What to Do About Returned Checks

what is a returned check

Whether you write a check, use your debit card, or make an electronic funds transfer, if you don’t have that money already in your account, your bank can decline the transaction due to insufficient funds. Bounced checks are typically written by people who don’t realize that their bank accounts have insufficient money to cover the check.

Tell them you’re trying to build good credit you want to make sure that this bad check someone wrote you doesn’t sabotage the process. If they do report to either those bureaus you can request a free copy of your report each year. Those reports are used primarily when consumers open checking accounts, not when they apply for loans. There are different laws in each statethat outline regulations for bounced checks, both for civil and criminal penalties.

Civil penalties—those that address how much bad check recipients can collect to cover returned check fees and other charges—can often exceed the amount of the original payment. Another option is to have a backup account, such as savings or a line of credit, from which funds could be transferred to your checking account if an overdraft occurs. Some banks and credit unions charge transfer fees for this option, but the fees are usually much less than overdraft charges. A bounced check is one that is returned — or bounced — to its original bank because the money is not in the check writer’s account to process it.

Bounced check fees: Overdraft and NSF

What happens if a check is returned?

A returned check is a check the bank does not honor. The check will be returned to the bank that submitted the check for payment. If you are the check writer, it means your bank will not pay the person or business to whom you wrote the check.

Check fraud is a very serious charge and is a wobbler crime in California. In many cases, if the amount is small and you can cover it quickly, no civil action will be taken against you. However, if you bounce checks repeatedly and do not cover the costs, a civil lawsuit can be brought against you.

The first step to take in reporting a bad check is to contact your customer by phone or by mail. Follow-on actions often require you to send a written notice by certified mail, showing that you made the attempt to notify your customer. Note that whether or not you sign up for overdraft protection, your bank might still allow payments to go through when you’re short of cash (and charge you insufficient funds fees). Automatic recurring payments, such as utility payments or insurance premiums, will most likely be paid even if you’ve asked your bank to decline transactions when you’re out of money. When you make a payment from your checking account, you should have that money available already.

Risks of Writing Bad Checks

Rarely do people knowingly write bad checks with ill intent. Writing a bad check, even of a small amount, is a crime in all 50 states. Non-sufficient funds’ cases, where the check bounces due to lack of money in the account, are prosecuted both as misdemeanor and felony cases every day. However, to successfully prosecute a bad check a specific process must be followed. Even in check fraud law, the writer is considered innocent until proven guilty and must be given a chance to rectify the situation.

Unfortunately, banks occasionally return checks, and dealing with them can be a frustrating process. If you are the recipient of a bad check, you can take several steps to recoup the money you lost on the sale, as well as the fees you incurred from your bank. If you have any doubts about depositing a check you’ve received, it’s wise to verify funds and find out whether the check is likely to bounce. If you deposit a bad check, you’ll have to pay bank fees, plus you’ll need to take additional steps to get the money you’re owed. A customer may submit a check that won’t clear to try to avoid incurring late payment fees and interest by making it look like the credit card bill is paid on time.

I might add that I still have that returned letter containing the second check written for that $25, still unopened, my only proof that I was not defrauding anyone. For any business, accepting checks is a service to its customers.

If the check’s account is open but can’t cover the check, your bank may indicate the deposit did not go through due to insufficient funds. Your bank will also charge you a fee for handling a bounced check. If someone writes you a bad check and you deposit the check at the bank, or cash it at your bank you will be penalized. They will charge you a fee for the bounced check and it may take a couple days for it to reflect. Overdraft protection is a fund transfer or loan that banks offer to customers to cover checks or debits larger than their account balances, so as to avoid nonsufficient funds fees.

The other thing you will want to do is to ask Bank A if they report the bounced check to TeleCheck or ChexSystems. Just be upfront and honest with them; these things happen all the time.

There is also the Card Act which applies to credit card overlimit fees which requires an opt in and generally limits them to a reasonable amount (roughly $25 for first offense though not set in stone). The average NSF fee is just under $33 so your bank’s appears to be on the high side.

To find out whether your credit card has a returned payment fee and how much it is, check the card’s terms and conditions. If you’re worried aboutbouncing checks, request payment in different forms. The money will only transfer if it exists, will typically appear within a few days, and there’s often an electronic trail for law enforcement to follow, if necessary. You can also ask for cashier’s checks ormoney orders—just be aware that thieves routinely use fake documents, so you can run into the same problems you’d havewith a bad check. Maybe you are thinking of the settlements against several large banks with regard to how they ordered checks in order to extract the maximum overdraft fees.

what is a returned check

Returned payment fees are charged when a customer makes a payment with insufficient funds to cover a payment. Credit card companies generally have some of the highest returned payment fees. These fees are usually outlined in a borrower’s credit card agreement.

