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Question & Answer
Question: We have a customer who came in and cashed an insurance check. It was payable to him, and he has an account with us. The check has come back "payment stopped". Can we charge the returned check to his account?
Answer: The right of set-off varies from state to state. But both attorneys I spoke to asked me the same questions.
Did your customer endorse the check? If so, he assumes the endorser's liability. You might not charge his account, but you certainly have a right to look for him to reimbursement-perhaps through legal channels.
What do your customer agreement, customer contract, rules and regulations say your rights are? The customer signed this when he/she opened the account. If your attorneys were on the ball when they drew up the agreement, it will be stated right in there that you have the right to "…charge any account belonging to you…", etc.
Of course, the safest way to handle this was to have the customer deposit the check into the account and then immediately draw out the funds. Then there is no question of whether or not you can charge back a returned item.
Copyright © 1992 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 3, No. 7, 12/92
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