What Happens If You Deposit a Bad Check?
Uncover the full financial and procedural implications when you deposit a bad check. Understand the banking process and its effects.
When a check is deposited into a bank account, it is processed to ensure the funds are available from the check writer’s account. A “bad check” refers to a check that cannot be successfully processed or honored by the bank it is drawn upon. This can occur due to insufficient funds in the issuer’s account, a closed account, or a stop payment order. Depositing such a check initiates a series of actions and can lead to various outcomes for both the depositor and the check issuer.
Bank’s Actions After a Bad Check Deposit
Upon depositing a check, banks often grant provisional credit, making the funds available in your account before the check fully clears. If the check is subsequently identified as “bad” by the issuer’s bank, this provisional credit will be reversed, and the amount will be debited back out.
The bank will notify the depositor that the check has been returned unpaid. This notification typically arrives via mail, an alert in online banking, or sometimes a phone call, informing the depositor of the issue and reason for the return. The physical check, or an electronic image of it, is usually returned to the depositor, often bearing a notation indicating the reason (e.g., “Insufficient Funds” or “Account Closed”).
For processing a returned deposit item, the depositor’s bank will often charge a fee. This “returned deposit item fee” or “chargeback fee.” These fees range from $10 to $30, depending on the financial institution’s schedule.
Impact on Your Account
The reversal of provisional credit directly impacts the depositor’s account balance. If the account did not have sufficient funds to cover the returned check amount after the credit reversal, it could result in a negative balance.
When the account balance goes negative due to the returned check, the depositor may incur overdraft fees. These fees, which are separate from the returned deposit item fee, are charged when the bank covers transactions exceeding the available balance. Overdraft fees range from $20 to $35 per item, depending on the bank’s policies.
A negative balance in the account can also affect linked accounts or scheduled automatic payments. If linked accounts or automated bill payments are set up, these could bounce due to insufficient funds. This can lead to additional fees imposed by the bank for non-sufficient funds (NSF) on those transactions, or by third-party payees for late or failed payments. Repeated instances of returned items or overdrafts can negatively impact the depositor’s banking relationship, potentially leading to restrictions on account services or even account closure by the financial institution.
Consequences for the Check Issuer
The individual or entity who wrote the bad check also faces direct consequences from their financial institution. When a check is presented for payment and there are insufficient funds in the issuer’s account, the issuer’s bank will charge a non-sufficient funds (NSF) fee. This fee, similar to an overdraft fee, is between $20 and $35 per returned item.
Repeatedly writing checks that bounce can severely impact the issuer’s banking relationship. Financial institutions may view such activity as a risk, and persistent instances of returned checks can lead to the closure of the issuer’s bank account.
Information about closed accounts due to negative balances or excessive bounced checks may be reported to consumer reporting agencies, such as ChexSystems. A negative report with such an agency can make it challenging for the individual to open new checking or savings accounts at other financial institutions for several years. Intentionally writing a bad check can also carry legal ramifications. This may include civil lawsuits filed by the payee to recover the amount of the check, along with additional damages and collection costs. In some circumstances, particularly if there is clear intent to defraud, writing a bad check can lead to criminal charges, such as check fraud.
Steps for the Depositor
After being notified of a returned check, the immediate step for the depositor is to contact the person or entity who issued the check. Communicate clearly about the returned payment, understand the reason, and request immediate payment. Often, these situations are due to an oversight or miscalculation rather than malicious intent.
Maintaining thorough records is important throughout this process. The depositor should keep copies of the returned check, all correspondence with their bank, and any documentation related to incurred fees. These records provide a clear audit trail and are valuable if further action becomes necessary.
When attempting to re-collect the funds, it is advisable to request payment through more secure methods than another personal check. Options such as cash, a money order, a cashier’s check, or a direct wire transfer help ensure legitimate and available funds. These methods reduce the risk of another returned item. If the check issuer is unresponsive or if the situation appears to involve deliberate deception, the depositor should consider reporting suspected check fraud to their bank. Depending on the circumstances and the amount involved, reporting the incident to local law enforcement may also be appropriate. Throughout this period, diligently monitoring the bank account for any further unexpected activity is a prudent measure to ensure financial security.