Dishonoring a check occurs when a bank refuses to allow the payee of a check to exchange or deposit a check for money. In most cases checks can be cashed or deposited with no problems as there are a few reasons why a bank would deny accepting a check, however a bank dishonoring a check can happen depending on circumstances.
With electronic banking many of the issues that have traditionally been associated with dishonored checks has been effectively eliminated, some of the problems still do still exist. There are instances where banks will refuse to honor a check, and as a result, will not cash it in exchange for money.
Here are a few of the top reasons why a bank might dishonor and refuse to accept a check:
• Insufficient funds
One of the most common reasons why banks dishonor checks is due to insufficient funds. What this means is there is not enough available money in the account the check was drawn on to cover the amount written on the check. A bank will sometimes cover a check with insufficient funds if there is protection or another agreement with the checking account owner, but in cases where there is no coverage of bounced checks, the check will likely be denied.
However it is important to know that knowingly writing a bad check is considered an offense and often can be pursued either criminally or civilly. In instances of intentional fraud through passing bad checks, legal action may be taken.
• Account has been closed
If the account has been closed between the time when the check had been written and the time the payee decides to cash the check, the bank will not accept the check since there are no available funds to cover the amount written on the check. Most of the time an account is closed because the person who wrote the check either switched banks or closed the account for another reason, whatever reason the account no longer exists, any outstanding checks written against the account are not going to be honored.
• Payment has been stopped
Banks will not accept checks that have had a stop payment order issued on them. What this means is that the person who wrote the check has revoked authorization for the check to be cashed. There are usually fees associated with stop orders so people who do place a stop order on a check typically have a good reason to do so.
• Check is too old
Many checks, especially those issued by businesses or other agencies, often include an expiration date. The allotted time a check is valid is set by the check issuer and if tried to be cashed after determined date, the check will be dishonored.
• Missing endorsement
In order to be cashed, checks have to be properly endorsed. If a valid signature or directive is not written on the back of the check, the bank will return the check and will only accept it for redeposit after it has been correctly endorsed.
Have you ever gone to the bank and been asked for I.D.? This is done to ensure that the person cashing the check matches the name and endorsement and that the document isn't being forged.
Another form of forgery is when someone writes out a check and signs their name to authorize the check to be cashed. If an attempt is made and discovered as fraud through forgery, the check will not be processed.
• Reported lost or stolen
A check reported as lost or stolen are going to be rejected by the bank if an attempt is made to cash it.
These are some of the more common reasons why a bank would dishonor a check if an attempt was made to cash or deposit it. If you ever run into a situation where a bank dishonors a check, in many instances you can redeposit the check if the original problem has been corrected.