When a customer writes a check to a business, store, agency or another person as payment, the payee submits the check to the bank for processing. If the account the check was written from has non-sufficient funds (NSF) to cover the amount of the check, the bank returns the check to the person who wrote it and notifies both the account owner and the payee of the dishonored check. The customer who wrote the dishonored check must then make sure the payee receives payment in full, as well as any fees.
Both the account owner's bank and the payee can charge the account owner a fee to cover the extra processing costs of the dishonored check. Most banks and businesses, including stores and government agencies, have a dishonored check policy that specifies the actions they will take and the fees they will charge. The maximum amount of NSF fees varies by state, as listed on the website linked below.
Many times, customers unintentionally write a dishonored check because they don't have an accurate idea of how much money is in their checking accounts. This often happens when customers don't balance their checkbooks, forget to consider outstanding checks (which have been written but haven't cleared yet) when checking the account balance, or use a debit card, ATM card or automatic electronic payment to withdraw money from the account without recording it. Customers who have more than one person using the same account need to be especially careful to record all of their transactions, so that both account owners know the balance, and can avoid writing checks with insufficient funds.
The best way for customers to prevent a dishonored check is to carefully keep track of their checking account balances, and make sure there are sufficient funds to cover a check before writing it. Many banks now offer tools to make this easier, such as online banking and overdraft protection services. With overdraft protection, if a customer writes a check with non-sufficient funds, the bank will automatically transfer enough money to cover the check from a savings account or loan account, provided there are sufficient funds in those accounts. Some banks offer overdraft protection for free, while others charge a fee for this service. However, in most cases, the fees for overdraft protection are significantly less than the fees for a dishonored check.
Most banks and businesses consider dishonored checks a civil offense. As long as the check writer promptly submits complete payment as well as any fees after receiving notice of a dishonored check, no further action will be required. However, if the check writer fails to pay the check and the fees, a business can send the amount due to a collections agency, which will negatively impact the account owner's credit rating. Intentionally writing a check with non-sufficient funds can be a criminal offense.