Banking Basics
Bank of America building

Top reasons why a bank might refuse to accept a check



Bank of America building
Leigh Goessl's image for:
"Top reasons why a bank might refuse to accept a check"
Caption: Bank of America building
Location: New York, N.Y.
Image by: Leigh Goessl
© All rights reserved 

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 is possible depending on the circumstances.

With electronic banking, many of the issues that have traditionally been associated with dishonored checks have been effectively eliminated. However, some of the problems still do still exist. There are instances where banks will refuse to honor a check, and as a result, the individual cannot cash it and receive the 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 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. For instance, the Bank of America [PDF] has a specific policy related to closed accounts and check cashing.

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 the reason for the account no longer existing, any outstanding checks written against the account are not going to be honored.

Payment has been stopped or check is too old

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.

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 an attempt to cash the check occurs after the determined date, the check will be dishonored. Other times, a bank may say an aged check is not on record, as what happened in a Florida man's situation when he went to cash out cashier's checks he'd bought 30 years earlier. By that time, the banks had been bought out by other banks, twice, and the issue ended up in a court case.

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. 

Forgery, lost or stolen

Have you ever gone to the bank and been asked for identification? 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. Additionally, if a check is reported as lost or stolen, it is 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; there are also other situations when this happens. 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.

 

More about this author: Leigh Goessl