Double trouble: What to do when an employee cashes their paycheck twice

Imagine the following scenario: An employer issues a physical check to an employee (or another individual). The employee mobile deposits the check into their bank (Bank A). Then, the employee quickly takes the check to a fast-cash check-cashing store and deposits the check again. This is known as double presentment.

Intuitively, one might think that the fast-cash store, being the second to receive the check, is out of luck and will need to recover its money from the shady employee. This is a situation, however, where our intuition leads us astray.

Taking it to the bank—Twice

In the scenario described above, under Wisconsin law and the Uniform Commercial Code (UCC), the employer’s bank (Bank B) would be required to pay both Bank A and the fast-cash store with funds from the employer’s account linked to the check.

The fast-cash store, although the second to cash the check, would still be considered the “holder in due course” of the check. In short, an entity becomes a holder in due course if it takes a check for value, in good faith, and without notice that the check is fraudulent, or has been claimed by a different holder. If an entity meets those requirements, it is a holder in due course and is entitled to “enforce” the check (be paid) by the issuer.