States Have Acted Against Check Processing Order

Banks should pay attention to what their state regulators have to say about the order in which checks are processed because several states have come out with policies or rules that address this issue.

Federal law allows banks to process checks in any order they choose. However, consumer groups have come out against this freedom because of a practice by some banks of processing larger checks first. They claim that banks would do so only to generate bounced check revenues. Banks, however, counter that many consumers want their big checks, such as mortgage and automobile payments, to clear first.New York passed a regulation in 1999 that requires financial institutions in that state to spell out what their policy is both when a customer opens an account or when the policy is changed. California has called the practice of clearing large checks first an example of "bad faith" on the part of banks, and Nevada law requires that when multiple checks are being cleared from the same account in the same day and not enough funds are available, banks must clear them in ascending order.

Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 13, No. 12, 2/04