Who Cashes Third-Party Checks and How to Do It

Cashing a check made out to someone else, known as a third-party check, presents challenges compared to standard transactions. A typical check involves only the person writing it (the drawer) and the person receiving it (the payee). A third-party check introduces an additional individual, making the process complex due to financial regulations and fraud prevention.

Defining a Third-Party Check

A third-party check is a two-party check that the original payee endorses or signs over to a third individual. The check is initially issued by one party to a second party, who then transfers the funds to a third party. Common scenarios include a friend signing over a check to cover a debt, or an employee signing over a payroll check to a spouse.

Various types of checks can become third-party checks, including personal, cashier’s, certified, and payroll checks. Cashing these checks is difficult due to concerns about fraud, forgery, and unauthorized endorsement. Financial institutions are not obligated to process third-party checks, and many choose not to due to the risks involved.

Key Requirements for Cashing

Cashing a third-party check requires specific steps. The original payee must properly endorse the check. This typically involves a “two-party endorsement,” where the original payee signs the back of the check and writes “Pay to the order of” followed by the third party’s name. The third party then signs the check below the original payee’s endorsement. Both signatures should be placed in the designated endorsement area.

The individual attempting to cash the check must also present valid, government-issued identification. Acceptable forms include a driver’s license, state-issued ID, or passport. A primary photo ID is required to verify identity and comply with anti-money laundering regulations.

An established account relationship with the financial institution increases the likelihood of success. Banks are more willing to cash checks for their account holders due to their history and ability to debit the account if it proves fraudulent. While some banks cash checks for non-customers, they often charge fees and require additional verification. Individual bank policies vary widely.

Where to Attempt Cashing

Several avenues exist for cashing a third-party check. One option is for the original payee to deposit the check into their own bank account. After funds clear, the original payee can issue a new check or electronically transfer the money to the third party. Some banks may also allow the original payee to be present with the third party at the bank, endorsing the check and vouching for the third party’s identity.

Another option is to cash the check at the issuing bank. While this bank can verify funds and the original payee’s signature, they are not obligated to cash the check for non-customers. If they do, they may charge a fee, which can range from a flat fee to a percentage of the check amount, and will still require identification.

Check cashing services offer another option and are often more willing to process third-party checks. This convenience typically comes with higher fees, which can be as much as 1% to 10% of the check’s value. These services also require a valid government-issued photo ID.

Alternative Solutions

If cashing a third-party check proves difficult, several alternative solutions can facilitate the transfer of funds. One approach is to return the check to the original payee and request a new check made out directly to the third party. This eliminates complexities with third-party endorsements.

Another method involves the original payee depositing the check into their own bank account. Once the check clears and funds are available, the original payee can write a new personal check to the third party. Alternatively, they can use electronic transfer methods, such as a direct bank transfer or a peer-to-peer payment application, to send the funds. These alternatives bypass the challenges of third-party check acceptance.