Scenario:
A customer does an online bill payment. His account is debited immediately and the bank sends a paper check to the payee.

The payee determines that the payment was made in error, they therefore do not endorse the check, but they do write "void" on it and return it to the customer.

The customer comes into a branch with the check and wants to endorse it as "not used for purpose intended" to cash it and recover the funds (which have already been debited from his account at the time of the online banking transaction).

The customer feels that he is in fact the original "holder" of the check and he is therefore entitled to cancel the void as he would be entitled to cancel an intermediate endorsement.

The bank's position is that:
a) The fact that the check is marked "void" renders it unuseable.
b) The "not used for purpose intended" endorsement is only applicable to cashier's checks, certified checks, or money orders

Should the customer be allowed to endorse and cash this check? Would the situation be different had it not been marked "void" by the payee?

Thanks for comments,

-jim-

I'm not an expert in some of the more technical issues of negotiable instruments, but it seems to me that the customer should be able to recover the money. Otherwise, who's enjoying the use of these funds?

It's scenario's such as this that will spell disaster for OnLine Bill Pay that is set up in this matter. Too many things can go wrong. If I were this customer, I would be steaming mad if the money was sucked out of my account, not applied to the bill I was paying, and then I couldn't get it back.

I know more and more people are using "Reverse Bill Pay" where you go to the Payee's sight and initiate a Bill Pay from their site directly out of your bank account. The money gets credited right away, and no more of these silly "Orphan checks" floating around the ether.

Do you really neeed to negoiate the check to give the customer his money back?

I had a similar experience recently with a check I had issued through online bill pay-issued to my daughter and she lost it. I inquired what to do, and here is what my bank in NYC told me:

"Official bank checks are used for bill payments issued by check, therefore we must allow 10 business days before placing a stop. After the 10 business days, a stop can be placed with a request for either a re-credit to your account or a re-issue of the payment. Re-issued bill payments are sent to the payee with a letter of explanation showing the original date of issue along with a request to waive late fees and avoid negative impact on your account. Please be sure to verify the account information, i.e. payee name, address, account number, etc., to help insure proper credit."

I had to report an "online bill payment problem", not a request for stop payment and advise if I wanted the check re-issued or recredited to my account. I requested it be recredited and it did show up fairly quickly in my account.

Jim -

Right, wrong or otherwise, we have done this on several occassions. Because the bill pay check is drawn on our bill pay provider and not on the bank, the check is required. We credit the customer as a deposit to their account, then put the check through our work, which causes us to be credited for it. Seems to have worked so far and the customer is happy because they don't have to go through any kind of hoopla and three days of waiting to get their funds back.