Money orders, overdrafts, and refunds

March 6, 2007 8:30 AM

Yesterday *my friend* purchased a money order for x dollars with *his* debit card at the post office. He didn't keep in mind that the money order was for y dollars more than what he had in his checking account. Overdraft blues! But! It seems like maybe he might have just made out like the Monopoly man who gets an bank error in his favor...it's either that, or he's about to get screwed one way or another.

So. Later last night he realized that he had overdrawn by y dollars (and smacked himself around, since his first paycheck came through yesterday and he was going to deposit it today), and he checked his account online. It showed that the debit of x dollars was still processing -- but it also showed a deposit for y dollars made from the post office. x - y = a balance of zero.

He went to the bank this morning, deposited his first paycheck (which was for a healthy sum of z, which is several times x) and the bank teller (who did not seem to necessarily know what he was talking about) confirmed that a debit charge for x had been made and was still processing but that the y deposit had also gone through and the balance was zero.

The money order had been issued, signed, and sent. My friend wants to know: is the money order as good as currency? Can this accounting error (assuming that's what it is) invalidate that money order that has already been signed and sent? That would be very bad.

My own question is: is it possible that the deposit of y would remain in his account? And that this post office just knocked that amount of y off of the money he actually paid for the money order?

posted by snortlebort to work & money (12 comments total)

I would assume the bank will want the erroneous deposit for y dollars back; they probably have some disclaimer in their terms of service that makes you responsible for any errors. Just to be on the safe side I would keep a buffer of y dollars handy until this thing is played out.
posted by TedW at 8:51 AM on March 6, 2007

Err, the most likely situation is that:

a) the bank let him overdraw his account
b) some sort of overdraft protection kicked in, and a deposit was made *by the bank* to his account to cover the overdraft
c) his next bank statement is going to include a $30 fee for overdrawing his account

http://www.usatoday.com/money/perfi/credit/2007-01-24-debit-card-fees_x.htm
posted by jellicle at 8:54 AM on March 6, 2007

I don't know what bank *your friend* uses, but I use Washington Mutual, and if I overdraw my account I have until midnight that night to discover the mistake and make a deposit to cover it, and thereby avoid an overdraft charge. Handy for future reference.

To my knowledge, a money order is as good as currency, because they are secured by the bank or merchant that supplies them. Even if you overdrew, the Post Office has already taken on the burden of payment for you-- if it turned out that your payment to them had been fraudulent, the ruckus would be between you and the PO, and the third party wouldn't be involved. Which is what I think you are hoping to hear.
posted by hermitosis at 9:00 AM on March 6, 2007 [1 favorite]

This is the basis for the Western Union scam.

1) Some dupe deposits a bad check into their account. Account balance goes up.
2) Dupe buys money order.
3) Bank finds that the check is bad. Account balance goes down.
4) Western Union gets around to charging dupe's account. Account balance goes down.
5) Scam artist quickly cashes money order.

End result: Dupe gets charged for money order, and if the scammer was quick enough, he/she gets the money before WU cancels the money order.

Answer to the question: they will get around to charging your account eventually.
posted by philomathoholic at 9:00 AM on March 6, 2007

Wikipedia says money orders can't bounce. This Yahoo answers page seems to imply that they can be canceled, but I suspect that answerer's primary language isn't english as it seems that he meant "endorsed" where he used "canceled". The DMM doesn't seem to say anything about whether a postal money order can be canceled after it has been issued, however they do maintain a list of money order serial numbers that are not to be accepted so I suppose that there is a mechanism in place for this.

Are you sure that the deposit for "y" wasn't actually from the bank? I suspect what happens is that the bank's overdraft protection kicked in and they covered the difference, a service for which they will likely charge a large fee (in addition to charging the actual overdraft amount y.)

Your friend should call the bank, obviously.
posted by Rhomboid at 9:00 AM on March 6, 2007

Yes PO money orders can be cancelled, it's a loss/theft management issue. And why they tell you to keep your receipt until the receiver has cashed the MO. US Postal MO reissue, Canadian Postal MO replacement.
posted by Mitheral at 9:15 AM on March 6, 2007

Money orders are pretty much as good as cash, unless they are cancelled by the issuer. So the mythical money order I would say is 99.9% fine.

The deposit amount "y" could be an overdraft system kicking in, or it could be an electronic error generated by the Post Office's system. I would agree there is probably going to be a fee, although if the debit was in process and not actually posted, there is a chance there will be no fee.

In other words, it could go either way.
posted by Medieval Maven at 9:15 AM on March 6, 2007

The bank always wins.
posted by loiseau at 10:23 AM on March 6, 2007 [1 favorite]

Your friend might have some sort of overdraft protection in place that he doesn't know about - for example, I found out that if I overdraw my account (which I did, accidentally, a few weeks ago), the excess amount is put into my account and charged to my credit card to cover it. And there are hella fees which, if you're very nice and sweet, you can talk your bank into not charging you.
posted by echo0720 at 10:36 AM on March 6, 2007

but I suspect that answerer's primary language isn't english as it seems that he meant "endorsed" where he used "canceled".

Actually, from my reading of it, the answerer is English (given the spellings). We don't tend to use the term endorse regarding financial instruments here.. I think the long hand he's using instead is "cancelled in a person's name", meaning "endorse to cancel".
posted by wackybrit at 11:24 AM on March 6, 2007

For more info see Wiki on Check kiting.
posted by MonkeySaltedNuts at 12:21 PM on March 6, 2007

Loiseau is right.

Sigh.
posted by I_Love_Bananas at 2:52 PM on March 6, 2007