We’ve all bounced a check at least once in our lives, and that’s fine! After all, it happens to the best of us, but why does a check bounce? And what makes check bouncing so frequent?
Some payors have no idea how easy it is to get a check wrong. You think you’ve entered the correct info, put your signature on it, and are waiting for the payee to give you the green light. But they never do! That’s because the check could’ve bounced for any reason.
A bounced check can pull you into a money rut, and you can even end up receiving harassment calls from a collection agency! So, to ease your personal finance management and help you avoid the worst-case scenario, we’ll now talk bounced checks 101!
What Is a Bounced Check?
A bounced check is an overthrown check due to insufficient funds on the side of the payor. The payee, a.k.a. the receiver of the money, reserves the right to take legal action against the payor.
Let us draw you a picture for a better idea. Say you’re buying something at the store, and you issue the store owner a money check for the goods. You wrote the check only to discover you lack the funds to cover it! Simply, you bounce it. That means you don’t pay up the required sum. Now, either the bank will cover the amount plus extra fees, or the store owner will take matters into their own hands.
Mind you, the bank will only pay up if the money check isn’t too big. In any other situation, you’re the sole person responsible and will face the consequences of a bounced check.
Other technical reasons for a bounced check that may occur are expired or damaged checks, mismatched writing, or overwriting. All of these can result in a bad check. So, no! Not every bounced check is intentional, but we’ll talk more about that later.
Can a Cashier’s Check Bounce?
The primary reason one may opt for a cashier’s check instead of a personal one is for security. Cashier’s checks are issued by the payor’s bank. So, rather than the payor settling the check, their bank will do the job for them. That guarantees the check receiver that their money will reach their bank account one way or another. After all, you’re more likely to trust a reputable bank than an unfamiliar payor, right?
Thus, a cashier’s check cannot bounce.
Many view the answer to this question as ambiguous due to the number of cashier’s check scams circulating the internet. Remember, banks are legally bound to pay up for every cashier’s check, and no bank would risk their reputation just to steal money from payees! If you don’t receive the funds from a cashier’s check, then we’re talking about fraudulent behavior.
What Fees Will You Incur When a Check Bounces?
There are a few types of additional costs that can occur when you bounce a check. There are non-sufficient funds, overdraft fees, and merchant fees. To give you a better idea of how they differ in practice, we’ll go over each one in detail.
Non-Sufficient Funds (NSF) and Overdraft Fees
An NSF fee and an overdraft fee are two distinct terms that refer to a cash shortage. Both can result in fines. When banks return presented payments (such as checks), they charge NSF fees. When they accept checks that overdraw checking accounts, they incur overdraft fees.
You may face insufficient funds when writing bad checks. Bad checks are simply bounced checks, meaning they exceed your account balance. One cannot avoid an NSF or rubber check fee. If you have issued a check to someone, you’ll either pay in full or face additional costs.
In some scenarios, your bank could probably settle the outstanding debt for you. But for that to happen, you’ll have to watch your purchases and not go over your limit. On the other hand, if you spend more than you can afford, you’ll end up paying off the price in full. And don’t forget the insufficient fees!
An overdraft fee is pretty similar to NSF fees and is issued when your checking account is overdrawn. If you don’t have enough funds to cover the check, you’ll face overdraft charges. Those are additional costs you make on top of the initial payment.
The NSF fee amount by state can vary, but the average is about $35.
Even though not every bank supports overdraft protection, you should look into whether yours does. This type of protection serves the payor and protects them from getting rejected by a payee. If your bank supports overdraft protection, then rest assured the payment will be safely deducted from your account balance.
However, you should know that this will result in additional costs that can affect your credit score. This is because banks can ‘write’ checks for you, but they have to receive something in return for doing you a favor. The typical overdraft fee is around $35, but its exact amount can vary from one place to another.
Now, we’re not talking about standard merchant fees that the merchants pay themselves here. We’re talking about the fees a merchant can impose on you for bouncing a check. Your merchant will charge fees on you for having to ‘clean the mess’ of your bad check.
Merchant fees are pretty costly, ranging from $20–$40. Their exact amount will depend on your state of residence and merchant, though.
What Happens After Bouncing a Check?
If you deposit a check through a checking account with insufficient funds, you may face an NSF fee, an overdraft fee, or both. Merchant fees also play a huge role here, as the payee will want to be reimbursed for the bounced check.
In addition, the bank may close your account on the premise that you committed a crime. That’s why you should always check if you have enough money in your checking account to cover the check.
Some consumer reporting agencies (CSAs) like TeleCheck can reject your check for reasons we’ll talk about now.
TeleCheck is a consumer reporting agency used by merchants everywhere. Even big chains like Walmart use it! They rely on TeleCheck to let them know about the payor’s standings. In return, TeleCheck makes sure everything is in order before merchants deposit the check a customer gave them.
Sure, you may have enough money to cover the costs, but you can never know for sure if your check will bounce.
