What happens if someone writes you a bad check and you cash it? In some cases, the check may simply bounce and the bank simply will not process it. In other cases, the person attempting to cash a bad check may be subject to fees or even be suspected of fraud. To avoid these negative consequences it’s always important to verify the legitimacy of a check before you cash it, and never cash a check on behalf of someone you don’t know or trust.
There may come a time when you deposit a check that later bounces. You may stressfully ask, “What happens if I deposit a bad check?” Do not panic! Here’s everything you need to know about bad checks and what you can do about the situation.
Bad Check vs. Fraudulent Check
A bad check, or bounced check, is a check that bounces due to insufficient funds or a closed account. A check typically bounces when the payer does not have enough money in their bank account to cover the cost of the check. However, a check can also bounce due to fraud or a bank error.
A fraudulent check, also known as a fake check, is used by someone intentionally trying to deprive a person or entity of money. Fraudulent checks can look like personal checks, cashier’s checks, money orders, etc. Regular people, and even bank employees, unintentionally fall victim to a fake check scam every year. According to SQN Banking Systems, over half a million Americans fall victim to fake check scams every year!1 The good news is that there are red flags you can spot.
Types of Fake Check Scams
Fake check scams affect people every year, and victims typically lose thousands of dollars! These scams work because fake checks often look real. Read about some common types of fake check scams below.
Overpayment Scam
An overpayment scam is when someone attempts to pay you more than necessary to receive the difference after you deposit the fake check. This scam typically occurs when you sell items online. The fake check bounces a few days after you cash a check at the ATM or bank. The best way to avoid an overpayment scam is to refuse a check for more than your selling price.
Prize Scam
Scam artists will attempt to contact you about a sweepstakes prize you have won. You will receive a fake check in the mail, but the scam artist will ask you to send money to cover the cost of taxes, shipping, and processing fees. You will not have to pay anything out of pocket if you have won a legitimate sweepstakes prize.
Car Wrap Decal Scam
There are legitimate businesses that will pay you to advertise using car wraps. However, these types of companies will not charge you installation fees. But a scam artist will try to convince people to deposit fake checks and send money to installers that do not exist.
Mystery Shopping Scam
Mystery shopping is a legitimate way to make extra money. Still, there are scam artists that pose as mystery shopping companies. A scam artist will ask you to deposit a fake check and then wire money back to cover taxes or processing fees. A legitimate company will not charge you for work. Keep an eye out for suspicious fees and guarantees of a lot of money.
What if I Deposit a Bad Check Into My Checking Account?
When you deposit a check into your checking or savings account, your bank has to make your funds available within a few days. However, most financial institutions will place a hold on a check deposit to ensure it clears. Bank customers must wait about two business days to access their deposited funds.
Keep in mind that a cleared check does not mean it is a good check. You may find out weeks later that you deposited a bounced check. If you deposit a bad check into your checking account, you may face the following consequences:
Overdraft Fees
You will likely have to pay your bank an overdraft fee for a bounced check. According to the Forbes Advisor 2020 checking account fee survey, the average cost of an overdraft fee is $24.38. However, banks and credit unions can charge more than $29!
Negative Account Balance
If a deposited check bounces, the account owner is responsible for paying that spent money back to a bank. Financial institutions urge customers to be wary of cashing a check if they do not personally know the check writer. If you don’t have enough money in your bank account when the funds of a bounced check are withdrawn, you can get a negative balance! Negative balances will incur overdraft fees.
Financial Risk
Suppose you accidentally fell victim to a bounced check scam. If you deposited a bogus check and then sent money to a scam artist, you face losing a lot of money. You could face a significant financial loss since most bank policies do not honor a bad check.
Depending on the situation, multiple bounced checks may result in a frozen or closed account. Bank accounts are frozen when a bank employee suspects illegal or suspicious activity. And if you have too many bounced checks or too many overdrafts, your bank account can be closed.
What if I Write a Bad Check?
Now that you know the consequences of depositing a bad check, you may wonder what happens if you accidentally write a bounced check. Below are some of the repercussions of giving out bounced checks.
Criminal Charges
If an account holder writes a personal check that bounces due to insufficient funds, they’re at the mercy of the payee. The check recipient has the legal right to sue you and take you to civil court. If you are found guilty, a judge will order you to pay the check amount and additional fines.
Reporting to Consumer Reporting Agencies
Suppose a person does not make smart financial choices and constantly writes bad checks. In that case, the bank can report a customer’s finances to consumer-reporting agencies. For example, ChexSystems is a financial credit bureau that collects banking information.
If you want to open a new checking account, the bank will likely look up your checking account history. An entry in ChexSystems will remain for up to five years, and it could prevent you from getting an account with a financial institution. But you may still be able to qualify for online cash advance loans since most creditors review your credit reports from TransUnion, Equifax, and Experian.
