Can we refuse to cash an on-us check for former bad customer? - Ken Golliher

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Can we refuse to cash an on-us check for former bad customer?
by Ken Golliher, BOL Guru
BIO AND CONTACT INFO

Question: Do we have an obligation to cash an on-us check payable to a customer that has a charged-off account with us? We refused to cash the check for him, because he would not allow us to deduct what he owed our bank. However, do we have an obligation to cash the check because of our contract with the drawer of the check?

Answer: Your contract is with the person who wrote the check. If you refuse to cash it when the check is otherwise properly payable and you are certain of the payee's identity, that's wrongful dishonor. That much is certain.

Your approach appears to be: We are not refusing to cash the check, as long as we get part of the proceeds. The answer as to whether that works depends totally on the on whether the payee calls the customer to complain. Think through how you are going to explain your refusal to the person who wrote the check without saying more than you have a right to say. (The last time a banker called me with this question the party who wrote the check was very angry when told the bank had "refused" to cash the check, but the payee was the customer's former spouse - difficult conversation no matter what.)

How you handle this depends entirely on the amount of brass and finesse your frontline personnel have.

First published on BankersOnline.com 8/18/03

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