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#3152 - 07/24/01 04:43 AM Check Cashing Businesses
Anonymous
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I'm trying to find out what liability the bank has when our customer a check cashing business cashes checks payable to other businesses?

Can anyone tell me where I can find information that addresses this?

Thanks
Joelene


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General Discussion
#3153 - 07/23/01 06:19 PM Re: Check Cashing Businesses
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
In order to be properly negotiable, the checks would have to be endorsed by the first business payable to the second business. The problem with that is verifying that the individuals that endorsed the check for the first business are legitimately authorized to do so. Sounds like risky business to me.
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#3154 - 07/24/01 03:33 PM Re: Check Cashing Businesses
Anonymous
Unregistered

We are looking at first endorsements, however as you stated there is no way to be sure they are genuine.

I am trying to find out where it addresses cashing checks payable to businesses. In h eold days we used to tell customer sit was an IRS rule. I'm not sure if that was fact, or it sounded good.


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#3155 - 07/25/01 04:02 AM Re: Check Cashing Businesses
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
There is no rule against cashing checks made payable to a business, but you have to make sure that you have the proper corporate resolutions supporting that activity. Most businesses (and standard corporate resolutions) only authorize the opening of accounts, writing of checks, and making deposits. You can find the rules regarding endorsements and liabilities in UCC 3, part 2 and part 4. In order to ensure that the individuals from the first business are authorized to sign over a check to the second business, you would technically have to have a copy of a corporate resolution from the first business to ensure that the business has granted them the right to do so. I would almost say that the best way to collect an item like this is to send it on collection, unless you have a very strong business relationship with the second business and then I would only let them deposit them and not cash them.
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#3156 - 07/24/01 07:17 PM Re: Check Cashing Businesses
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
Within the bank, we advise against cashing checks payable to our business customers as this is a way to conceal business income. When you receive a subpoena for "all cash paid checks" you will know why I recommend against this practice.

Dolly Nugent
VP/Compliance Officer
Citizens Business Bank

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#3157 - 07/24/01 10:31 PM Re: Check Cashing Businesses
SMQ, CRCM Offline
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SMQ, CRCM
Joined: Apr 2001
Posts: 4,828
Between the lines
Joelene, your question stated that your customer is the check cashing business. Since the bank would have to send a problem check back to its customer (the check cashing store) who in turn will be looking to the bank because everyone always looks to the bank --- I would refuse to accept these checks.

Somewhere I read that the business can not prove that they benefitted from the funds unless they deposit them in their own account; makes sense to me.

Also, there is a very real risk that an employee or ex-employee stole the checks and it's alot easier to cash them at the "Check Casher" than at the bank. But then our bank is especially cautious in dealing with these types of customers.

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#3158 - 07/24/01 11:58 PM Re: Check Cashing Businesses
Dolly Nugent Offline
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Dolly Nugent
Joined: Nov 2000
Posts: 1,820
Southern California
I guess I should have made my point a little differently. We advise against cashing checks at the bank because it is a way to conceal business income. Prudent business people deposit all business income into their deposit account SO THEY HAVE A RECORD. If your customer is being used by a third party that is concealing business income your bank is connected to illegal activity - tax evasion.

Personally, I would not permit this activity. If you continue to do so, you may have to determine if an SAR is warranted.

The moral of the story is that your customer may be okay, but their business may be used by those that have the need to launder money. These types of customers need more scrutiny than others. Check cashers fall into this category.

Dolly Nugent
Vice President
Compliance & CRA Officer
Citizens Business Bank

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Dolly Nugent
CRCM
Opinions expressed are my own.

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