Cashier’s Check – Definition

Cite this article as:"Cashier’s Check – Definition," in The Business Professor, updated March 9, 2019, last accessed October 27, 2020, https://thebusinessprofessor.com/lesson/cashiers-check-definition/.

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Cashier’s Check Definition

Also referred to as a money order, a cashier’s check offers a secure means of transferring funds. It works in a similar manner as a check, but offers additional guarantee while also reducing the risk of the payor’s default.

A Little More on What is a Cashier’s Check

In order to get a cashier’s check, the party sending the money is expected to talk to the bank rather than issue the check from a personal checkbook. The party is also expected to have adequate funds in order to cover the cashier’s check in his/her bank account. The bank is expected to draw a check paid to the recipient who can then cash or deposit the check in any bank. Cashier’s check has several advantages compared to personal checks. First, it does not bounce; the payer cannot cancel the check or withdraw the funds before the check is paid. The reduced risk makes the check a more valuable tool in business transactions.

Most banks and credit unions have the option of cashier’s check. To get one, follow the steps below:

  1. Prepare the exact amount, the name of the recipient, and personal identification before requesting for the check. Cashier’s check is always drawn from the funds of a financial institution, but the check amount is supplied to the bank ahead of time. It is important to name the “payee” since a blank cashier’s check is never issued. It is also necessary to put ready the ID as the teller will probably need it.
  2. Go to the nearby bank’s branch and request the cashier’s check from the teller. Most banks use this as the procedure of getting a cashier’s check. However, some banks may make other methods available including calling an online message to their customer support team. In such cases, the cashier’s check would then be mailed to the recipient (payee) although the process would take longer. If the check is needed on the same day, it is important to visit a brank of your bank or a credit union which accepts non-members.
  3. Pay the amount of the check and additional fees required. If the check issuer has funds in the account at the institution, then the full amount of the check will be withdrawn once the check is issued or frozen in the account of the paper. It is necessary to have enough funds in the account to make any additional payments incurred from extra fees.
  4. Get a receipt. Once the cashier’s check is processed, ask for the proof of payment. This might be needed for tracking the check.

Individuals who do not have checking account at a bank or credit union need to open one since these are the only institutions that can issue cashier’s check. While some of the institutions may offer such checks to non-members, they are never obligated to provide them to those who are not customers. If opening an account with a bank is not possible, one may consider the option of money order.

Note that a cashier’s check is different from a money order or a certified check. The latter is a personal check that is written by a bank customer and is usually drawn on the customer’s account. The bank approves the certified check by confirming that the signature is genuine and that the customer has sufficient funds to cover the check by the time it is issued.

Money orders refer to prepaid payment which is restricted by a maximum amount. For instance, the US Postal Service has set a limit of $1,000 for all money order purchases. Unlike cashier’s check, money orders are not backed by financial institutions since they are always paid in advance using either cash or a debit card.

Fees on cashier’s check always vary based on financial institutions. For instance, credit unions may have $5 less charge while bigger banks may have an extra charge of $5. Some institutions may also charge only a percentage of the amount of check. Information about related policies and fees charged can always be accessed on the websites of most institutions.

Advantages of cashier’s check

  •         Cashier’s checks have zero risk of bouncing.
  •         The settlement of the checks is always faster than using a personal check/
  •         Cashier’s check can be cashed only by the payee; this lowers risk of theft.

Disadvantages of cashier’s check

  •         A cashier’s check incurs fee.
  •         Individuals can use forged cashier’s check to defraud others.

There are a few drawbacks associated with cashier’s check. First, they can be relatively expensive. Consider the case of Bank of America and Wells Fargo that both charge a fee of $10 when issuing a cashier’s check. This cost is always incurred by customers who are always having checking accounts or who have opened savings account.

Another issue of concern is fraud. The Office of the Comptroller of the Currency (OCC) warned that cashier’s check has become an opportunity of defrauding people money and goods.

Other recognized scams include ordering goods using a fraudulent cashier’s check, or sending a phony check for goods that are above the purchasing price and requesting the merchant to wire the remaining funds to someone else.

In another case, a fraudster may inform people that they have won a prize then claim a tax is due. The scammer may then claim that he/she will cover the tax using a cashier’s check and asks that the “winner” deposits it to the account and send the payment to a third party.

A merchant or the person receiving money typically bears much of the fraud risk associated with any form of payment. Occasionally, by the time the fraudulent act is discovered, the recipient of the check who has lost the money.

Losing cashier’s check

In case you lose a cashier’s check before sending it, then you should not be worried; you can always get a replacement without extra work.

According to the OCC, one requires an indemnity bond for the amount of the lost check. Once this bond is available, it can be taken to the bank who will then release the alternative check. Unfortunately, getting an indemnity bond may be challenging; insurance companies sell the bonds and it is always easier if one goes to an insurance broker to help with the process. Once the bond is available, it would take 30 to 90 days to get the replacement check.

