What Does a Returned Check Mean and What Happens Next?

A returned check signifies that a check submitted for payment could not be processed by the bank. This event can impact both the person who wrote the check and the individual or entity attempting to deposit it. Understanding the reasons behind such an event and its financial implications is important for anyone engaged in check-based transactions.

Understanding Returned Checks

A “returned check” refers to a check that a bank declines to process for payment, essentially sending it back to the depositor. This situation is widely known by several terms, including “bounced check,” “rubber check,” or an “NSF check,” which stands for Non-Sufficient Funds. The most frequent reason for a check being returned is insufficient funds, meaning the account from which the check was drawn does not hold enough money to cover the check’s amount. However, other circumstances can also lead to a check being returned. These include a stop payment order placed by the check writer, the account being closed, or discrepancies such as a mismatched or missing signature. Checks with incorrect information, like a mismatch between the numeric and written amount, or those that are considered “stale” (over six months old) can also be rejected by the bank. Furthermore, post-dated checks, intended for a future deposit date, might be processed early by a bank and subsequently bounce if funds are not yet available.

Financial Consequences for the Check Writer

The individual or entity who writes a returned check faces financial penalties and potential banking repercussions. The most immediate consequence is a Non-Sufficient Funds (NSF) fee charged by their bank, typically $20 to $50 per returned item. This fee is imposed because the bank could not process the payment due to a lack of available funds in the account. If the bank chooses to cover the transaction, leading to a negative balance, an overdraft fee, often $27 to $35, may be assessed instead.

The check writer may also incur additional fees from the recipient’s bank or the merchant to whom the check was written. These merchant-imposed fees can vary, sometimes ranging from $20 to $50, depending on the terms set by the recipient. Repeated instances of returned checks can lead to more severe consequences, such as the bank restricting account privileges or even closing the account entirely. Account closures can make it difficult to open new banking accounts, as banks often report negative account histories to consumer reporting agencies like ChexSystems.

Financial Consequences for the Check Recipient

Receiving a returned check also brings financial impacts and administrative burdens for the person or entity who attempted to deposit it. The recipient’s bank may charge a “returned item fee” or “deposit return item fee” for processing the unpayable check, typically $5 to $11. This fee offsets the cost of handling the failed transaction. Beyond direct fees, the primary consequence is a delay in receiving the expected funds, which can disrupt personal finances or business cash flow. The recipient must then spend time and effort to contact the check writer and arrange for an alternative method of payment. If the recipient had already spent funds based on the expectation that the check would clear, they might be required to reimburse their bank for the amount.

Steps to Resolve a Returned Check

Addressing a returned check requires prompt action from both the check writer and the recipient to mitigate financial issues.

For the Check Writer

The first step involves immediately contacting the recipient to inform them of the situation and apologize for the inconvenience. It is important to ensure that sufficient funds are available in the account to cover the original amount of the check, along with any fees incurred by both parties. The check writer should then arrange for an alternative payment method, such as a wire transfer, cashier’s check, or cash, to fulfill the obligation and cover all associated penalties.

For the Check Recipient

Upon notification of a returned check, contacting the check writer promptly is necessary to understand the reason for the return and request immediate payment. The recipient can discuss options, such as whether to re-deposit the original check if the check writer confirms funds are available, though this carries the risk of incurring another fee if it bounces again. Alternatively, the recipient should request an alternative, more secure form of payment, like a certified check or electronic transfer, to ensure the funds are successfully received. If the check writer is unresponsive or uncooperative, the recipient may need to send a formal demand letter and, in some cases, pursue legal action in small claims court to recover the owed amount and fees.