Mobile Check Deposits Part 2: What to do When Presented With a Duplicate Deposit

Mobile Check Deposits Part 2: What to do When Presented With a Duplicate Deposit

In July, we talked about how a new, convenient way to deposit checks has been making things more complicated for staffing companies who issue payroll checks. With mobile check deposits, it raises the possibility of a check being deposited twice: once through a bank’s mobile deposit app and once through a check cashing store.

The question becomes who is left to make good on these multiple transactions if the parties are unable to recover directly from the employee?

While staffing companies may not ultimately be liable for the double payment, there are still steps they need to take if one of their payroll checks was deposited twice.

First off, let’s reiterate: the staffing company is not liable for the double payment.

In these cases, The Check 21 Act provides the answer. The Check 21 Act, which was enacted in 2004, authorizes the use of a “substitute check” —an electronic reproduction of the front and back of the original check. As a result, a bank may permit its customers to scan checks and deposit them electronically using the bank’s mobile deposit app. The Check 21 Act does not require destruction of the original paper check after the creation of the substitute check. Thus, it enables the scenario where a “substitute check” is created and deposited and the original paper check is also deposited.

If the employee utilizes their bank’s mobile deposit app and then later cashes the original paper check at a check-cashing store, the liability for the double payment falls on the employee’s bank due to that bank’s Check 21 Act warranty, not the staffing company issuing the check. Liability for the loss falls to the bank that allowed a customer to use its mobile deposit app. The warranties described in the Check 21 Act dictate that the act of accepting a mobile deposit and creating the substitute check places responsibility for any multiple payments on the bank that created the “substitute check.”

So, while ultimately as an employer, you will not be held responsible for one of your payroll checks that are deposited multiple times via a mobile deposit app and a check cashing store, there are still steps you have to take once that check is presented for payment more than once.

The staffing company that issued the payroll check that was presented twice will have to pay the check cashing business due to “holder in due course” laws. The check-cashing store has a strong argument that it is a “holder in due course” if it took the check by proper endorsement, in good faith, for value, and without notice that it was a duplicate.

The staffing company should take a copy of the cleared, scanned check (which Tricom can provide if we process your payroll), along with the letter or communication demanding payment for the cashed check from the check cashing store to the bank that processed the mobile deposit when it was initially deposited. The bank should then reimburse the staffing company for the amount that they had paid to the check cashing business.

With the rise in popularity and usage of mobile deposit apps, the opportunity for checks to be double deposited increases as well. While it may present a bit of a hassle for staffing companies, you should rest assured that the liability does not lie with you in issuing the payroll check that was double deposited. While you may have to initially pay out twice for that check, you should be reimbursed by the bank that deposited the check via mobile deposit in the first place.

For more information or questions about mobile deposit fraud, please contact your Tricom payroll processing professional.