References for Cashier’s Check

Academic Research for Cashier’s Check

  • Stop Payment of Cashier’s Checks and Bank Drafts Under the Uniform Commercial Code, Benson, D. J. (1974). Ohio NUL Rev., 2, 445. This article explores the nature of a cashier’s check including its payment and withdrawal positions based on the Uniform Commercial Code (UCC). The author reviews the treatment of the check in accordance with UCC and separately defines this type of check and bank drafts. In details, the author highlights the major contents of a cashier’s check including the name of the issuer, the payee, and other important details.
  • Negotiable Instruments: The Bank Customer’s Ability to Prevent Payment on Various Forms of Checks, Wallach, G. (1978). Ind. L. Rev., 11, 579. This article explores different types of checks including personal checks, cashier’s check, certified checks, and traveler’s checks. The author explains the necessary requirements that must be adhered to for an individual to purchase a check. In addition, the author discusses how a personal check can be stopped at any time before the actual payment is done. The UCC cord is further defined in regard to regulation of cashier’s check withdrawal.
  • Failure of Consideration Is Not a Defense to a Bank’s Refusal to Pay a Cashier’s Check: Revised UCC Sec. 3-411 (c), Landy, D. J. (1998). Banking LJ, 115, 92. This article illustrates how the revised section 3-411 operates in line with cashier’s check and further explains whether an issuing financial institution may refuse to pay the check. It also explains the circumstances under which such occurrences (refusal to pay cashier’s check) may occur.
  • Commercial Paper, Bank Deposits and Collections, and Commercial Electronic Fund Transfers, Miller, F. H., Ballen, R. G., Devenport, W. B., & Vergari, J. V. (1986). Bus. Law., 42, 1269. This article defines several check concepts including commercial paper, bank deposits and collection, and commercial electronic fund transfers. The authors discuss the latest update of the current crop of cases around the Federal Reserve and the payment system. It explores the revised UCC document, including articles 3 and 4and the proposed article 4A which deals with commercial electronic fund transfers.
  • Check Handling Under Article Four of the Uniform Commercial Code, Leary Jr, F. (1965). Marq. L. Rev., 49, 331. This article explains the key concepts of a bank check and how to handle such checks under article 4 of UCC. It also explains the circumstances under which a cashier’s check may be denied by a bank.
  • Commercial Paper: The Rights of a Remitter of a Negotiable Instrument, Tobin, J. E. (1966). BC Indus. & Com. L. Rev., 8, 260. This article explains the existing circumstantial difference in which different types of checks are issued. This includes the coverage of cashier’s check, traveler’s check, bank draft, personal money order, and postal money order. According to the article, the purchaser any of these checks is usually referred to as the remitter and his rights are outlined in the UCC. The drawer of the check is usually the creditor of the drawee bank, and his check is an order of the bank to pay certain amount to a designated person.

The Bank-Customer Relationship: Evolution of a Modern Form, Harrell, A. C. (1986). Okla. City UL Rev., 11, 641.  This article explores the transformation of bank-customer relationship over time. Traditionally, the author notes, the relationship between banks and their customers has always been contractual and is always governed by the common law contract and debtor-creditor law. However, it is believed that over time, there has been a shift in this relationship, particularly as a result of the modern case law. The article, thus, reviews several examples of phenomena that may reflect the transformation of customer-bank relationship.

Exploring the Role of Digital Currency in the Retail Payments System, Gladstone, J. A. (1996). New Eng. L. Rev., 31, 1193.  According to the author of this article, advanced telecommunication and computer technology have been moving billions of dollars across the world. The society has been relying on electronic retail payments as a result of this change, with improved payment transactions which are transparent, convenient, and secure for merchants and customers. This paper, therefore, analyses the retail electronic payment systems and the key issues raised in creating payment efficiency. The article also defines digital currency and clarifies its relationship with other forms of payment. Further the obligations of digital currency payment have also been described.

Commercial Paper-Stringfellow v. First American National Bank: The Liquidity of a Cashier’s Check in Tennessee, McAdory, B. D. (1995). U. Mem. L. Rev., 26, 343.  In the context of Tennessee, this paper describes the liquidity of a cashier’s check. The author illustrates the concept of liquidity using the case of Stringfellow v. First American National Bank which was held in 1982. The author deduces from the case that a customer is able to place a stop-payment order with his bank on a check that is withdrawn on his account as long as the order is received in time to give the bank a reasonable opportunity to act on the demand.

Cashier’s Checks, Certified Checks, and True Cash Equivalence, Shupack, P. M. (1984). Cardozo L. Rev., 6, 467. This article describes the conditions under which different checks are issued including cashier’s check, certified check, and true cash equivalence. According to the author, circumstances may arise in which the person who already made a check payment will attempt to withdraw the payment. This may be possible under the law and partial accommodation can be made by banking institutions to enable such transactions. Thus, the author discusses the circumstances under which such authorizations can be made.

Cashier’s Checks and the Bank’s Right to Deny Payment, Norwood, J. M. (1991).  Banking LJ, 108, 476. This article covers a survey of the leading state court decisions on nonpayment of cashier’s checks and concludes with a discussion of how the proposed revision of article 3 and 4 of the Uniform Commercial Code can affect the controversial issue.

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