As federal and state regulatory regimes expand, it is increasingly difficult for small businesses like check cashers to keep track of what they need to do to stay compliant. In addition, check cashers must institute and faithfully follow a set of sound business practices to properly mitigate the inherent risks in check cashing activities.
Here at National Check & Currency, we continue to provide our check cashing partners with the most up to date best practices for our industry. This not only safeguards our check cashers from loss, it also shows our MSB banking partners that you are the best operated businesses in the industry. As a reminder for some and an introduction to new players, here are NCC’s recommended protocols for negotiating checks.
Check cashers need to be on high alert when a new customer presents a check. You do not know who this person is and this person has no track record from which you can extrapolate any level of confidence that the check they proffer is genuine and legitimate.
For this reason, check cashers must first validate the customer by obtaining as much information from them as is possible, including their name, address, home phone, cell phone, social security number, employer, references and biographical data such as height, eye color and race.
Scan an image of at least one form of government-issued photo ID into your Point of Sale System (POS). Make sure the photograph on the ID is clear. The ID may be issued by any governmental entity, including foreign governments. Most U.S. States now provide a database portal through which check cashers can verify the validity of a driver’s license number. Have the customer fill out an application, or if you have time, you can enter the information into the POS check cashing system directly.
If you have any concerns about the identification provided, or notice that any of the red flags discussed below are present, you should also run the customer on the LexisNexis InstantID program. Be sure to print out the Instant ID report for the customer file.
The check casher must call the maker (or Payor) of the check to verify that the customer presenting the check is an employee and that the check was actually issued to him or her. You may want to ask the maker for the check number and the amount.
Do NOT call the phone number printed on the check, but call an independently verified number for the company (use sites like www.Google.com or www.411.com, etc.). Write the phone number and the name of the person you spoke to on the upper left hand corner of the check.
The check casher must also attempt to call the issuing bank to verify the account and the availability of funds. While not all banks will verify funds, call those that do. Preferably the account will contain 2-3 times the face value of the presented check. If the check is an extraordinary item, the teller should obtain approval from his or her supervisor before dispersing cash.
If you know the customer and the customer’s file is in the system, the customer does not need to present ID again. But if you do not recognize the customer, you should ask to see identification to verify it is the same person that is in the system. Be sure to update the customer’s information in the POS check cashing software as applicable.
The POS takes a new photograph for each transaction, regardless of how many times the customer has negotiated a check in the past and regardless of how well you know the customer. This protocol is non-negotiable. With each check cashing transaction, the check will be scanned by the system (front and back) after endorsement.
Anytime a new or repeat customer presents a check that is unusually large, the check casher needs to contact the maker of the check to confirm its validity before dispensing cash to the customer.
Finally, the customer MUST place a fingerprint of his or her right index finger on the front of the check using an ink pad which the check casher provides at the teller window. If the customer is missing his or her right index finger, then have the customer leave a fingerprint of his of her left index finger. If the customer does not have any fingers, be sure that the photograph of the customer is wide enough to capture this disability so that auditors will understand this to be a reasonable accommodation and not a lapse in due diligence.
U.S. TREASURY CHECKS
Although genuine U.S. Treasury checks carry the full backing of the U.S. government, the increase in fraud scams in recent years dictates that check cashers follow certain added procedures as protection. First, verify the check by calling the Treasury Department (1-800-697-2605). Write the name of the person you spoke with on the upper left comer of the check.
For new customers presenting Treasury checks, you MUST run the customer on the LexisNexis InstantID program, including the customer’s social security number (SSN). Be sure to print out the Instant ID report for the customer file. Next, run the SSN through the Social Security Administration’s website (http://www.ssnvalidator.com) which will confirm the year and state of issuance. It is also advisable to request a copy of the customer’s tax return and a utility bill matching the address on the return. Be wary of customers who have travelled some distance to cash this check.
Akin to checks that are unusually large, the teller should obtain approval from his or her supervisor before negotiating U.S. Treasury checks.
REFUND TRANSFER CHECKS (REFUND ANTICIPATION LOAN)
Checks issued by banks on behalf of tax preparers like H&R Block and Jackson Hewitt come under several names including refund anticipation loan checks. These types of items are even more prone to fraud than Treasury checks, so extra caution should be exercised when these items are presented. In addition to following the enhanced due diligence procedures for Treasury checks, always attempt to verify the check with the tax preparer, as some tax preparation companies will confirm that their customer has been issued a refund.
When calling the issuing bank, know that most banks have an automated system for verifying these checks. Do NOT call the number printed on the check without first verifying that number (use sites like www.Google.com or www.411.com, etc.).
