Understanding NSF Checks: Causes, Consequences & How to Avoid Them

In other cases, if a check bounces, the person or company being paid reports the issue to debit bureaus such as ChexSystems, which collects financial data on savings and checking accounts. Negative reports with organizations like ChexSystems can make it hard for consumers to open checking and savings accounts in the future. An NSF check is a check that has “bounced”, a term used to refer to a bank’s declination to provide funds from the account listed on the check. This is typically because the account has insufficient funds to cover the transaction.

What To Do If You Receive a Bad Check

In some cases, your customer may unintentionally send an NSF check. By bringing the issue to your customer’s attention, you give the customer the opportunity to pay you in full and maintain your business relationship. You can also discuss any returned-check fees you were charged and whether you expect to be reimbursed. Bouncing three checks over five days what is an nsf check is considered financial fraud and, as such, becomes a felony offense, even if the checks are for relatively small amounts.

Accounting Ratios

Customers will see a “non-sufficient funds” or “insufficient funds” notice on a bank statement when attempting to withdraw more money than their account holds. However, if the bounced check was issued for child support, charges will be upgraded to a Class B misdemeanor. You could face a maximum punishment of up to 180 days in jail and a fine of up to $2,000. Bad checks can have serious consequences, and not just for the person who intentionally wrote them. The recipient will also have to deal with consequences, including lost revenue, bank fees, and fines. If you get charged NSF fees, you can ask your bank to waive all or some of the fees.

Say you write a check to your landlord for $600, yet your checking account only has a balance of $500. When your landlord attempts to cash the check, the bank doesn’t allow the check to go through and charges you an NSF fee as a result. For a clearer sense of how much NSF fees could cost you, it’s a good idea to check with your bank as well as your state regulator or attorney general for the laws in your state. If the check turns out to be fraudulent, the bank may charge you a fee and pull those funds back out of your account. If you don’t have enough funds to cover pending transactions, you could face more fees on those transactions. For example, let’s say you hire a professional home painter as part of a home remodeling project.

If the bank accepts the check, but it makes the account negative, the bank charges an overdraft fee. If the account stays negative, the bank may charge an extended overdraft fee. By taking initiative, you can demonstrate you’re a responsible customer and ask about ways to provide payment for the amount of the check and any returned check fees the merchant might charge. The fees vary by merchant and by state, and they can impact your ability to write further checks at the same business. VCI, formerly VeriCheck, offers a state-by-state list of maximum returned check fees that merchants are allowed to charge across the U.S.

Criticism of NSF Fees

If there isn’t at least $750 in your account when she deposits the check, the bank may return the check stamped with “NSF” and deduct an NSF fee from your account. A repeated pattern of writing bounced checks may be considered fraudulent activity because the checks were written with the intent of not honoring payment. However, most NSF checks are not criminally prosecuted because the issuers will pay as soon as they learn of their negligence. Sending a demand letter by certified mail can encourage a customer to pay you before more serious, and expensive, actions are necessary. The formal letter may include the check information, why it was returned, and a request for remittance of the check amount and bank fees charged to you.

Some merchants who receive bad checks will attempt to deposit them a second time in hopes of receiving their money. If that happens and you still don’t have enough in your account to cover the check, you’ll be charged a second returned check fee by your bank. In general, many banks provide overdraft protection automatically to cover checks or electronic ACH payments. But to receive overdraft protection for debit card transactions, you need to opt in.

Enable email or mobile alerts for low funds

• Banks have been urged to lower these fees by the CFPB, which refers to them as “junk fees” that can drain Americans’ budgets.
• Plus, the agency points out, the customer doesn’t benefit from the practice at all.
• 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.
• On top of that, companies can also receive funds from their customers through their bank accounts.

Let them know that if you have not received payment by the due date, you will file a small claims court claim against them. 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. NSF Fees average $34 each, according to 2022 data from the Consumer Financial Protection Bureau (CFPB). In other words, the person writing the check is fully aware that the check will bounce due to nonsufficient funds (NSF). The initial receipt of a check from a customer entails altering two accounts.

Take advantage of this feature as a backup to tracking your account balances and transactions. You never know when something might slip through the cracks or you may forget about a payment. When this occurs, the bank or credit union may decline to pay or return the item unpaid and then charge an NSF fee. On top of the charge from the financial institution, you may get hit with a charge from the merchant as well.