Treasury (?) catch 22 or bank bovine scatology?

[Judge Roy Bean]

The theater of the absurd that seems to play out from time to time has appeared at a colleague's doorstep. Before I throw over forty years of banking and lending experience to the wind, I would ask this body that includes Treasury Department/IRS personnel to see if my colleague is simply being railroaded as I believe they are.

The spouses involved have, for over twenty years, maintained personal bank accounts - at separate banks. They have filed joint returns for at least that long.

A recent tax refund check from the treasury (payable to both joint filers as has been done for more than two decades) was endorsed and presented to one of the spouse's banks among some other items.

The bank refused to accept the deposit because the other party on the endorsed check was not on the account. This escalated to the point where after some rather wandering logic to sustain the theory, the branch manager simply got hung up on his own petard and let the party close the accountS (well into five figures all told) on the basis that it was a Treasury Department dictate and not a bank policy. It took over a half-hour to get the appropriate approvals on the cashier's checks he walked out with. He has not yet selected a new bank and has stashed the endorsed check in a safe at his business.

Two thoughts come to mind other than the abject stupidity of the branch manager - one, as far as I can determine, the Treasury department has NO lawful standing in any form or fashion to direct that a validly-endorsed instrument it has issued be accepted without regard to whether or not a "joint" bank account exists.

The offending bank's history of willingly accepting the same instruments over the years leads me to believe this is a case of an individual manager's ego trying to make a point without any basis in actual law (a policy Nazi in charge), and when it was escalated beyond the teller, the branch manager decided to back the employee and gambled the customer wouldn't go through with the threat of closing the accounts.

Having said all that, the couple is now faced with holding on to an endorsed Treasury check made out to both of them that was refused - they believe they are essentially out a roughly $2,500 refund, and the question to me was whether or not they should simply sue the bank in small claims court and see what happens.

Is there an actual Treasury Department directive that effectively requires joint filers to have a joint checking account? That sounds absurd to me, and I'm presently leaning toward telling the colleague to have some fun in small claims court at the expense of the bank.

[Ragnar]

Seems to me that a lot of trouble could be avoided just by opening a joint account.

Of course, that would negate the "fun" of sueing someone and wasting one's time.

[fortinbras]

I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.

[BBFlatt]

Well this isn't directly on point but it does appear that the IRS policy is to allow refunds, at least those that are issued via direct deposit, to be deposited to the account of either recipient:

The IRS will deposit a refund to any of your customers’ checking or savings accounts. In the case of refunds on jointly filed returns, the IRS will deposit the refund into an account of either or both spouses. For example, the IRS will deposit a joint refund into an individual retirement account of one spouse. If you place restrictions on the types of accounts or ownership for which you accept direct deposits, please inform your customers.

http://www.irs.gov/pub/irs-pdf/p4541.pdf

[Judge Roy Bean]

Seems to me that a lot of trouble could be avoided just by opening a joint account.

Of course, that would negate the "fun" of sueing someone and wasting one's time.

If you knew the couple, you would realize having a joint account is not going to happen.

[Judge Roy Bean]

Well this isn't directly on point but it does appear that the IRS policy is to allow refunds, at least those that are issued via direct deposit, to be deposited to the account of either recipient:

The IRS will deposit a refund to any of your customers’ checking or savings accounts. In the case of refunds on jointly filed returns, the IRS will deposit the refund into an account of either or both spouses. For example, the IRS will deposit a joint refund into an individual retirement account of one spouse. If you place restrictions on the types of accounts or ownership for which you accept direct deposits, please inform your customers.

http://www.irs.gov/pub/irs-pdf/p4541.pdf

Thanks....I'll pass that on.

[Judge Roy Bean]

I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.

That is my assessment, regardless of the source of the check. He has time on his hands so I expect he'll be filling out the small claims paperwork first thing next week.

[Prof]

I get the distinct impression that the mistake is the bank's. A joint check already endorsed by one of the payees ought to be completely negotiable by the other payee.

That is my assessment, regardless of the source of the check. He has time on his hands so I expect he'll be filling out the small claims paperwork first thing next week.

To the extent that a Treasury Draft/Check is governed by Art. 3 and Art. 4 of the UCC, a joint check properly endorsed by the two payees converts the check into a instrument payable to the order as indicated on the endorsement or upon demand if not to order. So, IMHO, JRB is absolutely correct -- and the policy of the Treasury of the US, as indicated in BBFlatt's post, appears to be identical to the provisions of the UCC.

