What Happens If a Check Bounces and What You Should Do

Understanding a Bounced Check

A bounced check, often referred to as a dishonored or non-sufficient funds (NSF) check, occurs when a bank cannot process a check because the account from which it was drawn lacks adequate money to cover the payment. The bank “bounces” the check back to the payee, meaning the intended transfer of funds does not occur. This situation impacts both the person who wrote the check and the person or entity expecting the funds.

When a check is presented for payment, the recipient’s bank requests the funds from the check writer’s bank. If the payer’s account does not hold the full amount required, the bank declines the transaction and returns the check unpaid. While insufficient funds are the most frequent cause, other issues can also lead to a bounced check. These include a closed account, a stop payment order, or technical discrepancies like mismatched signatures or incorrect amounts on the check.

Implications for the Check Issuer

When a check bounces, the individual or entity who wrote it faces immediate financial repercussions. The most common consequence is the imposition of non-sufficient funds (NSF) fees by their bank, typically ranging from $25 to $50 per incident. If the bank covers the transaction instead of returning the check, an overdraft fee, averaging around $27.08, will be charged. Additional extended overdraft fees may apply if the account remains negative.

Beyond the bank’s charges, the recipient of the bounced check may also levy their own returned check fee against the issuer to recover costs from their bank. Repeated instances of bounced checks can strain the issuer’s relationship with their bank, potentially leading to account restrictions or closure. Banks monitor account activity, and a pattern of insufficient funds signals higher risk.

Persistent issues with bounced checks can lead to an individual’s banking history being reported to specialized consumer reporting agencies, such as ChexSystems. This agency compiles information on deposit and debit history, including overdrafts and unpaid fees. A negative report with ChexSystems can make it difficult to open new checking or savings accounts at other financial institutions for up to five years. While a bounced check does not directly impact a traditional credit score, repeated failures to cover payments could indirectly affect credit if the underlying obligation leads to a collection account.

Implications for the Check Recipient

Receiving a bounced check means the expected payment has not materialized, creating an immediate financial shortfall for the recipient. The recipient’s bank will typically notify them that the check has been returned unpaid, often providing a physical copy of the dishonored check. This confirms the funds are no longer available.

The recipient’s bank may also charge a returned item fee for processing the bounced check, typically between $20 and $50. This adds to the inconvenience. The recipient is still owed the original amount and must find an alternative way to collect these funds.

After a check bounces, the recipient has several avenues to pursue payment. They can contact the check issuer directly to request immediate payment through a more reliable method, such as a wire transfer, certified check, or money order. If the issue was a temporary lack of funds, the recipient might attempt to re-deposit the check after confirming with the issuer that sufficient funds are available. However, verifying fund availability is important to avoid additional fees for another returned item.

Steps to Address a Bounced Check

When a check bounces, prompt action by both parties is important to mitigate financial penalties and resolve the situation. For the check issuer, the first step involves contacting their bank to understand the specific fees incurred and any options available. Immediately adding funds to the account to cover the original check amount and all associated fees, including NSF charges and any penalties from the payee’s bank, is advisable.

The issuer should then contact the check recipient without delay to explain the situation and arrange for prompt payment of the original amount, plus any fees the recipient may have incurred. Ensuring the payment is made quickly, perhaps through an alternative, guaranteed method like a money order or direct transfer, prevents further complications.

For the check recipient, upon notification of a bounced check, contacting the issuer directly is the immediate next action. The goal is to request the original payment along with reimbursement for any fees their bank charged due to the returned item. Clear communication about the total amount due, including the initial check value and any incurred fees, is beneficial.

If the issuer confirms funds are available, the recipient might consider re-depositing the check or cashing it directly at the issuer’s bank to avoid further fees. Maintaining detailed records of all communications and transactions related to the bounced check can be useful if further action becomes necessary.