What is a Bounced Check?

A bounced check is slang for a check that cannot be processed because the account holder has nonsufficient funds (NSF) available for use. Banks return, or “bounce”, these checks, also known as rubber checks, rather than honoring them, and banks charge the check writers NSF fees.

Passing bad checks can be illegal, and the crime can range from a misdemeanor to a felony, depending on the amount and whether the activity involved crossing state lines.

How Does a Bounced Check Work?

When there is not enough money in a bank account to cover the value of a check, the bank may do one of two things. First, it may apply the note to the account, which will result in a negative balance for the payer, called an overdraft. Second, the bank may return the note to the payee.

It is important to note, the payee is the person or entity the check was written to as a means of payment or compensation. The fact that the check “comes back” to the payee is captured by the word “bounce” in the phrase.

In general, bounced checks are typically the result of a payer’s poor accounting or negligent retrieval of up-to-date financial data. Payers who write bad checks are routinely penalized with a negative account balance, penalty fees from their bank, penalty fees from the payee, or some combination of these three scenarios.

Checks should be written for an amount that is less than or equal to the checking account balance at the time the check is deposited or cashed by the recipient. In the event that the checking account balance is lower than the amount of the check at the time it is deposited or cashed, the bank may not honor the check and, in most cases, will return it to the recipient with a penalty fee attached.

To illustrate, suppose Bob’s checking account has a current balance of $200. Bob writes a check to Steve for $100 and Bob withdraws $125 from his account the same day. When Steve takes the check to his bank to deposit it the next day, the check bounces because Bob’s checking account balance is only $75 ($200 – $125).

Occasionally, a check can bounce due to a minor, unintentional mishap. However, there are other more serious situations which can include criminal activity.

Why Checks Bounce

When people pay by check, there is trust involved: No cash changes hands immediately, and it will take several days for the funds to move from one account to the other. The payee (or recipient of the check) doesn’t really know how much money the check writer has available for spending, but most customers don’t make a habit of bouncing checks, so checks are often accepted on faith.

In other words, merchants and service providers accept checks assuming the checks will clear without any problems.

You can write anything: It’s possible to write a check for any amount you want, whether or not those funds are really available for spending in your checking account. Writing rubber checks intentionally is illegal, and a bad idea for numerous reasons, but it’s easy to do.

Accidents happen: Sometimes checks bounce by accident. A check writer might believe they have funds available, but unexpected withdrawals reduce their balance and catch them by surprise. For example, automatic electronic payments, outstanding checks that hit an account unexpectedly, and large debit card holds can cause checks to bounce. Plus, sometimes people just forget to make deposits or check their account balance.

When a payee attempts to deposit or cash a check, it goes to the check writer’s bank (in paper or electronic form). The bank will verify if the checking account has funds available, and the bank will pay the check if all is well. If there are any problems, the bank will provide a brief description and return the request to the payee’s bank.

Closed accounts: If the checking account was closed for any reason, checks will be rejected. In some cases, this is a sign of fraud, and it can also happen when payees are slow to deposit checks.

Stop payment: If the check writer placed a stop payment on the check, the bank should honor that request. In those cases, payees need to find out why the request was made and make arrangements for an alternative form of payment.

Issues with the check: Banks can refuse to honor a check if there’s anything suspicious. Common problems include missing signatures and stale-dated checks, but other issues can cause banks to flag a check.

What Happens When a Check Bounces?

Bank fees are just one part of bouncing a check. In many cases, the payee also assesses a charge. For example, if someone writes a check to the grocery store and the check bounces, the grocery store may reserve the right to redeposit the check along with a bounced check fee.

In other cases, if a check bounces, the payee reports the issue to debit bureaus such as ChexSystems, which collects financial data on savings and checking accounts. Negative reports with organizations like ChexSystems can make it hard for consumers to open checking and savings accounts in the future. In some cases, businesses collect a list of customers who have bounced checks, and they ban them from writing checks at that facility again.

How to Avoid Bounced Checks

Consumers can reduce the number of bounced checks they write by tracking their balances more carefully, using an ironclad system of recording every single debit and deposit on a check register as soon as it occurs, or by keeping close tabs on their checking account using online banking.

Consumers can also fund a savings account and link it to their checking account to cover overdrafts. Alternatively, consumers may opt to write fewer checks or use cash, debit cards, immediate online payments such as mobile wallets, PayPal, or the likes for discretionary spending.

Check writers need to ensure that they have sufficient funds available for every check they write. There are several steps they can take to prevent checks from bouncing.

• Know your balance: Check your available balance (which might be different from your account balance) often. Use personal finance apps and text messages with your bank to understand when money leaves your account.
• Keep a buffer: Leave extra money in your checking account for unexpected expenses. That money can help when you forget about payments that hit your account, and when you need cash for an emergency. If you constantly keep your account balance just above zero, you’re more likely to pay overdraft charges.
• Balance your account: Keep track of your account balance, deposits, and withdrawals. If you balance your accounts, you’ll know what’s going on in your account before your bank does. You’ll have time to make deposits or transfer funds to avoid bouncing checks and paying penalty fees.
• Communicate with payees: If you write a check and you later realize that it’s going to bounce, then contact the payee immediately. Let them know before they deposit the check, and make other arrangements. This will save time and money for both of you.

Legal Trouble

What are the legal consequences of bouncing a check? In many cases, it is illegal to write a check when you know that it will not clear (although things can get fuzzy when it comes to postdated checks).

If you don’t clear things up quickly, you may face civil (you have to pay fines) or criminal (you face potential jail time) penalties.

The legal consequences for writing bad checks vary from state to state and depend on the circumstances. If you accidentally bounce a check now and then, civil charges (or no charges at all) are most likely. But if you intentionally or habitually pass bad checks (especially big ones), you may face criminal charges. In some states, you have an opportunity to make good on the payment before charges can be filed—you might have a 30-day window, for example.

Civil charges result in extra costs, and you probably don’t have extra money—that’s why the check bounced in the first place—so it’s critical to act fast. Communicate with your payee or the agency that is collecting the money on their behalf. If they are successful in bringing a lawsuit against you, you may have to pay legal fees, service charges, or a penalty based on the amount of the original check—for example, 150% of the amount of the check.

Criminal charges can go on your criminal record, might eventually result in jail time, and are likely to come with higher fines. However, just because you’re threatened with criminal charges doesn’t mean anybody can successfully bring a case against you. Contact a local attorney immediately if anybody mentions criminal charges. To prevail, the creditor will need to prove that the debt is yours, which they can’t always do. Also, they’ll need to take action before any statute of limitations passes.

Debt Collectors and District Attorneys

Most businesses don’t have the resources to collect on bad checks. What’s more, most law enforcement agencies don’t have the resources to track down consumers who occasionally bounce a small check. As a result, private debt collection agencies may end up doing most of this work.

In some areas, debt collectors may partner with local law enforcement agencies. District attorneys (DAs) provide letterhead and authorize the debt collectors to use the DA’s logo. Debt collectors handle the logistics of finding and contacting consumers. They then share revenue—fees and penalties—with the DA’s office.

Unfortunately, some of these “bad check restitution programs” are confusing to consumers, who believe they are receiving official government correspondence. Consumers might believe that the DA intends to file criminal charges (which may or may not be accurate), and they might not allow consumers to plead their case. In fact, the DA’s office might not even review the cases. Recipients are typically intimidated and confused, and they receive instructions to pay the amount due (plus fees). They may even have to sign up for a financial accountability class at their own expense.