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Home >> Checks/Money Orders >> Checks You Received
Checks Written Against Equity Line of Credit
Recently, I accepted a check as payment from a private party. I called to verify funds on the check and was told that there were sufficient funds to cover the check. I wanted to make sure that I got paid, so I went into the bank that held the account for the private party. I was again told that there were sufficient funds to cover the check, but that the bank would not pay me because I did not hold a depository account at that bank. They said that the private party had used an equity line of credit check to pay me and that they would only honor it if I had an account with them or if the check was submitted to them by my bank.
I told them that just knowing that there were sufficient funds today didn't help because if it took three days for the check to clear, I would be susceptible to the private party overdrawing their account in the meantime. This does not seem right to me. The check did not have any conditions written on it that would have informed me that it was effectively "un-payable" under certain conditions.
There were sufficient funds in the account according to two tellers and two branch managers. These branch managers informed me that this was a policy of their bank. They said they would have paid me if the check was drawn on a checking or savings account.
I have since looked at the following UCC regulations: Article 3-106 (a) which states that "...a promise or order is unconditional unless it states an express condition to payment." Article 3-111 which states "...an instrument is payable at the place of payment stated in the instrument." Article 3-501 (b)(1) which states "Presentment may be made at the place of payment of the instrument..."
I put this question to the employees at my Credit Union. All of the tellers and the branch manager told me that my institution would behave in the manner that I would expect, and pay them an equity line of credit drawn on my account if it was presented at the branch. They did not know any details regarding whether or not the other bank was behaving in accordance with the law or not. This bank operates in several states. I was trying to effect my transaction in California. Both the private party and myself both are California residents.
Is a check written against an equity line of credit treated any differently from a check written on a checking account? If so, why?
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 Each bank and credit union will make its own rules as to what items, checking accounts, lines of credit, etc. it will pay and not pay for a non-customer. Had the person who wrote the check gone to the bank, it would have been cashed immediately, but you are not their customer and it is their choice to service you or not. Similarly, some banks would cash it for you, but have charged you a fee to do so.
They are not breaking any law. Deposit the item in your bank and let it go through the payment system as quickly as possible. If you have little faith in the person who wrote you the check, at your bank ask if it would process faster if they sent it for collection, or if they would contact the other bank and have the item guaranteed. The practice of guaranteeing a check isn't done much today. That is where the other bank sets those funds aside, awaiting this check's arrival for payment, but there is only risk for the paying bank to do this and no income. You can ask, but it would be rare that they'd do this. Next time, you may want to go to the other person's bank with them, or request a cashier's check or cash if you doubt their integrity.
Published on BankingQuestions.com 8/10/07
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