At my most recent fraud prevention seminar, I was asked about putting holds on money orders. As I stood there, I wasn’t sure how to answer. When that happens, I’ll usually have people contact me by email after the seminar and then I can get back to them on the issue. In this case, it also makes great blog fodder.
Money orders are strange birds. Some are treated like cashiers checks and others are treated like ordinary checks.
U.S. Postal Service money orders are straight-forward because they come from a government agency. Regulation CC requires that funds from U.S. Postal Service money orders must be made available on the first business day following the banking day of deposit (“next-day availability”). This doesn’t help if you are faced with bogus Postal money orders. Any instrument requires close scrutiny nowadays.
UCC 3-104(f) says that a check might still be just a check even if it says “money order” on it. The comment to this section makes the distinction between a money order as a normal check or a money order as a certified, cashier’s or teller check by who the parties are to the instrument. If the purchaser of the money order is the drawer, then it’s a normal check and you can follow the normal Regulation CC holds. If the drawer and the drawee are the same bank or branches of the same bank, then the money order is treated as a cashier’s or certified check. If the money order is drawn by a bank on another bank or payable at or through a bank, it’s treated as a teller check. Cashier’s, certified and teller’s checks have the same availability requirements as U.S. Postal Service money orders, that is, next-day availability.
In the face of bogus instruments of all kinds that credit unions face today, this is small comfort. A credit union needs to examine these types of instruments that it receives over the counter very carefully.