Five Types of Checks You Should Never Cash
Paper checks are becoming a thing of the past like the dinosaurs, and fast. These days, only about 0.05% of payments are made by check, and as you can imagine, most of them are written by older people because habits die hard. Checks are dying so badly that 44% of Gen Zers (the oldest currently around 26) don’t even have a checkbook .
But dying doesn’t mean dying , and paper checks still pop up in your life from time to time . Sometimes they even show up unannounced, ending up in your mail as a pleasant surprise, like a tax refund check or a check from a class action lawsuit you forgot you were part of. Usually this is receiving some money by mail. would be cause for celebration, but audits can be a vector for fraud, as well as legal but unethical maneuvers. Here are five checks you should never cash if one of them lands in your mailbox.
Prizes with catch
One of the most obvious receipts that you should immediately destroy is a payment for a sweepstakes or contest that you do not recall entering, especially if it is accompanied by instructions to pay taxes or fees on the “prize.” If taxes are due on a legitimate cash prize, you pay it at the same time as any other tax – when you claim the income. If you are told to pay a fee for a check you have already received, it is a scam.
Overpayments
If you sell something, provide a service, or otherwise owe money and someone sends you a check for more than the agreed upon amount, be careful. If they then tell you they made a mistake and want you to send them a refund for extra money, it’s because it’s fake. This is a common scam that relies on rules that require banks to fund a deposited check relatively quickly (meaning the money appears in your account), even though the check can take days or even weeks to process. When the bank finds out the check is fake, it takes the money back, including the portion you sent back to the scammer.
Even if it’s not fraudulent, any check for more than you expected should not be cashed. If the IRS refund is larger than you expected, or if your bank or company made an accounting error and overpaid you, there’s a good chance the error will eventually be noticed and you’ll have to pay it back. If you spend money in the meantime, you could end up in real trouble.
Paid in full
If you’re owed money and someone sends you a check for some of the money owed, that’s usually a good thing—at least they’re trying to pay you. But if the check is marked “paid in full” or states that it is “full and final payment,” be careful. Laws vary depending on your location and may be conflicting , but it is possible that the court will consider this a binding acceptance of the settlement agreement. In other words, if you owe $1,000 and someone sends you a check marked “paid in full” for $500 and you cash it, that could be interpreted as agreeing to only accept half of what you are owed. The ploy may not work, but to save time and hassle, return the check with a polite request for the full amount owed.
“Contract” checks
Here’s the scenario: you receive a check for a small amount of money, the text of which states that it is some kind of discount. You acknowledge the check and deposit it. A few weeks later, you notice new charges withdrawing money from your bank account, and after investigating, you discover that by signing the check, you signed up for a fraudulent but legitimate service.
It sounds crazy , but it can happen . If you pay attention, you’ll notice a tiny contract printed above the approval line on the back of the check that states what you’re agreeing to if you accept the money. Always be wary if there is a block of text and read it carefully before accepting apparently “free” money.
Another form of “contract check” is an insurance payment check with a notice of denial . Most settlement checks from insurance companies include this notice, which is legally binding. If you endorse a check, you are essentially agreeing that the amount you received is all that is owed to you, and often you are also agreeing to waive your right to sue or take any further action on your claim. If that’s your understanding, that’s fine, but read the bounce notice carefully before cashing the check, and if it doesn’t sound right, don’t deposit it.
Expired checks
Finally, there are checks that aren’t scams or secret contracts that can still get you into a lot of trouble: expired checks.
All checks are dated. Generally, if a check is more than six months old, it is considered expired, but some checks also have a clear time frame on them, such as “Void in 90 days” or something similar. If a check can be considered past due, your bank is not obligated to process it—they may process it , but they may also reject it. It depends on the bank.
But if you receive an expired check, you’re better off requesting a new check. If your bank allows you to deposit it, the issuing bank may not accept it and the funds will disappear from your account and you may be on the hook for fees. If you know for sure that a check will be accepted even though it is old, contact your bank and review their policies before attempting to deposit or cash the check.