What Happens When a Check Is Rejected?
Understand what happens when a check is rejected, its financial impact, and actionable steps to resolve the situation.
A check rejection occurs when a bank declines to process a check, preventing the transfer of funds. This common event impacts both the check writer and recipient. Understanding the reasons for a check rejection and how to address it is important for managing personal finances and banking relationships.
Common Reasons for Check Rejection
A common reason for a check rejection is insufficient funds, often called Non-Sufficient Funds (NSF). This means the account lacks enough money to cover the check. Another cause is a stop payment order, where the account holder instructs their bank to prevent a specific check from being processed. This might happen if a check was lost, stolen, or if there is a dispute regarding the payment.
Checks can also be rejected if stale-dated, meaning not presented for payment within a certain period, typically six months from issue. While banks are not obligated to honor stale-dated checks, some may still process them. A post-dated check, written for a future date, might be processed early, leading to rejection if funds are not available. Irregularities like a missing or forged signature, or an altered check where details have been changed without authorization, will cause a rejection. Finally, a check will be rejected if the account it is drawn on has been closed.
Impact on the Check Writer
When a check is rejected, the writer faces immediate financial consequences. Banks commonly charge a Non-Sufficient Funds (NSF) fee, averaging around $34 per occurrence. If the bank processes the transaction despite insufficient funds, leading to a negative balance, an overdraft fee will be assessed, averaging about $35. These fees can quickly accumulate if multiple checks are rejected or the account remains overdrawn.
Repeated check rejections can negatively affect the account holder’s banking relationship. Banks may freeze or close the account if there is a pattern of writing checks without sufficient funds. This can create difficulties in opening new bank accounts. Beyond bank fees, writing a rejected check can lead to civil liability, where the recipient may sue to recover the payment and any associated fees. Knowingly writing a check without sufficient funds can carry criminal penalties, ranging from misdemeanors to felonies, depending on the amount and intent, potentially resulting in fines or even jail time.
Impact on the Check Recipient
The individual or business attempting to deposit a rejected check faces direct consequences. Their bank may charge a “returned deposited item fee” or “returned check fee” because the check could not be processed. This fee typically ranges from around $10 to $19, though it varies by institution. The most immediate effect for the recipient is the delay or complete loss of expected funds. The money will not be credited to their account, disrupting their cash flow.
A recipient might also face financial strain if they assumed the deposited check had cleared and spent money they did not possess. This can lead to their account becoming overdrawn, resulting in overdraft fees. The inconvenience extends to the time and effort required to follow up on the payment, including contacting the check writer and making alternative arrangements to secure the owed money. The recipient may also incur fees from their vendors or creditors if the bounced check was intended for a bill payment.
Resolving a Rejected Check
Addressing a rejected check requires prompt communication between the parties involved. The check writer should immediately contact the recipient to explain the situation and discuss a resolution. The recipient should also reach out to the check writer to understand the cause of the rejection. This initial contact helps maintain goodwill and prevents further complications.
Once communication is established, confirm the reason for the check’s rejection. This understanding guides the next steps, whether due to insufficient funds, a stop payment, or another issue. If the rejection was due to insufficient funds, the check writer should add money to their account. The check can then be re-presented for deposit if funds are now available.
Alternatively, both parties should agree on an alternative payment method. This could include an electronic bank transfer, a money order, a cashier’s check, or cash. These methods ensure the payment goes through without relying on the original check. Maintaining detailed records of all communications, fees incurred, and new payment arrangements is advisable. If direct resolution fails, the recipient may consider pursuing legal avenues, such as small claims court, to recover the owed amount and any associated fees.