Americans have become accustomed to believing that the gold standard for banking transactions is a bank check. The issuing bank guarantees that the check is as good as cash. Right? Wrong.
Let’s say that your Grandma died last week and you’re selling her wedding ring on e-bay. A prospective buyer may offer to pay you with a bank check, which is a form of a cashier’s check. Sounds great. After all, it’s the BANK’s check. Once you deposit the check in your account, the money will be yours the next day because your bank (the depositing bank), must make the money available to you on the first business day after you deposit the check. That’s the law, as the Expedited Funds Availability Act (12 CFR 229.10) assures next day availability. What most people don’t know is that when your bank makes the money available, it is only making a “provisional settlement,” because the depository bank has not yet collected the funds from the drawee bank, from which the check was drawn. Your bank acts as your agent to process the check and must wait for the issuing bank to transfer the funds, before the money is really yours. If the check is fraudulent because it was printed by a Nigerian con artist, then the “drawee bank” either does not exist or the account is a fake. When the check is dishonored your bank will charge you back and deduct the money from your account. If you’ve spent the money or, God forbid, wired some of it back to the con artist to refund him for his overpayment, he’ll have the jewelry, your money and “your goat.” He’ll sell the diamond on the black market, use your money to run another scam and give the goat to his family for milking. Even worse, the bank will sue you to retrieve its money.
How is this possible? The check is no good, so the drawee bank won’t honor it. But, you might say, “the teller told me that I could take the money the next day!” Your bank won’t take the loss, because the Uniform Commercial Code (UCC) gives the depository bank the right of “charge back” when the check is fraudulent, even if your bank screws up and the teller misled you. Under the UCC, your bank still has the right of charge back even if it “fail(s) . . . to exercise ordinary care with respect to the item.” (See U.C.C. § 4-214(d)(1)).
Bankers will argue that this is a fair process, as our monetary system demands speedy transactions. If the public wants quick access to their money, there’s a price to be paid. They will also argue that the great majority of check transactions are not fraudulent. Still, bank check fraud is a serious issue if you are the victim.
Unfortunately, there is a hierarchy in the legal pantheon which is best illustrated by analogy to a pyramid. At the base of the pyramid are local ordinances and regulations. On the next rung up the pyramid are the laws of the individual states. On top of that you’ll find our system of Federal Constitutional Law. Superimpose on top of the Constitution, God’s laws and commandments. Then at the very top of the pyramid are the banking rules and regulations.