Returned Checks and Electronic Checks, ACH and EFTs CFO Division

“The most common reason for a check to bounce is when there are insufficient funds to cover the check amount,” says Salvador Gonzalez, accounting and management professor at Walden what is a returned check University. Note that if a bank does charge you an overdraft fee for a bounced check, you won’t also be hit with an NSF fee for the same transaction. If you write a check without having enough funds, you could be looking at other penalties either instead of or in addition to a returned check fee.

What Is a Returned Check Fee?

In most cases, when receiving a returned check, many business owners want to give their customers the benefit of the doubt. When you don’t have enough money in your account to cover a check you’ve written, the check is rejected and “bounces” back. Bouncing a check can be embarrassing and hurt your reputation with the business or person you attempted to pay, and the financial consequences can be even more painful. Fraud can also result in a fee from a returned check, as scammers understand how to manipulate the check processing system.

How can I prevent bounced checks?

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• Lenders and other recipients of checks that are returned have the right to recoup some of the costs incurred in the process of trying to deposit them.
• Routing Number Results are Updated Daily from the eRoutingNumber™ Database.
• Insufficient funds can result from poor money management, unexpected expenses, or delayed deposits, making it crucial for individuals to closely monitor their account balances and transactions to avoid bouncing checks.
• Sending a returned check notice is a customer-friendly way of initiating the process of collecting the outstanding payment.
• LegalZoom is not a law firm and does not provide legal advice, except where authorized through its subsidiary law firm LZ Legal Services, LLC.

A financial institution may return the check if you ask the bank to stop payment, if the recipient tries to deposit it months after the date written on the front, or if you post-date a check. And if any critical information is missing on the check, such as a signature, the bank might reject it then, too. If a customer has $20 in a checking account and attempts to make a $40 purchase with a debit or check card and has not opted-in to the bank’s overdraft plan, the transaction will be declined by the retailer. A customer with $100 in a checking account may initiate an automated clearing house (ACH) or electronic check payment for a purchase in the amount of $120. If the bank accepts the check and pays the seller, the checking account balance falls to –$20 and incurs an overdraft (OD) fee. Banks often charge NSF fees when a presented check is returned or payment cannot be made due to a lack of funds to cover it.

As the person receiving the payment, you must pursue the writer of the check if you wish to seek reimbursement. Different banks charge different fees for bounced checks and overdrafts, but as of 2023, the latest data available, the average overdraft fee was $26.61. Banks usually assess this fee on drafts for checks as well as electronic payments and some debit card transactions. Many times, bad checks are written inadvertently by people who simply are unaware that their bank balances are too low. To avoid bouncing checks, some consumers use overdraft protection or attach a line of credit to their checking accounts. Banks have different policies regarding bounced checks, including how they handle returned checks, the fees they charge for bounced checks, and the steps they take to notify customers of returned checks.

In 2011, Bank of America settled a two-year-old class action for $410 million for reordering customer transactions and charging overdraft fees in this way. TD Bank paid over $62 million in a class action settlement for the same mismanagement of fees in 2010. When a check is written and deposited by the payee, their financial institution must make the funds available to them within two business days after they make the deposit. If funds are not available from the payer’s bank account, it is deemed as insufficient and an NSF fee is assessed.

Contacting the Check Writer

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Negative Impact on Credit Score

However, the bank will then charge you an overdraft fee, which is $26.61 on average, according to Bankrate’s study. Unfortunately, returned checks are a fact of business for many small business owners. Sending a returned check notice is a customer-friendly way of initiating the process of collecting the outstanding payment. In many cases, customers will repay the amount they owe plus your returned check fee within the deadline you’ve stipulated. If, after sending the letter, you encounter trouble getting your customer to pay, you may then consider escalating the collection process with a more aggressively worded payment notice. Some banks offer free overdraft protection, which will tap into a backup funding source, like a savings account, to keep your checks from bouncing.

Let the bank know you’ve written a check and have realized you don’t have the funds in your account to cover the transaction. You might be able to work with your bank to move money from another account to pay the check and cover any fees you’ve been charged. Banks aren’t required to notify an account holder when a check they signed bounces due to non-sufficient funds.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. The Consumer Financial Protection Bureau (CFPB) is a federal agency responsible for protecting consumers in the financial marketplace. Offers that appear on this site are from third-party advertisers from which Credit Karma typically receives compensation. Except for mortgage loan offers, this compensation is one of several factors that may impact how and where offers appear on Credit Karma (including, for example, the order in which they appear).

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The main causes of bounced checks are insufficient funds, account holder error, and fraudulent activity. In the context of bounced checks, the CFPB enforces regulations related to fees, disclosures, and other consumer protections, ensuring that individuals are treated fairly by banks and other financial institutions. When a check is returned by the bank for any reason, Banking and Merchant Services (BMS) will process a deposit reversal for the amount of the check and forward the returned check to the appropriate department.

Responsible banking practices, such as monitoring account balances, keeping track of transactions, and understanding legal regulations and protections, are essential in preventing and dealing with bounced checks. Additionally, the recipient of the bounced check may also be charged a returned check fee by their own bank, adding to the financial burden of the situation for both parties involved. One of the primary causes of bounced checks is insufficient funds in the account of the person who wrote the check. This is the fee charged by the lender or business to which you wrote the check. It is charged to recover some of the cost of trying to deposit your bad check. Financial institutions usually don’t report bounced checks to credit bureaus such as Equifax, Experian and TransUnion.