As an aside, why didn't they come in together and just cash the T-check, stand in front of the bank official, split the cash in half, and deposit the cash as they wish?

In the alternative, why not be satisfied with "firing" the bank?

Playing "stump the chump" in small claims court might be fun, but why go to all the trouble because "he p@#*d me off?"

(I went back and re-read your rant and would add that it appears that the problem the bank created was due to an endorsement "Pay to Idiot Bank." At their "new" bank, the payees should be able to strike that endorsement, since the payees have never delivered the check to anyone, and substitute a new endorsement payable to the "new" bank. The UCC allows for changes on the endorsement when there has been no delivery by the payee.)

[LaVidaRoja]

Many years ago, in a similar situation, the bank required that the non-account holder's signature be notarized. They felt they needed to determine that the signature was genuine.

[webhick]

I've noticed that a lot of banks up here now have policies with regard to IRS checks because there have been instances when one spouse cashes the check and the other never even knows about it - which causes a huge problem. They don't have to have a joint account to get the funds, but I believe that both parties have to be present with ID in order for the bank to cash/deposit the check.

[Judge Roy Bean]

Webhick - I'm trying to discover what legal authority a bank has to make an arbitrary decision about whether or not a spouse may or may not at some unknown future date have a legitimate claim to any allegedly not-received funds. I'm no fan of the abuse banks are famous for and this kind of thing is exemplary of their attitude toward customers - keeping in mind this has not been a problem for years.

The whole argument is specious, IMHO. Let's assume for the sake of discussion that an instrument with both signatures on it is deposited in one of the spouse's accounts. And let's take the bank's assertion that at some future date (the SOL being seven years, I believe) the other spouse somehow wakes up, files for a divorce and raises a claim against the depositor spouse for allegedly not having benefit of the funds from the joint tax refund. Unless there is a divorce in a community property state the issue is moot anyway, so my "so what?" light is on full. The bank has no fiduciary responsibility to a non-customer nor could it be joined as a defendant in any future action against its customer.

Methinks there is more to this than meets the eye.

[BBFlatt]

Perhaps the bank was looking for an excuse to "fire" this customer?

[Judge Roy Bean]

Perhaps the bank was looking for an excuse to "fire" this customer?

I can't imagine that scenario. The party isn't exactly a candidate for "Mister Personality" but I think this is more a situation of stupid protecting stupider at one branch bank.

[webhick]

Webhick - I'm trying to discover what legal authority a bank has to make an arbitrary decision about whether or not a spouse may or may not at some unknown future date have a legitimate claim to any allegedly not-received funds. I'm no fan of the abuse banks are famous for and this kind of thing is exemplary of their attitude toward customers - keeping in mind this has not been a problem for years.

Sorry. IIRC, it's the US Patriot Act. When I tried to look it up, I saw a few areas where it could be construed to mean that the banks have to do it this way, but nothing explicit that I saw.

[Prof]

JRB:

As far as I know, a bank is under no legal obligation to accept any deposit, including cash, from a customer.

However, I know of no legal impediment to acceptance of a joint check, endorsed by both payees, even if the check is a T-Check (technically, a draft, since it is not drawn on a bank).

As with any other endorsed item, the Bank receives certain warranties from the depositor -- that the signatures are valid, that he/she/it has received the check by transfer, etc. The depository bank then warrants those same issues to the payor. Under the UCC (which would only apply directly to checks), there is (I recall -- no UCC at the house) a one year limitations period for forged endorsements. Again, as I recall, all of the Art. 4 rules are applied by common law to T-Checks here in the 5th Cir.

However, for a deposit into a 5-figure account a long-time customer, the depository bank runs no risk. If the item is returned, the Bank merely reverses the entry (or offsets, depending on which technical process you want to use to analyze the recoupment).

I think your analysis is correct: Stupid is as stupid does; or, as Coach K or someone said, "You can't coach height."

[Judge Roy Bean]

I think I've managed to convince him to at least try an administrative remedy ( ) first through the OCC's consumer complaint office - only because he hasn't exhausted same and that might be a speed bump in his rush to a small claims coliseum showdown with his new-found arch enemy. (Patience is not one of his virtues).

I can't wait to see the response.