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.