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#1424144 - 08/04/10 04:44 PM
"Stop" on cashier's checks
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I know we can't technically place a stop on a cashier's check. I am trying to understand a few things. I haven't dealt with this for awhile.
Our instituion uses an affidavit of loss and indemnity agreement for the claimant.
If the claimant utilizes this, we are ok to reissue the check, correct?
What if we didn't have the affidavit from the claimant and the check was not honored at presentment? Would this be a case of wrongful dishonor?
How does the 90 day waiting period play into all this as well. I need refreshing.
Thanks
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#1424171 - 08/04/10 05:24 PM
Re: "Stop" on cashier's checks
nbk2yj2
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Illinois
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If Florida uses the model language of the Uniform Commercial Code, a financial institution is obligated to honor a Cashier's Check that is presented for payment within 90 days of its issuance. The affidavit simply states that the the person making the claim has agreed to hold the bank harmless if it dishonors the check.
Senario: Claimant claims lost check and files your affidavit 30 days after date of issuance, and you decide to be nice and give them a new check today. However, customer lies about losing the check and cashes the original at a currency exchange. Original check is presented and the bank returns it based on the customer's affidavit. Currency Exchange becomes holder in due course and can sue the bank for dishonoring the check, and the bank has no choice but to take the loss.
An affidavit from your customer will not save you from other parties who have an interest in the check prior to 90 days. These include the payee of the check or a holder in due course who accepted the item in good faith.
If your customer presses you on the 90 days rule, they can purcahse an "indemity bond" which would cover any loss the bank sustains for paying a claim prior to 90 days. This would be at the customer's expense and may or may not be worth it to them depending on the size of the check.
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#1424187 - 08/04/10 05:38 PM
Re: "Stop" on cashier's checks
BrianC
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So the only feasible way we should re-issue or credit the claimant before 90 days is to ensure there is an indemnity bond purchased by the claimant to cover our possible loss, correct?
Do most FI utilize the affidavit and the requirement of the purchase of an indemnity bond if they are going to re-issue before 90 days?
Last edited by nbk2yj2; 08/04/10 06:01 PM.
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#1424297 - 08/04/10 07:30 PM
Re: "Stop" on cashier's checks
nbk2yj2
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#1424308 - 08/04/10 07:35 PM
Re: "Stop" on cashier's checks
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#1425377 - 08/06/10 04:36 PM
Re: "Stop" on cashier's checks
BrianC
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Do you know what determines the cost of the indemnity bond and where would the customer go to purchase, certain insurance companies?
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#1425424 - 08/06/10 05:33 PM
Re: "Stop" on cashier's checks
nbk2yj2
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From what I've been told, generally the customer would need to go to his own insurance agent, endure some head scratching and a couple inquiring phone calls to the home office, and then be quoted a premium that is flatly prohibitive.
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#1425624 - 08/06/10 08:15 PM
Re: "Stop" on cashier's checks
nbk2yj2
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Harking back to the first post in the thread, and indemnity agreement isn't worth much if your customer isn't able to pay up if you have to call him on it. It's the equivalent of an unsecured note. You accept and act on it at your peril, and you should do so only if you would be willing to lend this customer the same amount of money on nothing more than his signature.
An indemnity bond, on the other hand, is a form of financial guarantee from an insurance company or other bonding agent, which exacts a substantial pound of flesh (they politely call it a premium, service fee, bonding fee or some other innocuous name) in exchange for assuming the risk that your customer has misstated the facts or that the check has otherwise turned up and you've had to pay it.
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#1425708 - 08/06/10 09:11 PM
Re: "Stop" on cashier's checks
John Burnett
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Thanks John for your insight.
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#1425737 - 08/06/10 10:05 PM
Re: "Stop" on cashier's checks
nbk2yj2
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Thinking about this, i would say if the remitter and the payee are both willing to sign the declaration of loss there is much less risk to the bank if the bank decides to re-issue before the 90 days.
Thoughts?
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#1425740 - 08/06/10 10:10 PM
Re: "Stop" on cashier's checks
nbk2yj2
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Only if you believe that you could collect from either one of them.
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#1425762 - 08/07/10 01:35 PM
Re: "Stop" on cashier's checks
nbk2yj2
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Please read the declaration of loss form you are using. Those I've seen are driven by waiting 90 days. It is possible that you will render the form meaningless by issuing a replacement check prior to then. Prior to the expiration of the 90 days your options are an indemnification agreement or an indemnification bond as John has distinguished them above.
As for getting both the remitter and the payee to sign a separate declaration of loss in any circumstance, I don't think you could get both of them to do it if they understand what they are doing.
If I owe rlcarey, $3000 and give him your official check in payment and then he loses it I will not sign the declaration. I owed him. I paid him. I'm done.
In the same situation, if I mail him the check and he never receives it, he won't sign the declaration. His perspective would be that I owe him $3000 and I need to pay him. He has no reason to accept any liability, contingent or otherwise in order to collect what he is owed from me.
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In this world you must be oh so smart or oh so pleasant. Well, for years I was smart. I recommend pleasant.
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#1425825 - 08/09/10 01:10 PM
Re: "Stop" on cashier's checks
Elwood P. Dowd
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The declaration of loss we are using makes no mention of the 90 days. It is a declaration of loss and indemnity agreement all in one. I see your point regarding the remitter and payee both signing the declaration. So really the claimant is the one who had possesion of the check and it was lost or stolen under their possession, correct?
Ken, you say the options are either an indemnification agreement OR indemnity bond, wouldn't it be good to have both in place? The indemnity agreement would protect us from wrongful dishonor claim from the claimant and the indemnity bond would protect us against possible loss from a dishonest claimant and other interested parties.
Sorry for all the questions, i just want to be really sure of what i need to know and i am NOT the expert.
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