Definition of Third Party Checks
A check is a type of monetary instrument typically written out to another person or party to provide payment for goods and services. Banks and financial institutions apply a number of different terms to specific types of checks, including "third party checks."
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Identification
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A bank defines a third party check as any check being deposited or cashed by a person other than the one named on the "Pay to the order of" line of the check.
Features
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To create a third party check, the person listed on the "Pay to the order of" line of the check signs his name to the back of the check. The second person who receives the check then signs her name below the first person's signature.
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Reasons
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When the original recipient of a check does not have a bank account, signing the check over to someone else to present as a third party allows the recipient to receive cash for the check. Sometimes, people attempt to pay for a purchase or a service by signing over their paycheck or a personal check to the business or individual being paid.
Effects
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Many financial institutions will not cash third party checks or accept them for deposit as there is a risk that the check was stolen or fraudulent. Some check-cashing services will accept third party checks, but charge a fee for this service.
Warning
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Due to the risk of fraud, avoid accepting a third party check from someone you do not know. Even when negotiating a third-party check for a friends or family members, consider depositing the check and allowing it to clear before giving cash for the amount.
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