The legislation requires financial institutions that maintain checking accounts to pay checks in the order they are received. If a bank receives a check for a greater amount of money than the balance in the account, it may decline to pay the check. However, the financial institution must honor any smaller checks that can be paid with the existing account balance, according to the legislation.
Under current law, if a financial institution receives a check for a larger amount of money than the funds in the account, it will not only dishonor that check, but all subsequent checks, even if there are sufficient funds in the account to pay them. This legislation requires that subsequent checks be honored if they can be paid using the existing funds in the account.
Look for a New York’s State of Mind blog post from Henry Meier, the New York Credit Union Association’s SVP/general counsel, next week breaking down what this legislation means for credit unions.