Electronic Deposit of Checks – Tips to Avoid Problems3/10/2017 | By: Jay L. Hack, Esq. | GDB 2017 Spring Newsletter
The good old fashioned paper check as a method of paying bills may be on life support, but according to the Federal Reserve, there were still 5.5 billion paper checks, worth over $8.1 TRILLION, in the United States in 2015. If you are a pre-millennial, you probably still write a few checks every month, and your business probably still pays most of its debts by paper check. With the ease of using a smart phone to deposit checks as electronic images, you may ask yourself, “What stops the recipient (known legally as the payee) from photographing my check twice and depositing it twice?”
Nothing stops the payee from depositing the check twice. But your bank shouldn’t pay it twice, and if the bank does, it must return the money to you so long as you let it know what happened promptly. Under state and federal law, your bank should pay each check you write only once.
Suppose that you pay the person who cleaned your gutters with a check written on your account at Citibank. He deposits it into his accounts at both Signature and Chase, both times using an electronic deposit app on his smart phone. The “checks” will eventually make it to Citibank for payment (known as presentment). The check that is presented first will be paid, and the second presentment should bounce.
What if Citibank pays both? You need to review your account statement promptly to make sure they didn’t. If you see that a check was paid twice, then you must notify Citibank. You are entitled to get the money recredited to your account quickly. If the double deduction causes other checks to bounce, your bank may be liable for all damages directly caused by the wrongful bouncing of the check.
Does the first check to be presented always win the race? Not necessarily. It depends on a number of things, principally whether there are two electronic deposits or one paper deposit and one electronic deposit. You don’t care so long as the check is only paid once.
To avoid problems with checks you write, we recommend that you follow these procedures:
- Review your bank account statements every month to make sure that no checks were paid twice. If you find any problems, notify your bank immediately.
- If you do not buy your printed checks directly from your bank, make sure that the checks are printed by a reputable company, and that they include all the information that your bank requires, especially including your account number and the check number on the bottom line. You want to make sure that your check can be processed automatically and your bank has the data that it needs to reject any duplicate presentment.
What if you are the one who deposits a check using your smart phone? Make sure that you keep the original in a secure place. We recommend against destroying it because, although unlikely, you may need the original. You should also check your bank account to confirm that your electronic deposit was credited to your account. If your bank did not do so, notify it immediately and be happy that you kept the paper check.
There is one major disadvantage when you deposit a check using your phone instead of in person at a bank. Smart phone deposits do not have the benefit of the federal law that requires banks to make deposited funds available to you quickly. Although some authors disagree with this conclusion, we have confirmed our analysis in direct communications with the Federal Reserve. Your bank can hold the electronic deposit for as long as it wants, within reason. The Fed has been working on proposed changes to these rules on electronic deposits for more than 5 years, but the law continues to play catch up as technology marches forward.