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Cashing Government Checks

By Blair Rugh 17 Feb 2016

This time of the year, when the IRS is beginning to issue tax refund checks, we are always asked whether a bank or credit union is required to cash a government check for a non-customer. The answer is no. A depository institution, with one exception, is never required to cash a check regardless of the dignity of the check. It doesn’t matter whether the check is payable to a customer or a non-customer. If the check is payable to a customer, the institution may require that the check be deposited into the customer’s account and then ultimately pay the check in accordance with its funds availability policy.  If the check is payable to a person who is not the institution’s customer, the institution may refuse the transaction.


The one exception is a cashier’s check that the institution has written and the payee is presenting the check for payment. The institution may require the person to present identification demonstrating that the person is the payee of the check, but if that is done, the institution has a contractual obligation to pay the check. The institution has made a contractual obligation to pay the check to the order of the payee.


While on the subject of accepting checks, remember to be cautious about handling items that are not checks. A check, as defined by Regulation CC, is an item drawn on a U.S. bank (which includes insured credit unions) in U.S. funds. An item, even if it is denominated in U.S. dollars, is not a check if it is drawn on a foreign bank. For example, an item drawn on the Royal Bank of Canada is not a check even if it is denominated in U.S. dollars. Many foreign countries have far different return requirements than U.S. institutions do. A check drawn on a bank in a foreign country may be returned weeks after it was presented to the foreign bank depending on the applicable local laws. Therefore, whenever an institution receives for deposit an item that is not a check as defined by Regulation CC, the institution should always take the item as a collection item and pay the account when it is actually collected.


On a totally different subject, the Consumer Financial Protection Bureau over the last few months has published a plethora of articles on various topics of consumer education. I guess education is a form of consumer protection, but what the CFPB is doing seems a far cry from what we would expect our tax dollars to be used for. The CFPBʼs advice has ranged from how to manage a checking account to how to select a financial advisor to when to begin collecting social security to how to use your credit card at Christmas time. Most of the CFPBʼs advice is pretty inane and common sense. For example, on managing your checking account, it recommends that you balance your account, check the balance occasionally and don’t write items that would overdraw the account. On using your credit card at Christmas time, the CFPBʼs advice is do not spend more than you can afford. Huh? Maybe it should give its advice to Congress and the President.

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