Must banks accept paper Treasury checks?

No federal law requires banks to accept paper checks for deposit or cashing, including U.S. Treasury checks.

A bank may decide not to accept certain categories of checks as a matter of policy. In fact, Treasury and the IRS are actively phasing out paper checks for federal disbursements and collections because of fraud risk and operational inefficiency, consistent with the risk-based approach many banks now take with respect to paper checks.

What does exist, however, are requirements that apply if a bank chooses to accept and present a Treasury check, including if the item turns out to be counterfeit:

• UCC Articles 3 and 4 govern the rights and liabilities after a check is taken for collection or payment; they do not require a bank to accept a check in the first instance.
• Regulation CC (Expedited Funds Availability Act) 12 CFR Part 229 regulates availability, returns, warranties, etc., once a check has been deposited; it does not require a bank to offer any check deposit services.
• 31 CFR Part 240 (Treasury checks) explicitly allocates risk and reclamation rights once a Treasury check is endorsed and presented, but does not obligate a bank to accept Treasury checks.

Banks concerned about Treasury check fraud often:

• Refuse to cash Treasury checks for noncustomers;
• Accept Treasury checks for deposit only and require use of the Treasury Check Verification System (TCVS); or
• Decline Treasury checks entirely, especially in high fraud geographies or for new or low relationship customers.

This trend is driven by the significant liability and reclamation risk placed on presenting banks that accept counterfeit Treasury checks under 31 CFR Part 240. In addition, a payee generally has little basis to assert a claim against a bank for refusing to cash or accept a check drawn on another institution, such as a Treasury check. Because the bank is neither the drawer nor the drawee of a Treasury check, refusing the item typically does not create exposure to wrongful dishonor. (By contrast, a bank may have risk exposure under UCC § 4 402 if it wrongfully dishonors an “on us” check drawn on the bank itself. )

Any bank considering restricting or discontinuing its acceptance of paper checks generally, or paper Treasury checks specifically, should evaluate its potential policy against:

• UDAAP risk – Is the policy clearly disclosed and applied consistently?
• Customer impact – Are alternatives available for existing customers (ACH, wire, digital deposit)?
• State law – Do any state consumer protection restrictions or disclosure requirements apply?
• Account agreements – Do deposit agreements provide the bank with discretion to refuse items?

Bottom line - There is no requirement that a bank accept paper checks, including paper Treasury checks, and many institutions are actively narrowing or exiting that channel due to fraud exposure.