Bad Checks: Dos and Don'ts

When it comes to checking accounts, the first thing you must always do is keep enough money in your account to cover all your checks, even if that means keeping a little extra money in your account for a “cushion.” If you don't, you run the risk of “bouncing” a check. Also, always keep a current record of the checks you write and the ones that have been debited from your account. This is commonly referred to as “balancing your checkbook.”

Overdraft Fees and Service Fees.

If you write a check without enough money in your account to cover the check, you can be held responsible for additional costs. While your bank will often charge you overdraft fees on your account, the creditor, collector or other party who received your check can hold you liable for not only the amount of the check, but also a service fee. Your liability for service fees will depend upon state law.

Dishonored checks are commonly called nonsufficient fund (NSF) checks. Most U.S. states have specific NSF service fee statutes that allow for service fee amounts ranging anywhere from $15 to $40. These laws generally allow the holder of the NSF check to collect either a specific service fee amount or an amount not to exceed the maximum allowed NSF service fee. Even in states that do not specify the amount of the NSF service fee that can be applied, the party who received the NSF check may assess a NSF service fee based on contract law or the Uniform Commercial Code (UCC).

Most states require the holder of the check to provide you with some kind of notice of liability for the dishonored check in order for the NSF service fee to be collectable. In addition, some states require a notice to be posted at the place of purchase in order for the NSF service fee to be collectable. The idea behind these point-of-sale signs is that you will see the notice when you write the check and you'll understand the terms of the notice. So if you write a check where a NSF service fee sign is posted, you have accepted the terms of the NSF service fee. If your check is dishonored or “bounces,” the check holder can use that posted notice as a way to assess costs against you. Notice of liability can also be provided in billing or account statements.

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