Reasons for Returning Checks
Banks can return checks unpaid for a variety of different reasons, but fraud and non-sufficient funds are among the most common reasons for returned checks. Fraudsters sometimes make replica checks using real account numbers, and these checks are identified as fraudulent when presented to the bank that holds the real account. When an account holder writes a check without having sufficient money to cover it, the drawee bank normally refuses to honor it. Checks that are unsigned or ineligible are also returned.
The Federal Reserve's Regulation CC limits the amount of time that banks can hold deposited items. Legally, banks have to make some checks available the following business day, although banks can hold most checks for two business days. However, it can take a few weeks for a bank to pay a check or return it as unpaid. In the meantime, the bank that accepted it for deposit has to allow the customer to access funds even though it has not received the money. When checks are returned unpaid, the bank deducts the account for the amount of the returned check.
The Federal Reserve charges banks a fee when it has to return checks unpaid. Banks pass this fee on to account holders, and in many instances banks add to the fee, so that the customer ends up paying $15 or $20 in addition to having the amount of the check deducted from her account. This can also occur when a customer cashes a check drawn from another bank against her account and it later gets returned unpaid. All returned checks show up in online and paper statements as chargeback deposits, and the chargeback fees are usually listed as separate transactions.
Account Holder Recourse
Most account holders do not realize that legally once they endorse a check for deposit, they are accepting responsibility for the item. The bank bears no responsibility for funds lost due to returned checks even if the bank employees elect not to place legally permissible holds. The account holders must pursue the person who wrote the check to receive payment. In most states, people who receive bad checks can take check writers to small claims court. However, victims of fraud who unwittingly deposit fake checks cannot so easily reclaim funds, and usually end up taking a loss.