What to Do If a Check Bounces: Steps for Both Sides
Facing a bounced check? Understand the process and practical steps for both the recipient and the writer to resolve it and mitigate financial impacts.
A bounced check, also known as a dishonored check or a non-sufficient funds (NSF) check, occurs when a bank returns a check unpaid. This happens because the account on which the check was drawn lacks enough funds to cover the payment. While insufficient funds are the most common cause, other reasons include incorrect information on the check, a closed account, a stop payment order, or an outdated check. When a check bounces, it creates financial complications for both the check writer and the recipient, leading to fees and other repercussions.
Steps for the Recipient of a Bounced Check
Immediate action can help resolve a bounced check situation. The first step involves directly contacting the check issuer to inform them of the bounced check and request a valid payment. This direct communication can clarify the issue and facilitate a quick resolution.
Your bank may charge a returned item fee for processing the bounced check. These fees can range from approximately $12 to $38, depending on the bank. While re-depositing the check is an option, it should be approached with caution, as it may incur additional fees if it bounces again.
Requesting an alternative payment method from the issuer, such as cash, a certified check, or an electronic transfer, is a more reliable approach once the issuer has sufficient funds. Depending on local regulations or prior agreements, you may also be entitled to recover any fees you incurred from the issuer. Keeping detailed records of all communications and fees is beneficial for further action.
Steps for the Issuer of a Bounced Check
If your check bounces, proactive steps can mitigate consequences. Promptly contacting the check recipient to apologize and arrange for an immediate, valid payment is important. Open communication can help preserve the relationship and prevent additional issues.
Quickly deposit enough funds into your account to cover the original check amount and any associated fees. Your bank will likely charge a non-sufficient funds (NSF) fee or an overdraft fee, averaging between $17.72 and $35. If you have overdraft protection, your bank might cover the check, but you will still incur an overdraft fee, around $27.08.
Negotiating with the recipient and offering to cover any fees they incurred due to the bounced check demonstrates goodwill and helps resolve the matter swiftly. To prevent future occurrences, regularly monitor your account balances through online banking or by setting up account alerts. This practice helps ensure sufficient funds are available for all transactions and can prevent unexpected shortfalls.
Consequences of a Bounced Check
A bounced check carries several financial and banking repercussions for the issuer. Both the issuer’s bank and the recipient’s bank will impose fees. Additionally, the recipient, particularly a business, may charge an extra fee for the bounced check, often between $20 and $40, as allowed by state laws.
While a single bounced check does not directly impact your traditional credit score, repeated instances can severely affect your banking reputation. Banks often report such behavior to check verification services like ChexSystems, which tracks banking history, including bounced checks and unpaid fees. A negative ChexSystems report can make it difficult to open new bank accounts in the future, potentially limiting your access to financial services for up to five years.
In severe cases, especially with larger amounts or repeated offenses, the recipient could pursue legal action to recover the funds and associated fees. This might involve sending a formal demand letter and, if necessary, filing a claim in small claims court. Beyond financial penalties and potential legal issues, a bounced check can also damage trust and relationships with the recipient and your financial institution.