Collector - May 2018 - 52
How to deal with consumer checks stating the account is "paid in full."
By Laura Dadd
ou've heard the rumor, but is
it really true that a consumer
can write "paid in full" or some
other related phrase on a check, and
actually satisfy the debt for a lesser
amount if the check is cashed? The
short answer is yes-but the longer
answer is bit more complicated.
Debt collectors who process checks must
be aware of how to handle a consumer's
check stating "paid in full" or a letter
along with the check stating the same.
When a check with this declaration is
received and cashed, in certain conditions
this can satisfy the debt. This situation is
known legally as accord and satisfaction.
By understanding how to recognize an
accord and satisfaction scenario, how to
handle such checks and how to establish
safe harbor protections, debt collectors can
avoid potential revenue loss and protect
their bottom line.
The doctrine of accord and satisfaction is
regulated by Section 3-311 of the Uniform
Commercial Code (UCC), which has
been adopted by most states with minor
adaptations. Under Section 3-311, cashing a
check will create an accord and satisfaction
if: the check writer tenders the check in good
faith; the amount of the claim is unliquidated
or is subject to a bona fide dispute; and
either on the check or in an accompanying
document, the check writer provides a
conspicuous statement that the check is in
full satisfaction of the claim.
With a genuine accord and satisfaction,
the debt collector often has two choices:
reject the payment and send the check
back to the check writer, or accept the
offered settlement and cash the check,
eliminating the underlying debt. A
successful accord and satisfaction is
created by the debt collector exercising
the latter option.
Generally, debt collectors cannot simply
cross out the settlement or payment in
full language on the back of the check
and write "accept under protest" or other
similar language. In most states, this
action does not negate the accord and
satisfaction. However, debt collectors
should review state law because some
states, such as California, do permit this
option. In order to legally avoid an accord
and satisfaction when one is not desired,
it's important to adhere to the accord and
satisfaction provision of the UCC and
underlying state law.
The UCC also provides a safe harbor for
the depositor of a "paid in full" check. If a
check is deposited, whether inadvertently
or deliberately, the depositor can repay the
consumer the amount of the check within 90
days after payment of the check.
The depositor can also, within a
reasonable time period prior to receiving
the check, provide the consumer with a
conspicuous statement that designates
someone or somewhere to send
communications concerning disputed
debts, including an instrument tendered
as full satisfaction of a debt. If the
depositor can prove the partial payment
was not received at the designated
location, the check does not constitute a
valid accord and satisfaction.
There you have it: the rumor is true.
However, remember that a consumer
must have a bona fide dispute, tender the
check in good faith and include a "paid in
full"-type statement to be able to create
an accord and satisfaction. Savvy debt
collectors can avoid these situations by
examining checks and any accompanying
correspondence for such language, and
checking state law prior to depositing
Laura Dadd is ACA International's