BUSINESS TO BUSINESS (COMMERCIAL) CHECKS
Any new commercial customer must be pre-approved by the compliance officer. The check casher must call the maker to verify that the check was actually issued to the customer. Like a payroll check, ask the maker for the check number and amount. Do NOT call the phone number printed on the check, but call an independently verified number for the company (use sites like www.Google.com or www.411.com, etc.). Write the phone number and the name of the person you spoke to on the upper left hand corner of the check
You must also attempt to call the issuing bank to verify the account and the availability of funds. Finally, the teller should obtain an approval code from his or her supervisor or compliance officer if the check exceeds the check casher’s limits.
Physical presence. Under no circumstance will checks be cashed unless the endorser is present and he or she takes 100% of the proceeds of the transaction. The endorser must be an officer of the company, unless previously authorized by corporate resolution to cash checks on behalf of the company. A non-officer endorsement must be explicitly approved by compliance upon review of the original resolution document. Compliance regularly circulates a list of approved endorsers.
Documentation on file. The maker’s file must be complete with the following original documents:
- Articles of incorporation (company is “active” with the appropriate state authority). While age of the company is not a specific approval criterion, use extra caution in approving companies that have been incorporated for less than six months;
- Tax ID number as shown on an Internal Revenue Service notification or recent tax return;
- Occupational license or other business license where required by local rules;
- Copies of government issued identification for each owner/officer as well as the endorser (customer physically present) conducting the operation;
- Original indemnification agreement and personal guarantee which has been signed in the presence of a company employee;
- If the company has more than one officer OR a non-officer is to be authorized to cash checks, the customer must also provide a notarized corporate resolution which has been executed by all officers in the presence of company employee; and
- A written summary detailing any and all additional information about the customer and the customer’s business which will enable NCC to understand a legitimate business purpose for their transactions. This information may include: number of employees or workers on the job in question, type and location of work being compensated, etc., and will be reviewed regularly.
The customer must present official ID at the time of the transaction unless he is personally known to the employee and his ID is already in the system.
Personal checks are riskier than other checks and due caution should be exercised. While a check casher is free to cash checks for landscapers, plumbers, handymen, and other small businesses, the check casher should follow the same rules as for payroll checks; namely, if the maker is new, you must verify the check with the maker and with the issuing bank.
Repeat checks from the same maker and for the same customer can be accepted without verification.
Even the best counterfeiters make mistakes, and almost all bad checks have something that will give them away. An alert check casher can detect them before a mistake is made. While there do not exist absolutes in the realm of due diligence in this industry, check cashers should be apprised of certain red flag indicators that require special attention:
Medical reimbursement checks: The medical industry today is so rife with fraud scams that it increases the level of risk of negotiating these types of checks. While there are many valid and legitimate reasons to cash medical reimbursement checks, check cashers should be cautious.
Older checks: Most people use check cashers because they are in a hurry to get their money. An old check is at a higher risk of being bad than a freshly issued one. A teller should inquire of the payee why the check is old, and should get approval from a manager or compliance officer prior to cashing an old check.
Look and feel: Often, a counterfeit can be detected by the naked eye by examining the check’s paper stock and security features. A low check number may indicate a new account, or a very large number could be fictitious. Although handwritten checks are common, most companies use computer-generated checks, so beware of handwriting. Also beware of spelling errors and dollar amounts that don’t match.
Customer behavior: Be circumspect of customers who appear nervous, talk excessively, are in a hurry, will not make eye contact, have trouble answering simple questions and/or seem unconcerned about the fees charged.
New customers: Most fraud is committed by a new customer. Beware of someone who does not live or work near the store. Beware when the person’s address on their ID does not match their address as printed on the check. It is a good idea to use LexisNexis InstantID on new customers, which is required on any new customer with a check in excess of $1,000. Always print out the instant ID report and insert into the customer’s file.
The existence of one or more red flags does not mean a check should not be cashed; but the more red flags, the higher your risk. The best antidote to a red flag is to ask questions: What is the purpose of the check? How did the customer obtain it? Why is the customer bringing it to you? If a teller is ever in doubt about whether or not to cash a check, consult a manager, compliance officer, or the compliance staff at NCC. We stand behind our MSB services with 24/7 client assistance – if you run into a problem, we will help you solve it.
DO NOT CASH LIST
Check cashers should maintain their own DO NOT CASH lists. Whenever a customer attempts to pass a counterfeit or stolen check, the teller should create a profile in the POS system, placing a flashing red warning alert on that profile so that other stores will be alerted.
Do not cash checks made out to “Cash”, “Mickey Mouse” or other fictional character.
While industry professionals may have differing opinions of what constitutes the best practices of negotiating checks, in today’s compliance centric atmosphere, NCC stands behind its unrivaled track record of MSB compliance and aversion to loss. If your check cashing business has instituted procedures not discussed here, and which you think may be of value and benefit to our industry, please contact us at NCC so that we may share and implement your innovations.