What is a Third Party Check?

This article provides information about a third party check, and the important points to remember while writing it.
A third party check is double endorsed; it is in the name of one person, but it's cashed or deposited into the account of another. For example, if John has a check from Sam, and he uses it to make a payment to an agency, it can be thought of as a third party check. While writing them, one should be careful, as they can be used for various fraudulent activities.
  • You must have an account with a bank, by which you want to deposit such checks. There are specific policies of each bank regarding them, so it is advisable to know, whether they will be able to cash it in.
  • To encash it, you need to fulfill the criteria of endorsement, i.e. the check should be endorsed over to you. Normally, the payee writes, "payable to" and your name on the back of the check. The signature of the person for whom the check is written, should match the name in the "payable to" section of the check. You have to sign underneath his signature to deposit it in your bank account.
  • Also, instead of writing your name, if you write 'bearer' on the back of the check, it becomes a 'bearer paper'. Thus, anyone who has legal possession of it can deposit or cash it. This is known as 'indorsement', under Section 3-204 of the Uniform Commercial Code in USA.
  • You also need to carry identification like your driving license, or a credit/debit card with your picture on it. Some banks may require a fingerprint scan for further verification.
  • Most of these checks do not get cleared, as depositing them in the ATM boxes does not give any information to the bank, regarding your identification. A third party check is not something that the banks look forward to, so you have to deposit it yourself.
  • If the bank has sufficient funds, it will give you the amount of money that is available in your savings account, and rest of the cash would be given to you when the check is fully cleared. For example, if you are depositing a check worth USD 2000, but you only have USD 1000 in your account, the bank would give you this amount, and a hold will be placed on the remaining money. Otherwise, you will have to wait for around 4-5 business days for the check to get cleared.
Fraudulent activities through such checks cost thousands of dollars to people every year in the United States. Hence, banks do not entertain them, and even if they do, they make sure that the identity of the person is thoroughly ascertained.
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