What Happens With a Chargeback Check?

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A "chargeback" is much like what it sounds like. Chargebacks are often associated with credit cards, but they can occur with bank accounts, too.

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In the case of bank accounts, an equivalent sum of money may have been credited to your balance because you deposited a check. But the check isn't honored by the paying bank. That bank declines to transfer the money to your bank and ultimately to your account, so your bank reverses the deposit.

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Financial mayhem and headaches can result, but you have some options to protect yourself.

Why Banks Won’t Honor Some Checks

The most common reason why a bank won't pay and honor a check is that the account holder doesn't have enough money in the account to cover the deposited item. The check might be made out for $100, but the account holder only has $99.95 in their account. That missing five cents can be enough to trigger a chargeback, although it's generally left to the issuing bank's discretion as to whether to pull the plug or go ahead and honor the check regardless.

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It's also possible that the account holder or payee "stopped payment" on the check. They instructed their financial institution not to pay it for one reason or another.

The potential for chargeback fraud is another common culprit. It's possible that the account holder reported their checks, a fraudulent transaction, or debit card lost or stolen.

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The Effect of a Chargeback on Your Bank Account

It doesn't matter that you have little or any control over this situation. Your bank – the acquiring bank – will most likely hit you with a chargeback fee for having to return the check to the issuing bank. Veridian Credit Union charges ‌$10‌ for this inconvenience.

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And, of course, the amount of that return item will be subtracted from your account because the bank never actually received the money. Your bank balance will drop to what it was before you made the deposit. This can be particularly troublesome if you wrote checks against that higher balance. Now your bank will decline to pay that check and the individual or entity to whom you wrote the check will suffer a chargeback. You'll most likely be hit with an overdraft fee in this case. That first chargeback check can trigger ongoing financial chaos.

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How Long Does the Chargeback Process Take?

The clearing process for a check can take a few days, according to the Office of the Comptroller of the Currency. The amount of the check might be credited to your account in the interim, only for your bank to realize that the issuing bank isn't going to honor the check so your bank effectively takes the money back.

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But there's no guarantee of this "few days" rule, thanks to federal legislation that was passed in ‌2003‌. The law, known as the Check 21 Act, lets banks process these transactions electronically, so the money could be credited to your account only to be charged back a day or two later.

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But the Board of Governors of the Federal Reserve System indicates that federal law also provides some measure of consumer protection. The paying bank has a time limit of only ‌two business days‌ within which to decline to pay a check for any reason.

What Can You Do?

Many banks make it possible for you to find out why a check you deposited was declined for payment and submit a customer dispute. U.S. Bank makes a tool available in its mobile app and its online banking site. Just click on the troublemaking deposit and you should see a chargeback reason code along the lines of "insufficient funds" or "stop payment."

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Otherwise, you may have to brace yourself for more headaches and mayhem if you're told to "refer to the maker of the check." This means you'll have to reach out to the individual or entity who wrote you the check, or possibly the issuing bank, to find out what went wrong.

You can then take the matter up with the issuer of the check or perhaps initiate a dispute process with your own bank.

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