Know the rules for cashing checks

Don't take bank regulations for granted

By Gail Liberman and Alan Lavine

PALM BEACH GARDENS, Fla. (MarketWatch) -- We often take the rules for cashing checks for granted. But they may be different than you think.

The issue came up when the male co-author of this column initially was stopped from depositing a check made payable to his mother into her account. He had endorsed it "for deposit only," without his mother's signature.

This marks an example of an innocent mistake by a new bank employee. You typically can write "for deposit only," with no added signature, on a check to be deposited as long as the account-holder is the person to whom the check is made out.

Nevertheless, there may be exceptions to this rule. Mary Kelley, a spokeswoman for Washington Mutual in Seattle, says that at her institution, government checks must be endorsed with a signature. Also, Washington Mutual is not obliged to pay any check more than six months old.

Given today's increasingly fast check-clearing times and growing check fraud, however, the incident pointed out confusion over everyday check cashing.

The words "for deposit only" on a check actually provide an added measure of protection against theft or error, says John McCabe, legal counsel to the National Conference of Commissioners on Uniform State Laws. Key: The account must be in the same name as the person to whom the check is written.

"The rules don't require that you absolutely sign with a signature," McCabe said. The words "for deposit only" can help document your case if the check winds up in the wrong place.

There may be other misconceptions when it comes to cashing checks.

For example, are you post-dating a check for your rent or a mortgage payment? Don't! Your check likely will clear immediately anyway. If there are insufficient funds in your account, expect to get hit with fees.

"Checks no longer are being looked at by human eyes," warns Clayton P. Gillette, professor at New York University School of Law. "No one in the back office is going to post-date a check unless you make a specific arrangement."

Are you writing a check as a wedding gift to your newlywed daughter? If it's made payable to her and her spouse, both spouses must endorse it -- even if her new spouse happens to duck out on the honeymoon. Want either spouse to be able to cash it? You had better make it payable to your daughter or her spouse.

What happens if you get a check for less than you'd like and it's marked "payment in full?" Don't cash it, McCabe says. Contact the check's sender. Communicate clearly in writing that the obligation is not satisfied. The problem: Once you've cashed the check, you may have to prove that you did not accept it as full satisfaction of the debt. You're better off not cashing it in the first place.

Cash and carry

Avoid making a check payable to "Cash." If you do, Gillette says, don't write it out until you get to the teller window. Reason: If you lose it, anyone who comes across it can sign his or her name on the back of the check and cash it.

"This doesn't mean that a thief has the right to keep the check," Gillette stressed. "But if a thief were to negotiate a check to a bank, the bank would have rights prior to yours."

Bank officials might get suspicious under certain circumstances. Business checks, for example, usually are not made out to cash. Nor are third-party checks generally used to pay off loans.

Have you just unearthed a check Aunt Hattie gave you seven months ago for your birthday? You may or may not be able to cash it. Banks often have their own rules on limitations.

"A check usually becomes overdue 90 days after its date," Gillette said. Some checks, he says, actually say on them that they're void after a certain period.

The good news: You are not responsible if a bank cashes one of your checks over a forged signature, Gillette says. That is if you have not been negligent in the maintenance of your checks and diligently review bank statements and report the unauthorized signatures immediately.

Terry Jorde, chairman-elect of the Independent Community Bankers of America in Washington, sees business owners get mad because they can't cash checks payable to their businesses. Rather, a check made out to a business first must be deposited into the business account, stresses Jorde, who is president of CountryBank USA, Cando, N.D.

"The bank has no way of knowing who the business owner is," Jorde explained.

Business bank accounts have authorized account signers, often, including the owner. Still, account signers may only withdraw from the account after the check is deposited.

If a business owner wishes to immediately cash a check made payable to the business and not deposit it, she says, he or she must sign a "hold-harmless" agreement with the bank.