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 Interesting Experience at the Bank (cont.)

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yardstick Posted - 28 Jul 2009 : 01:21:49
Continued from this thread:

I was thinking about the practice I have adopted, of having all drafts which are given to me in exchange for labor I have provided, made payable to "Bearer", rather than a legal name.

By doing so, I transform the draft into a negotiable instrument, which can be used (theoreticlly) like cash. That is to say, I can take the draft and give it to someone else in payment for a product or service (again, theoretically). How does this work?

Well, according to the UCC, if a draft is made payable to "Bearer", anyone can negotiate the draft. That is to say, whoever the bearer is, can negotiate the draft.

The purpose of indorsement is to deflect liability away from the bank, and back onto the account holder who is cashing/depositing the draft.

While thinking about this, I pondered why a bank would charge a fee to cash a check that was not drawn on that bank?

The simple answer (occam's razor) is that they need to recoup the cost of processing a draft that was not drawn on their bank. This makes sense. It costs the bank money (labor hours) to process the draft.

Well, why do they charge a fee for cashing a check/draft that is drawn on their bank?

Answer: To standardize the fee charging practice. Drafts which are dishonored; and which are drawn against the bank they are cashed at can be pursued against the account holder.

ALL checks cashed at the bank, by non account holders are charged the fee; notwithstanding that the face of the draft states specifically that the bank is ordered to pay the value written on the face of the draft. Hence, I like Lewish's idea of asking the bank if they think the account holder will be upset when the account holder gets charged the fee?

It makes sense for a bank to refuse to cash a check that is not drawn upon that bank without charging a fee. Thus, it forces the payee to take the draft back to the bank it is drawn upon to negotiate it. This prevents fraud and is good.

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