With TeleCheck, a check can bounce for many reasons. It could be that they have insufficient info on you to accept the check amount. There could also be a record on TeleCheck of your previous bounced checks. Not only does that harm your standings with credit unions, but with TeleCheck, too. That could make it far more difficult for you to pay merchants that use a CRA.
However, we advise you don’t sweat it just yet! Even if TeleCheck doesn’t accept your payment, the merchant can still ignore TeleCheck’s warnings and follow through with the check.
Bank Account Closure
Bank account closure isn’t something that happens often. You have to be highly disobedient for a bank to close your account forever. For example, bouncing too many checks can get you in trouble with your bank, and the bank will have no choice but to close your account!
If you bounce too many checks in a short period, you’ll be forced to get a new checking account. The bank issuer will do this to protect themselves as well as any potential merchants.
What Should You Do if You Write a Bad Check?
Sometimes the check you wrote will end up getting bounced due to technical issues. That includes bad handwriting or an unrecognizable signature. Or perhaps you thought the check had cleared and went on with your business, spending your checking account funds. In most cases, though, the payor lacks the necessary funds. Whichever the case, this will result in bad checks.
As long as you are not intentionally bouncing a check, you are good to go. You can try to remedy the situation in a couple of ways:
- Explain the problem. If you do accidentally bounce a check, you should contact your bank issuer and explain the situation. Most of the time, you won’t get fined. Instead, you will end up paying extra fees. Banks do this to cover the additional costs of having issued a bounced check.
- Fix the problem. So, you made your bank and the payee aware of your mistake. Now it is time to fix it! If you don’t want outstanding debt to cloud your credit score, try to pay it up as soon as possible. While you may believe you’ll end up hurting your score, that’s far from the truth. The sooner you pay up, the faster the bank will erase any traces of your bad check.
- Try to steer clear from repeating your mistakes. The more checks you bounce, the more difficult it’ll be for you to make deals with other merchants in the future. If you want to retain a stellar reputation, always ensure you have good standings before writing a check.
Bouncing checks on purpose is illegal and considered a misdemeanor in most states. It is a practice that can result in criminal charges and even jail time!
Can You Go to Jail if You Write a Check That Bounces?
The short answer is yes. The long answer is you may face a civil or a criminal lawsuit. That can be detrimental to your credit score and overall trustworthiness as a payor. Bouncing a check can forever leave a mark on your reputation and put off potential merchants from making deals with you.
So, what is the difference between a civil and a criminal lawsuit?
If you face a civil lawsuit, you’ll have to pay the check amount in the form of fines. If you get handed a criminal lawsuit, you’ll be facing potential jail time. Not to mention they’ll open you a criminal record and up your fines!
You can avoid jail time by requesting some form of settlement between you and the check receiver. Perhaps you’ll agree to settle the debt and move on; however, if you still receive a lawsuit, there are ways to get out of it unmarked. If you agree to abide by the civil lawsuit, you’ll end up avoiding jail time. Even better, you can try being more responsible and sort out the situation before it gets to court.
What To Do if You Receive a Bad Check?
If you happen to receive a bounced check and want the funds in your account, you can take several actions:
- Contact the sole issuer of the check. You can go down the easiest route by getting in touch with the person that handed you the check. Explain the situation as it is and hear them out. If they refuse to take responsibility for the bounced check, it’s time to move on to the next step.
- Send a demand letter. You can always approach the situation more delicately than calling up a collection agency. Find an online template for a demand letter you can send to the issuer of the check. In the said letter, you’ll demand that the situation is resolved, or repercussions will follow. That way, you’ll push them into a corner. They’ll have no choice but to write a check that’ll go through this time! Make sure you state a deadline by which the issuer must write a new check. Nonetheless, if they’re still not cooperating, it’s time to tighten the measures!
- Get the court involved. While getting the court involved may not sound like a dream scenario to you, sometimes it is the only option. For example, if you’re being promised money and not seeing a single cent, you can take legal action against the payor. In this case, the receiver of the bounced check goes to a small claims court without the presence of a lawyer. It is essential that you understand the procedure in full before showing up in court. This is a far better idea than filing a regular lawsuit, which can cost you an arm and a leg!
- Call up a debt collection agency. Of course, this step comes before the court mandate. Still, we’ve included it far down the list due to the aftermath that may follow. A debt collection agency will happily pester the check issuer to pay up, but the payor can also complain about the agency being over the top. Some even go as far as filing harassment charges! Sure, scaring the payor a little may just work in your favor, but it isn’t the wisest decision due to the possible contra effect.
So, today we learned all about bounced checks. But to avoid this happening to you or for history not to repeat itself, it’s vital that we do a quick recap. A bounced check indicates that you’re lacking the necessary funds, or perhaps you have made some other mistake while writing it up.
A bad check will most likely result in overdraft or insufficient costs—that is unless you take preventative measures. If the merchant wishes so, you could also have to pay up a merchant fee.
If a payor decides to withhold the check money, they may face a civil or criminal lawsuit and even jail time. Avoid bouncing checks by always going over the writing, and more importantly, your available account balance. If you need quick cash and don’t want to write bad checks, you can always get a payday loan online and deal with the situation hassle-free.