  • Managing your finances in an age where we have multiple bank accounts, checks, debit and credit cards can be complex.
  • If you have multiple accounts or multiple cardholders on your accounts, you may not have good tabs on what is going on with your finances.

What is a returned check fee?

Whether you write or receive a bounced check — also called a nonsufficient funds, or NSF, check — it will cost you. Write one and you’ll owe your bank an NSF fee of between $27 and $35, and the recipient of the check is permitted to charge a returned-check fee of between $20 and $40 or a percentage of the check amount.

Returned payment fees may also be assessed on scheduled payments declined for insufficient funds. The first fee you could face technically may not be for a returned check. But your account balance would go negative, and you would probably be charged an overdraft fee to compensate your bank for the inconvenience. If the balance is significant enough that you are willing to file suit, you may be able to get your money, plus bank fees, filing fees and perhaps two or three times the amount of damages, Ambrosini says. “If the check writer has a job, you will be able to get paid out of the wages, the bank account or other deposit accounts,” he said.

If you know you won’t have enough money in your checking account to cover your credit card payment by the due date, don’t send the credit card company a check. While you will still have to deal with late fees and interest, at least you won’t have a returned payment and an NSF fee on top of that. Overdraft protection is optional; you need to opt in if you want it on your checking account, and it’s not always a good idea. Opt in, and you authorize your bank to process every transaction, whether you can afford it or not, as well as charge you fees each time you overdraw.

Bounced Check: The True Costs and What You Can Do

You can avoid a return check fee by ensuring that you have enough money in your checking account to cover the payment before making the payment. Be sure you’ve balanced your checkbook to consider any transactions that may clear your account in the next few days. You risk incurring a return check fee if you’re trying to float checks or pay bills in a certain order because you can’t afford to pay everything.

Managing your finances in an age where we have multiple bank accounts, checks, debit and credit cards can be complex. If you have multiple accounts or multiple cardholders on your accounts, you may not have good tabs on what is going on with your finances. We’ve all made mistakes and bounced checks, often through no fault of our own. Most of the time, simply covering the bounced check amount along with some fees will absolve you of your damages.

If your check is returned by your bank, the payment won’t be applied to your account and your credit card issuer will charge a returned check fee as a penalty. Anyway, so Bank 2 closed my account because of the check charge also.

This can lead to a number of fees, and probably some headaches. One so-called rubber check could end up costing $65 or more. If there’s a risk you won’t have the funds to cover a transaction, you’re better off not writing a check for it. Banks and businesses process checks electronically, and consumers can even deposit checks with their mobile phones. But what worked in the past (writing a check while your account is low on funds, for example) might not work anymore and can result in a returned check that you later have to redeposit.

If you don’t opt in, your debit card will simply be declined at the cash register if you try to make a payment that you can’t afford. Then you can choose whether to use a different card, pay cash, or do without.

While returned payment fees are most common with checks, they may also occur with online scheduled payments. Consumers should be cautious when paying with a check or setting up an automated payment.

As with many criminal charges, writing bad checks, also called check fraud, can result in jail time. If your business accepts checks from customers regularly, contacting banks for every check is not practical. Automated check verification services can help you figure out if you’re likely to get paid, but they don’t necessarily verify recent account balances. Instead, those services flag accounts and people who have a history of writing bad checks—and that’s useful information.

However, some people write bad checks on purpose and those people can be criminally prosecuted. Writing checks you know will bounce, with the intent to defraud the merchant you are paying, can result in criminal charges being pressed against you. The intent is a very important component of this criminal charge; if you accidentally wrote a bad check, you will not be charged criminally.

what is a returned check

Your bank may close your account

Some services even guarantee payment if they fail to alert you to a bad check. A bounced check is a check that cannot be processed because the check writer doesn’t have enough money in their checking account. The bank will bounce or return these checks instead of depositing the money in your business bank account. And, the bank might also charge your business for depositing a bad check.

What Is Writing Bad Checks Called?

Unfortunately, you may also face an insufficient funds fee from your bank as well. A lot can happen between the time you mail the check for your credit card payment and when the credit card issuer takes the check to the bank. Unexpected expenses or accounting errors can drain your bank account and leave you without enough money to cover your credit card payment.

Author: Anfisa Dmitrieva

Anfisa is a talented entrepreneur and business trainer in financial analytics and currency trading. In this blog she talks about accounting services, payroll calculation, investment consulting, tax training and much more.

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