How To Avoid Getting Bad Checks
If you want to avoid the hassle and stress of a bounced check, you can take steps to avoid violating your deposit account agreement.
Ask for a Certified Check
You need to know that a certified check is a paper check issued by a bank or credit union. This type of payment guarantees the check writer’s account has sufficient money, so you can rest easy knowing the payment won’t bounce. Certified checks are more secure than personal checks, and the bank or retailer can replace lost or damaged checks.
Ask for a Money Order
A money order is a paper check issued by a bank or credit union. Money orders guarantee payment and cannot bounce, so they are very secure. A money order requires money upfront from a guaranteed form of payment. This payment type cannot be cashed by anyone other than the written recipient on the money order.
Only Work With People You Know
Check fraud is a risk you need to be wary of when working with people you do not personally know. The best way to prevent depositing a bounced check is to deny checks from strangers. Consider using a secure money transfer service such as Venmo or PayPal if you sell items online.
Additional Insights Into Handling Bad Checks
| Aspect | Description |
| Bank Policies | Different banks have varying policies regarding bad checks, it’s essential to be familiar with your bank’s specific procedures and fees. |
| State Laws | Laws regarding bad checks vary by state. Some states may impose criminal charges, while others focus on civil remedies. |
| Time Frame for Reporting | There might be a specific time frame within which you need to report a bad check to legal authorities or the bank. |
| Customer Support Services | Banks often offer customer support services to guide victims of bad checks, providing necessary information and assistance. |
| Check Verification Services | Some banks offer check verification services that can help in determining the validity of a check before it is cashed. |
| Mobile Banking Risks | Mobile banking apps have different security measures. Ensure that your app offers adequate protection when dealing with checks. |
| Insurance Coverage | Explore whether any insurance options cover losses due to bad checks, such as fraud protection services. |
| Educational Resources | Banks and financial institutions often provide educational resources to help customers identify and handle bad checks. |
| Alternative Payment Methods | Consider the reliability of alternative payment methods like electronic transfers, which might offer more security than checks. |
| Community Support Forums | Online forums and communities can offer support and advice from others who have experienced similar issues with bad checks. |
Bad Check FAQ
What should I do immediately after realizing I’ve cashed a bad check?
If you accidentally attempt to cash a bad check, contact your bank immediately to inform them of the situation. They can provide guidance on the next steps and necessary precautions.
Can my bank help in recovering the lost money due to a bad check?
Banks usually have procedures to assist customers in such situations, but recovery is not always guaranteed. Cooperation with the bank’s process is essential.
What legal actions can I take against the person who gave me a bad check?
You may consider filing a small claims lawsuit. Legal advice from a professional is recommended to explore all available options based on your situation.
How can I identify a bad check before cashing it?
Look for inconsistencies such as different fonts, missing information, or incorrect MICR codes. Verifying the drawer’s identity and contacting the issuing bank can also be helpful.
Does cashing a bad check affect my credit score?
Directly, it might not, but unresolved issues like unpaid negative balances could be reported to credit bureaus, potentially affecting your credit score. Having a bad credit score will affect your ability to find approval for financial products like installment loans.
How long does it take for a bank to notify me if I’ve deposited a bad check?
It varies, but banks usually notify customers within a few days after the check bounces.
Can I be held liable for unknowingly cashing a fraudulent check?
Generally, you won’t face criminal charges if you unknowingly cash a fraudulent check, but you may be required to assist in the investigation.
What preventive measures can I take to avoid receiving bad checks?
Consider using secure payment methods like wire transfers or electronic payments, especially when dealing with unfamiliar parties.
Can I charge a fee to the person who gave me a bad check?
Laws vary by location, but in some places, you can charge a fee or seek reimbursem*nt for costs incurred due to the bad check.
How can I report a bad check scam to the authorities?
You can report to local law enforcement and also file a complaint with the Federal Trade Commission (FTC) or other relevant consumer protection agencies.
CreditNinja’s Take on Avoiding Bad Checks
We all run into financial problems sometimes, whether it be accidentally submitting a bad check, dealing with insufficient funds, or getting through an unexpected financial emergency. The key is recognizing the issue right away and coming up with a financial plan. If you want to learn more about handling your finances and dealing with unexpected expenses check out the CreditNinja dojo. CreditNinja is dedicated to informing consumers on all things financial, which is why we offer tons of articles, personal loan debt calculators, and other resources on our website for free!
References:
1. 101 Facts About Check Fraud | SQN Banking Systems
2. How To Avoid Writing Or Receiving A Bounced Check
3. How To Spot, Avoid, and Report Fake Check Scams
