Stop Payment on Checks Cashed: Who's Responsible?

Many check cashing businesses take checks as long as the check holder can provide proper identification and the check is deemed authentic. However, if the bank or check issuer decides to issue a stop payment on a check that was cashed at a check cashing business, it causes complications. The check cashing business is the party who loses money when this occurs. Determining who is ultimately liable can turn out to be a sticky situation for all parties involved.

Check Cashing Services

A check cashing business is an alternative for individuals who cannot open a bank account. These individuals must pay a fee, which can range from about 1 to 4 percent of the check amount, for the convenience of cashing the check. When a customer visits a check cashing business to cash a check, he must provide his government issued identification and take a picture in some cases. However, even with these security measures, the check cashing clerk does not know if a stop payment was issued on the payment until after presenting the check to the issuing bank.

What is a Stop Payment?

A stop payment occurs when the person who wrote the check changes his mind. The account holder contacts his bank to place a stop on the check so that when the recipient's bank attempts to cash it and collect the funds, the request is denied. In the case of a check cashing location, the check cashing business is the party that requests to retrieve the funds and as a result bears the cost due to the stop payment.

Who Is Liable?

The person who received the funds from cashing the check is the party who walks away with the cash when a stop payment is issued. However, in many cases the payee (the person who wrote the check) is held liable for causing the problem. This is called a "holder in due course" argument, where the check cashing business demands payment from the payee after cashing the check in good faith. Other businesses may choose to pursue the customer to retrieve the funds instead.

Resolving the Problem

The course of action for resolving this situation commonly depends on the amount. For small amounts, the check cashing business owner may simply send a letter and bill to the other party to request payment. If the business owner pursues the customer, but he does not return the cash, the customer owes a debt to the business and will likely be denied further services until he resolves the situation. For a larger amount, the check cashing business owner may choose to pursue legal action against either the payee or customer.