What Is No Protest (NP)?
No protest (NP) is a term used when a bank receives instructions from another bank not to protest items in the event that a negotiable instrument is not paid or accepted. No protest (NP) is a term used when a bank receives instructions from another bank not to protest items in the event that a negotiable instrument is not paid or accepted. When instructing a collecting bank not to protest items for nonpayment, the sending bank will stamp no protest (NP) on the draft. This relieved the responsibility of relaying no protest instructions along with the dishonored instrument when said instrument passed through multiple banks on its way back to the originating bank. A formal protest is a process by which the holder of an instrument requests proof that a bank has refused to honor an instrument.
What Is No Protest (NP)?
No protest (NP) is a term used when a bank receives instructions from another bank not to protest items in the event that a negotiable instrument is not paid or accepted. The collecting bank is not liable for nonpayment or nonacceptance when attempting to obtain payment according to the payment terms of the draft instrument.
Understanding No Protest (NP)
When instructing a collecting bank not to protest items for nonpayment, the sending bank will stamp no protest (NP) on the draft. The collecting bank is allowed to send items stamped with NP back to the sending bank in the event of nonpayment.
Protesting Dishonored Items
Thanks to revisions of the Uniform Commercial Code and advancements in technology, formal protest of dishonored items are no longer necessary in most cases, except for instruments drawn or payable outside of the U.S., in certain commercial transactions, and in legal proceedings involving check fraud. A formal protest is a process by which the holder of an instrument requests proof that a bank has refused to honor an instrument. This proof can be used as grounds for a lawsuit against the drawer of a check or can be used as legal grounds to refuse to complete a transaction.
In order to formally protest a check, the holder meets with a notary public and a representative of the bank. The bank representative will provide the holder with a signed and notarized affidavit stating that the instrument in question was dishonored, and why. However, formal protest is no longer needed for the holder to initiate legal proceedings against the drawer. Now, an NP stamp is sufficient, and the dishonor of the instrument is established presumptively.
History of the Current No Protest System
The practice of stamping no protest or NP on a dishonored negotiable instrument began with Thomas A. Scott. Prior to this system, such instructions were not printed on the item itself, but on a letter accompanying the item. However, this system was inefficient because it forced clerks to search through documents supplied with dishonored instruments to find protest instructions. Even when found, the instructions weren’t always clear, because the cumbersome method also required no protest instructions to appear on a slip attached to the check. It became altogether easier to simply stamp NP and a brief explanation as to why the items aren’t being paid directly on the dishonored instrument. This relieved the responsibility of relaying no protest instructions along with the dishonored instrument when said instrument passed through multiple banks on its way back to the originating bank.
Related terms:
Check
A check is a written, dated, and signed instrument that contains an unconditional order directing a bank to pay a definite sum of money to a payee. read more
Checking Account
A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more
Dishonor
Dishonor, in business, is the action of refusing to fulfill contractual obligations. read more
IOU
An IOU is a document acknowledging a debt. IOU is a phonetic version of the words "I owe you." Learn how IOUs work and when they are legal. read more
of a Negotiable Instrument
A negotiable instrument (e.g., a personal check) is a signed document that promises a sum of payment to a specified person or the assignee. read more
Notice of Dishonor
A notice of dishonor is a formal notice stating that the bank will not accept a check or draft presented to the institution. read more
Pay to Order
Pay to order refers to negotiable checks or drafts paid via an endorsement that identifies a person or organization the payer authorizes to receive money. read more
Petty Cash
Petty cash is a small amount of cash on hand used for paying expenses too small to merit writing a check. Learn how to balance petty cash in accounting. read more
Power of Attorney (POA)
Power of attorney (POA) is legal authorization for a designated person to make decisions about another person's property, finances, or medical care. read more
Uniform Commercial Code (UCC)
The Uniform Commercial Code (UCC) is a set of business laws that regulate financial contracts and transactions employed across different states. read more