Can a Bank Refuse to Cash a Cashier's Check?

For ordinary banking customers, the cashier's check—a check drawn under a bank's authority from guaranteed funds—is usually considered as good as cash. Indeed, most banks by default give next-day availability to cashier's checks. However, under a very few circumstances, a bank may refuse to honor a cashier's check.

Cashier's checks are usually registered with the bank that issued them, so the issuing bank can immediately tell whether there is a problem with a check presented to be cashed. Because there is no national registry of cashier's checks, some banks may treat a cashier's check like a money order or government check and require that the customer deposit a check drawn from a different financial institution (these instruments are usually called "not-on-us" checks). Banks are not required to convert a cashier's check into cash if the check originated from a different bank.

Despite their reputation as repositories of large amounts of cash, most ordinary bank branches do not maintain a large reserve of currency. Although each banking corporation sets its own policies about cash control, it is not unusual for community bank branches to keep less than $60,000 in available cash. If a cashier's check is presented that is more than the branch can handle, it can legitimately refuse to cash the check, and instead redirect the customer to a different branch, usually a cash-control hub, that maintains a larger currency reserve.

Although a bank is usually obligated to honor a cashier's check drawn off itself, the bank can refuse payment if branch officials have legitimate doubt about the intended recipient of the funds. For example, if a cashier's check is made payable to a company and a person seeks to cash it, the bank may properly refuse to do so if branch officials are not certain that the person is a lawful representative of the corporation authorized to perform banking transactions on its behalf.

If the bank itself was a victim of fraud, then in certain circumstances it can refuse to honor a cashier's check. This situation generally holds when the person who purchased the check engaged in fraud against the issuing bank; if any fraud occurred between the purchaser and the recipient, the bank has no legal right to refuse to pay the check. The bank also cannot refuse to pay the check if the "holder in due course" (the person entitled to negotiate the instrument in good faith) was not a party to the original fraud, even if the issuing bank was defrauded.

For example, if Bob gets a cashier's check from ABC Bank using a business check that had a stop-payment order issued, and Bob makes the cashier's check payable to Fred, then the bank can only refuse to pay Fred if there's reason to believe that Fred was a party to Bob's fraud. However, if Fred deposits the check in an account at XYZ Bank, ABC Bank must pay XYZ Bank because XYZ is the holder in due course and is not party to the fraud.