New York passed a law that requires banking institutions to pay checks in the order they are received or pay checks from the smallest to largest dollar amount for each day’s transactions. Additionally, if a bank dishonor a check for insufficient funds and thereafter smaller checks which could be paid are received, the smaller checks will be honored within amounts on deposit in the subject account. These requirements must be provided to customers in a written disclosure at the time the account is opened or prior to any change in the bank’s policy. Prior to this law, banks could process checks in any order so long as the processing order was disclosed and a bank that received a check for more than the amount of funds in the customer’s account could dishonor that check and all subsequent checks even if there was enough funds in the account to pay the smaller checks.

In light of this new law, financial institutions should review their disclosures to ensure that the processing order is accurate and these requirements are specified. This law is effective January 1, 2022.