What to Do About Returned Checks

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A returned check is a check the bank does not honor. The check will be returned to the bank that submitted the check for payment. If you are the check writer, it means your bank will not pay the person or business to whom you wrote the check. If you received the check, a returned check is one for which you won’t get paid—at least not right away.

Basics of Returned Checks

Returned checks are checks the check writer’s bank denies. Potential causes for returned checks include: 

Banks and businesses process checks electronically, and even consumers can deposit checks with their mobile phones. What worked in the past (writing a check while your account is low on funds) might not work anymore.

It is increasingly difficult to float checks and hope that funds will arrive in your account before your check gets deposited. Even if you write a check on paper, there's a good chance the check will be converted to an electronic check at the checkout register and funds will come out of your account very quickly—within 24 hours.

What to Do If You Have Accepted a Bad Check

If you’ve received returned checks as a merchant, you may wonder what you can do about people who write bad checks. Ideas include:

  • Just ask: For starters, you can still try to collect the money. Try to contact the check writer and request they make good on the payment. It may have been an honest mistake, and they may have every intention of paying you. This is one reason it’s good to verify checks always show a current phone number.
  • Visit the branch: You can also go to a branch of the bank the check draws on and try to cash it. The money you need (if it exists) will be at the check writer's bank, not yours. When you visit the bank in person, you may also be able to avoid bounced check fees for depositing bad checks. A merchant or any recipient of a bounced check gets charged when a check is returned.
  • Time it right: If you’re fortunate, you'll be at the bank shortly after the check writer has deposited money. The beginning or end of the month might be a good time to try and collect if the person gets paid with direct deposit. You can also try to save yourself a trip by calling the bank and asking to verify funds on the check. However, banks are not always willing to verify funds due to privacy concerns.
  • Next steps: If the check writer will not make good on the returned check, you may have to take additional steps. For example, you might file a lawsuit against the check writer, and you can send their account to a collections agency (although both of those are only cost-effective for large checks).
  • Know the law: Each state has different laws on how to handle returned checks, the penalties, and dollar limits. Contact your bank or your local district attorney’s office for instructions on how to deal with any returned checks you currently have.

Preventing Problems

How can you avoid dealing with returned checks going forward? The only surefire way is to stop accepting checks. Since that might put you out of business, the next best thing is to reduce the chances of taking a rubber check. A few ideas are below:

  • Obtain a check verification service that can help you identify customers who have a history of writing bad checks.
  • Contact the customer's bank to verify funds before accepting a check and letting the customer leave with merchandise.
  • Convert checks to electronic checks or deposit them immediately with your mobile device (if possible).
  • Charge a fee to customers to discourage bounced checks and to compensate you for your time (be sure the fee is disclosed properly at the point of sale and complies with all laws).
  • Encourage other forms of payment. It can be costly (and risky) to accept card payments, but if you come out ahead, it's worth it. 

Problems With Writing Bad Checks

If you write checks that are eventually returned, you’re setting yourself up for trouble. A few of the problems you'll encounter are:

  • You’ll end up paying a lot in fees (both to your bank as well as to whomever you wrote the check).
  • Your bank may close your account, and other banks might reject you as a customer.
  • You can find yourself with legal problems, since writing bad checks is illegal.
  • Your credit can eventually suffer, making it difficult for you to borrow money (or get a job or insurance) someday.
  • You’ll end up in deadbeat databases used by banks and retailers, making it harder to open accounts and write checks in the future.

Article Sources

  1. Santander Bank. "What is a Returned Deposited Item?" Accessed March 24, 2020.

  2. Federal Deposit Insurance Corporation. "Check Clearing for the 21st Century Act (Check 21)." Accessed March 24, 2020.

  3. Office of the Comptroller of the Currency. "Checking Accounts: Understanding Your Rights." Accessed March 24, 2020.

  4. Judicial Council of California. "Sample 'Bad Check' Demand Letter." Accessed March 24, 2020.

  5. State of California Department of Justice. "Bad Checks." Accessed March 24, 2020.

  6. Washington State Legislature. "Unlawful Issuance of Checks or Drafts." Accessed March 24, 2020.

  7. VeriCheck. "State Allowed NSF Fees." Accessed March 24, 2020.

  8. BBVA. "About Overdraft Fees." Accessed March 24, 2020.

  9. Consumer Financial Protection Bureau. "I Bounced a Check. Will This Show Up On My Credit Report?" Accessed March 24, 2020.