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Cashing Check at Bank Where Money is Owed

Can I cash a check from my employer at the bank it is drawn on if in the past I have owed that bank money? Can I go into the bank with my employer's check and cash it without them being able to keep the cash for payment of the money I owe the bank? If I have an overdrawn bank account, still open, can I cash a check from an employer that is drawn on that bank without them withholding the money?

Some bank employees have asked whether they were allowed to withhold cash from a payee of a check drawn on their banks if those payees had charged-off loans, deposit accounts or other sums owed to the bank. That some employees have asked the question tells us that your question is a valid concern.

In most cases, such self-help collections are permitted under a bank's right of setoff. A setoff right exists in many states when there are offsetting obligations between two parties. You owe the bank money and the bank owes you money. They might apply, for example, if you have an account at the bank with a positive balance and another account at the same bank with an overdrawn balance. However, your paycheck represents an obligation that the bank owes you. Your employer owes you the money, not the bank, so that setoff is not appropriate.

The law in your state might permit a bank to withhold cash under the scenarios you have outlined. It's also true that a bank teller might take that action even if it is not specifically permitted under state law.

You need to resolve the matter of whatever amounts you still owe the bank. Then you won't have to worry about whether part of your paycheck can be grabbed. In the meantime, if you need information on whether it would be legal for a bank to take part of your paycheck in this manner, you should ask an attorney in your state.

Published on 11/05/08