your store with a TV set right now and most businesses are not going to have time for that. I also know of one store that sells WU money orders that has a hand-written sign over the counter that says “We do not cash money orders.”
So it’s certainly non-trivial to verify a money order.

Even if there is some secret way to verify a WU money order, WU cannot tell you if a money order is a forgery without examining the money order. Over the phone they might be able to tell you if they issued a money order with that amount or serial number, but they can’t tell you whether the piece of paper you are holding in your hand is the original, authentic copy of that money order.

Money orders used to be more widely regarded back in the days when you needed a huge expensive printing press to print a fancy document. Now days for a couple hundred bucks, anyone in a third world country can create a money order good enough to fool a store clerk or a bank teller.

A lot of small sellers will still accept a USPS money order because you can take it to the Post Office and cash it (if they have enough money on hand). They poo-poo the possibility that Postal Inspectors will come knocking on their door when it is later discovered that the money order was just a very good copy. Again, most businesses aren’t going to have time for this and most post offices aren’t going to have enough cash at the window at any given time to cash out large money orders.

I will report on an incident that happened a couple decades ago. A friend had what claimed to be a certified check for US$8000. He had some reason for doubting its validity, although he never explained why. He knew I had a US bank account and asked me to try to deposit it. So I did. I mailed it to the bank, accompanied by a letter explaining the circumstance and asked them to try to collect it. They did immediately credit me with an $8000 deposit. About a month later, I got a notice from them that it was uncollectable. There was no penalty. In fact they even credited me with a months interest on that $8000. (This was one of those new NOW accounts that was technically a savings but allowed checks, except they were called Negotiable Orders of Withdrawal–a way of getting around laws that forbade interest paying checking accounts.) My friend explained that for that month, the bank had an extra $8000 to their credit that they could base loans on.

But the bottom line is that yes the bank can come back even after a month if the check is uncollectable.