Why Does a Check Bounce and What Happens Next?

A “bounced check,” also known as a returned check, occurs when a financial institution cannot honor a payment instrument. This situation arises because the account from which the check was drawn lacks the necessary backing or has other issues preventing the transaction’s completion. This article explains the common causes for checks being returned and the subsequent steps taken by financial institutions.

Key Reasons for a Check to be Returned

Insufficient funds (NSF) is the most frequent reason for a check to be returned. This means the account holder does not have enough money in their checking account to cover the amount written on the check when presented for payment.

A check can also be returned if the issuing account has been closed by the account holder or if the bank has frozen the account. An account might be frozen due to legal actions, suspected fraudulent activity, or unresolved disputes.

An account holder can issue an instruction to their bank not to honor a specific check, known as a stop payment order. This is often done if a check is lost, stolen, or if there is a dispute. Once a stop payment order is active, the bank will refuse to honor the check if presented.

Technical issues can also lead to a check being returned. A check presented for payment too long after its issue date, over six months, is considered “stale-dated” and banks are not obligated to honor it. Conversely, a “post-dated” check, written for a future date but presented early, may also be returned if the bank adheres strictly to the date.

Banks compare the signature on the check to the one on file; a discrepancy can cause the check to be returned as an unauthorized signature. Checks that appear altered, such as changes to the amount or payee, are rejected. Checks missing essential information, like a payee or the numerical and written amounts, cannot be processed and are returned.

Financial Implications of a Returned Check

When a check bounces, financial consequences arise for both the check writer and the entity attempting to deposit it. The check writer, known as the drawer, incurs Non-Sufficient Funds (NSF) fees, also called overdraft fees, from their bank. These charges are applied each time a check is returned unpaid due to insufficient funds, and they can range from approximately $25 to $35 per item.

If the check writer’s bank chooses to pay the check despite insufficient funds, they might charge an overdraft fee, which can average around $27 to $35, potentially leading to a negative account balance.

The check recipient, or payee, also faces financial repercussions. Their bank will charge a “returned item fee” or “deposit item returned fee” for attempting to process a check that could not be honored. These fees generally range from $10 to $25. Both parties experience direct monetary costs stemming from the check’s failure to clear the banking system.

Bank Processing of Returned Checks

When a check cannot be honored, the banking system initiates a return process. The check travels back through the payment network, from the payee’s bank, through any intermediate clearinghouses, and finally to the drawer’s bank. This ensures the originating institution is aware the funds are unavailable.

Upon notification that the check is being returned, the drawer’s bank refuses payment and marks the check as “returned unpaid.” Both the check writer and the check recipient are notified by their respective banks. These notifications can arrive through postal mail, secure online banking alerts, or mobile application notifications, informing them of the failed transaction and any associated fees.

The original physical check, or an electronic image, is sent back to the bank that initially accepted the deposit from the payee. This allows the payee’s bank to reverse the provisional credit and provide the payee with details regarding the returned item. This process typically takes two to five business days for non-fraudulent cases.

The payee or their bank may attempt to “re-present” the check for payment again, hoping funds have become available in the drawer’s account. This re-presentment is a procedural step allowing for a second attempt at collection without requiring a new check.