Let’s say that you have a check, but for one reason or another, you want to take that money and pay it to someone else. You could cash the check and then hand over the cash — or you could save yourself some trouble and simply sign over the check to the person you want to pay. How does this process work? How do you actually go about signing a check over to another person so that they are able to cash it? Read on to find out everything you need to know about signing over a check.
Included in This Article:
How to sign over a check to someone else
What check endorsements really mean
Why third party checks are less common than they used to be
Where you can cash or deposit third party checks
The struggles of signing over a check
It’s your lucky day! You open a greeting card from Grandma and there along with the touching Hallmark sentiment is a rectangular piece of paper bearing the magic words “Pay to the order of: You!” On the lower right is Grandma’s distinctive flowery signature. Your sweet Grandmother has sent you a check for 50 bucks.
50 bucks, exactly the amount you owe your best friend for fronting the money to buy those concert tickets. Now you can pay your friend back right away. But how should you go about it? Should you deposit your check with your bank’s mobile app then go to an ATM and withdraw the cash? Or write your friend a check? Or go to the bank or other check cashing place, cash the check and then give your friend the money? So many choices. Maybe you could skip all those steps and sign Grandma’s check directly over to your friend.
This last scenario is actually a possibility. You could endorse the check to your friend, thereby creating what’s known as a third party check. The “third” in third party refers to the person who will ultimately benefit from the check. Think of it this way; party 1 is the writer of the check (Grandma); party 2 is the original recipient (you); party 3 is the person who actually receives the money (your friend).
The use of third party checks was at one time very common. There are still scenarios where this arrangement is still in use. Auto insurance companies for example will usually pay out a claim in the form of a check made out to you. You are then expected to endorse the check over to the mechanic who repaired your car. However, using third party checks to settle private debts, such as the one between you and your friend for the concert tickets is becoming more and more rare.
The reason for the decline in this arrangement has mostly to do with increased security measures surrounding the transfer of money between people and financial institutions. To understand why, we’ll discuss what a check actually is and what the signatures on it (endorsements) really imply.
What Actually is a Check?
Simple, obvious question right? It’s a piece of paper that the holder of the account its written on gives to another person as sort of an “IOU” for a sum of money. The recipient takes it to a bank or credit union, or deposits it into an ATM or through a mobile app and the money from the check writer’s account is given to the recipient. That’s pretty much it, but there are some things to consider:
- By signing the check as the recipient, you’re turning the piece of paper into “bearer paper” meaning a bond payable to whoever has possession of it.
- The bearer is not necessarily you. By legal definition a check is “a written order instructing a bank to pay upon its presentation to the person designated in it, or to the person possessing it, a certain sum of money from the account of the person who draws it.”
That part about the person possessing it is a problem if you lose your check after you’ve already signed the back. Whoever finds it can technically cash it themselves. For this reason you should never endorse a check until right before you hand it to a bank teller or deposit it through your ATM or mobile app.
How to Sign over a Check to Someone Else/How to Endorse a Check to Someone Else
When you receive a check that you want to sign over to a third party, as in the scenario with the concert tickets, instead of just signing your name on the back you would first write “pay to the order of” followed by the third party’s name. Then you sign your name below that. It’s as simple as that.
According to the Uniform Commercial code, a series of laws pertaining to commercial transactions in the US, the signature in this case serves as a warranty. You are telling not just the person you’re giving the check to, but also that bank that cashes it that the check is valid and unaltered. These Commercial Codes were enacted in 1952. In this day and age of heightened financial security and much more sophisticated laws regarding money laundering and bank transparency, your signature on a check is no longer considered an ironclad promise.
Where to Cash/Deposit a Third Party Check
According to this FQF article listing the places that cash third party checks you can pretty much rule out grocery stores and other retail locations that cash checks when it comes to cashing third party checks. That leaves banks and check cashing stores. Check cashing stores tend to charge high fees for difficult-to-cash checks even when they provide that service, so we’ll start with the banks.
Following is a list of banks and their policies regarding third party checks. The quotes are from the banks’ online Depositor Agreements or from their Customer Service pages.
Banks That Accept Third Party Checks, with Conditions
PNC Bank – “We may refuse to accept a check, for example if it has multiple endorsements (such as a check made payable to someone else and later signed over to you).
Bank of America – “We may require that checks and other items you want to deposit or cash be endorsed by all parties to whom the items are payable. We may require verification of any endorsement through either an endorsement guarantee or personal identification.”
Wells Fargo – “Wells Fargo may refuse to accept any item for deposit unless we are able to verify that all of the necessary endorsements are present on the check. For example, we may require that all endorsers be present at the time that a check is presented at a bank teller for deposit.”
TD Bank – “To deposit a third party check into your account, both yourself and the other party, must visit a local TD Store and sign the “Endorsement Authorization and Release” form.”
Santander Bank – “If you cash or deposit a check or other item, we are legally entitled to valid and unqualified endorsements from you and all other payees whose endorsement is required. You give us an irrevocable right to place your endorsement on any such item. You also agree to provide confirmation of the endorsement of any other payee if we ask for it and that we may place a hold on the item you deposited until we receive the confirmation.”
SunTrust Bank – “We may require you to verify an endorsement on an item through the appearance in person of the endorsee with proper identification and/or obtain an endorsement guarantee. At or after the time of the cashing, negotiation or deposit of an item with multiple or third-party endorsements is made, we may return the item unpaid or place a hold on your Account for the amount of the item until such verification is complete to our satisfaction.”
Citizens Bank – It was challenging to find any definitive information online regarding Citizens Bank’s policy. A quick call to their Customer Service line (1-800-922-9999) however revealed that yes, they do accept third party checks, but these may take longer to clear than other types of checks.
Notice the theme with all the banks listed above? None convey a great deal of enthusiasm when it comes to third party checks. Other banks on the other hand will not take third party checks even with conditions…
Banks That Do Not Accept Third Party Checks
Ally Bank -“We don’t accept money orders or third-party checks through eCheck Deposit.”
Regions Bank – “Many check types may be cashed, including handwritten, out-of-state, two party, insurance, refund anticipation, business, government, and payroll checks. “ (Note third party checks are not included in this list.)
Discover Bank – “Checks submitted for deposit must be payable to you and properly endorsed by all parties. Third party checks are not accepted for deposit.”
Other Places That Accept Third Party Checks
Other than banks your only real option for cashing third party checks is one of the dozens of check cashing stores, the types of establishments that offer pay-day loans, etc. Just be forewarned that these businesses have a reputation for charging high fees for their services. The following two check cashing businesses will definitely cash a third party check:
Another one to try is Check Into Cash which boasts that they cash all checks, even ones that other places won’t. Please note however that third party checks are not specifically listed on their list of “all checks.”
How to Sign over a Check: Conclusion
In conclusion, it you now know it is kind of a hassle to deal with third party checks. If someone offers to endorse a check to you it’s reasonable to ask that they deposit the check into their account and pay you in cash or write their own check to you. You should probably do the same when you are the one who owes someone money. But if you get a check, say an insurance check and need to sign it over to someone else and they know how much of a hassle it can be to get it cashed, go for it. It is definitely simpler for the check holder than having to convert the check to someone else and then paying the person.