We have a customer that brings in checks made payable to him from family members and then uses these checks to make loan payments. He does not want to deposit the checks first then make a payment.

My question is, do we have to accept these checks a loan payments or can we require him to deposit them into his account them make the payment?

What does your loan agreement say about you accepting payments?

Maybe I'm misunderstanding. What's the difference (Aside from processing) in terms of how the payments are being made?

Well, you could have a strawman situation, they could be laundering money, etc. Some loan contracts with stipulate payments that are acceptable. I would say unless you loan contract says you will accept third party checks, you are under no obligation to apply them to the loan,