What Is a Returned Check Fee and Why Is It Charged?

A returned check fee is a charge imposed when a check cannot be processed and paid by the bank it was drawn on. Banks or credit unions levy this fee to cover administrative costs and deter writing checks without sufficient funds. This occurs when a check “bounces” or is “returned unpaid” due to an issue with the payer’s account.

Reasons for a Returned Check

A primary reason a check might be returned is due to insufficient funds, commonly known as Non-Sufficient Funds (NSF). This occurs when the account balance is lower than the amount of the check written, preventing the bank from honoring the payment. Another common cause is a stop payment order, where the account holder instructs their bank not to pay a specific check. This could be due to a dispute with the payee, or if the check was lost or stolen.

Checks can also be returned if the account from which they are drawn has been closed or frozen, making it impossible for funds to be disbursed. Errors in the check itself, such as incorrect account details, misspelled names, or illegible handwriting, can also lead to a return. Checks presented before their written date (post-dated) or after a specified period, typically six months (stale-dated), may also be rejected.

A signature discrepancy is another reason for a check’s return, occurring if the signature on the check does not match the one on file with the bank. This measure helps prevent fraud and ensures authorized transactions. If a check is unsigned, it will also be returned.

Sources and Amounts of Returned Check Fees

Returned check fees can originate from several sources, impacting both the check writer and, at times, the recipient. The bank on which the check was drawn typically charges a non-sufficient funds (NSF) fee or a returned item fee to the account holder who wrote the check. These fees vary significantly by financial institution but commonly range from $25 to $40 per returned item. Some institutions may charge as low as $12 or as high as $70.

In addition to your own bank’s charges, the payee’s bank, where the check was deposited, may also impose a fee to their customer for attempting to deposit a check that was returned unpaid. This is often called a “deposited item returned” fee, and is usually lower than the drawer’s fee. Such a fee is commonly less than the overdraft fee, usually around $5 to $10.

Beyond banking institutions, the payee (e.g., a business or individual) may also charge additional penalties or service fees for a returned check. These charges are intended to cover their own administrative costs and any late fees incurred due to the delayed payment. These merchant-imposed fees can range from $20 to $40, depending on state regulations and the merchant’s policies.

Direct Financial and Banking Implications

The immediate financial consequence of a returned check extends beyond the fees themselves, as the original payment obligation remains outstanding and must be settled through alternative means. The payee may also impose additional late payment penalties or service charges, further increasing the total amount owed.

Repeated instances of returned checks can lead to more severe banking implications. Banks may view frequent returned checks as a sign of poor financial management and could decide to close the account. If an account is closed due to recurring bounced checks or uncollected fees, this information may be reported to consumer reporting agencies, such as ChexSystems.

A negative record with ChexSystems can make it difficult to open new bank accounts at other financial institutions for a period of time. While returned checks do not directly impact credit scores, unpaid debts from bounced checks that are sent to collections can negatively affect one’s credit report. Knowingly writing a bad check can carry legal ramifications, ranging from civil penalties to criminal charges, depending on the jurisdiction and the amount involved.