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Question & Answer
Question: What is "reasonable cause" for determining that a check may not be paid? And, more important, how do we disclose this to the customer? We are particularly concerned when we have reason to doubt collectability because the check is written on an account with our bank and it frequently has insufficient funds.
Answer: This is a tough one. The regulation does specifically require that you give the consumer an explanation when you place a hold, but sometimes that reason will relate to the person who wrote the check. We get into issues of violating a customer's privacy if we explain to another customer that we are placing a hold on the deposited check because the drawer of the check, another customer of ours, has a habit of bouncing checks and doesn't have funds in his account right now.
Remember that there are other ways around this. First, you can place a local or non-local hold on the check. That could buy you enough time. If the drawer of the check is your customer, you can bounce the check overnight and return it for insufficient funds. There is also always the option to send it for collection. There's more than one way to skin a cat!
Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 13 & 14, 11/99
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