The Onus of “On-Us” Checks BY THEODORE KELLY, JD, MBA, CCEP, Associate General Counsel, Compliance Alliance An “on-us” check is one that is drawn on an account held at the same bank at which it is presented. That is, the bank is both the depository bank and the payor bank. In simple terms, the opposite of an on-us check is a transit check. A transit check is presented at another financial institution and subsequently sent to the payor bank through a clearing process for settlement. On-us checks carry different risks than transit checks, creating distinct responsibilities, particularly regarding wrongful dishonor and funds availability. No federal requirement obliges banks to pay on-us checks “over the counter.” If a non-customer physically presents an on-us check to “Bank of Snow,” there is no explicit requirement for the bank to pay that item (at least from a federal standpoint). Of course, most banks contractually agree to pay duly presented and properly payable items, so refusing an on-us check may incur legal risk from the drawer. That’s not to say the bank is prohibited from dishonoring this type of check for a valid reason, such as insufficient funds in the drawer’s account or failure of the payee to provide reasonable identification; but wrongful dishonor may occur in the absence of a valid reason (UCC 3-501, 3-502 and UCC 4-402). Wrongful dishonor occurs when a bank lacks a valid reason for refusing its obligation to pay an item according to its terms. A bank may be held liable for damages proximately caused by its refusal (UCC 4-402). Further, some states require banks to pay “on-us” checks without regard to whether the payee is a customer (provided the check is properly payable and the payee provides reasonable identification). That is, if the bank would otherwise cash an on-us check for a customer, some states require banks to do the same for non-customers. Further, a bank’s agreement with its customer may not disclaim responsibility for lack of good faith or to limit potential damages. Improper intervention between a customer’s promised payment to another party may evidence a lack of good faith or, worse, increased liability for proximate damages if bad faith can be proved (UCC 4-103). If what has been previously stated isn’t enough to initiate a conversation with bank counsel, my compliance colleagues may want to consider the UDAAP ramifications associated with disparate treatment. Let’s say your bank has a policy of cashing an on-us check for non-customers for $5.00. Simultaneously, the bank requires customers to deposit on-us checks and will only make those funds available according to its Funds Availability Policy. Refusing to pay an on-us check to a customer according to the same terms as a non-customer would likely incur UDAAP risks. For instance, if a customer’s account is overdrawn, but they merely want to cash the on-us check to prevent an offset of those funds, is it “fair” to not provide the same service to customers as the bank does to non-customers? Probably not. A customer could easily endorse the check to a third-party non-customer or deposit it at another financial institution to avoid the bank’s offset of funds. I certainly don’t On-us checks carry different risks than transit checks, creating distinct responsibilities, particularly regarding wrongful dishonor and funds availability. Utah Banker 8
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