What to Do About Returned Checks

Text reads: "What to do it you have accepted a bad check: request that the check writer make good on the payment; go to the bank the check draws on and try to cash it; take further action (file a lawsuit, contact a collections agency, etc.,); try cashing it at the beginning or end of the month; research laws about bad checks in your state"

Image by Chloe Giroux © The Balance 2020

A returned check is a check that the receiving bank does not honor. If you're the check writer, having a check boomerang means that your bank will not pay the person or business to whom you wrote it. And if you received the check, a returned check is one for which you won’t get paid—at least not right away.

Understanding why a check you send or receive might get denied and what financial recourse is available can help you overcome this impractical scenario and avoid it next time.

Basics of Returned Checks

Banks and businesses process checks electronically, and consumers can even deposit checks with their mobile phones. But what worked in the past (writing a check while your account is low on funds, for example) might not work anymore and can result in a returned check that you later have to redeposit.

These are checks that the check writer’s bank cannot process and that it therefore denies and returns to the bank that submitted the check for payment. Potential causes for returned checks include: 

  • Insufficient funds: A check can bounce when the sender issues what is known as a non-sufficient funds (NSF) check, which is one that an individual doesn't have enough money in their account to cover.
  • Stop payments: A request not to pay a check that has been issued can also result in a returned check.
  • Check too old to honor: A bank may treat a check as uncollectible if it was cashed more than six months after the date of the check.
  • Improperly written: A check can be returned if the sender fails to sign it, for example. 

Because of these restrictions, it's increasingly difficult to float checks (write them before you have the available funds) and hope that the funds will arrive in your account before your check gets deposited. Even if you write a paper check, there's a good chance that the check will be converted to an electronic check at the checkout register and that funds will be available to the recipient quickly—generally within two business days after the check was deposited. If you don't have the funds, the check could bounce, and you'll have to try and send it again.

If a check is denied for insufficient funds, a bank will generally let you deposit it again, but there's no strict rule regarding how many times it has to let you redeposit it.

Risks of Writing Bad Checks

Whether you intended to or not, 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, including NSF fees if you're the issuer or a returned-check fee if you're the recipient.
  • Your bank may close your account, and other banks might reject you as a customer as a result.
  • Your credit can eventually suffer if a bad check results in a late payment, making it difficult for you to borrow money (or get a job or insurance).
  • You’ll end up in deadbeat databases used by banks and retailers, making it harder to open accounts and write checks in the future.
  • You can find yourself in legal trouble, since intentionally writing bad checks is illegal.

An NSF fee is imposed when a bank returns a check unpaid. It's equivalent to an overdraft fee—around $35 per failed transaction at large retail banks.

What to Do If You Get a Bad Check

If you’ve received returned checks as a merchant or simply as an individual, you may wonder how to interact with people who write bad checks (to get the money you were owed). Ideas include:

  • Just ask: For starters, try to collect the money. Contact the check writer and request that 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 that 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 a returned-check fee for depositing bad checks.
  • 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. Some banks will be unwilling to verify funds because of privacy concerns, but they may still confirm whether the associated bank account exists.
  • Seek out legal remedies: If the check writer will not make good on the returned check, you may have to take more aggressive actions to get your money. For example, you might have to write a demand letter, and if that fails to provoke payment, file a lawsuit against the check writer or send their account to a collections agency.

Each state has different laws on how to handle returned checks and the associated 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 Returned Checks

The only surefire way to avoid receiving a check that the bank denies is to stop accepting checks as a form of payment. Since that might put you out of business or make it inconvenient to receive payment, the next best thing is to reduce the chances of taking a bad check by taking precautionary measures:

  • Look for security features on a check, including microprinting (tiny characters on a check) and a watermark on the back.
  • Enlist a check verification service to identify customers who have a history of writing bad checks.
  • Convert paper checks to electronic checks through a check-conversion service, 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 (disclose the fee properly at the point of sale and ensure that the disclosure complies with all laws).
  • Encourage other forms of payment. Potential chargebacks make it costly and risky to accept card payments, but if you come out ahead, it may be worth it.

Article Sources

  1. HelpWithMyBank.gov. "Dictionary of Banking Terms and Phrases." Accessed April 13, 2020.

  2. Board of Governors of the Federal Reserve. "Consumer Compliance Handbook: Regulation CC Availability of Funds and Collection of Checks," Page 6. Accessed April 13, 2020.

  3. Office of Financial Management. "85.22 Deposit Adjustments and Returned Payments." Accessed April 13, 2020.

  4. Santander Bank. "What Is a Returned Deposited Item?" Accessed April 13, 2020.

  5. HelpWithMyBank.gov. "Answers About Funds Availability: I Deposited a Local Check. When Will My Funds Be Available/Released From the Hold?" Accessed April 13, 2020.

  6. Office of the Comptroller of the Currency. "Checking Accounts: Understanding Your Rights." Accessed April 13, 2020.

  7. HelpWithMyBank.gov. "Answers About Overdraft/NSF Fees and Protection: How Many Times Will a Bank Allow an Insufficient Funds Check to Be Redeposited/Resubmitted?" Accessed April 13, 2020.

  8. VeriCheck. "State Allowed NSF Fees." Accessed April 13, 2020.

  9. Federal Deposit Insurance Corporation. "Have You Bounced Yourself Out of a Checking Account?" Accessed April 13, 2020.

  10. Consumer Financial Protection Bureau. "I Bounced a Check. Will This Show up on My Credit Report?" Accessed April 13, 2020.

  11. Washington State Legislature. "Unlawful Issuance of Checks or Drafts." Accessed April 13, 2020.

  12. Consumer Financial Protection Bureau. "A Closer Look: Overdraft and the Impact of Opting-In," Page 1. Accessed April 13, 2020.

  13. Wells Fargo. "Verification of Wells Fargo Accounts." Accessed April 13, 2020.

  14. MSU Texas. "Returned Check Policy." Accessed April 13, 2020.

  15. U.S. Department of Treasury. "U.S. Treasury Check Security Features," Page 1. Accessed April 13, 2020.

  16. Cross Check. "Use Check Verification to Authorize Checks." Accessed April 13, 2020.