Although the systems in place are making it faster and more efficient for merchants and banks to process payments, there is still a significant lag in the time it takes for these transactions to clear. The time lag is especially bad for clearing checks. This time lag can also cause consumers to think they have more money available in their checking account than they actually do because they neglected to consider the impact of checks that have not cleared.
Potential Bounced Check Fees
If you write a check but do not have the funds available in your checking account to cover the amount of the check, one of two things could happen. If you have set up overdraft protection on your checking account, your bank might decide to cover the amount of the check for you and allow the check to clear anyway. The bank, however, will charge you an overdraft fee for this privilege.
Overdraft fees vary by bank but the average is about $35, according to StatisticBrain. This is an expensive fee if you already have a problem keeping a positive balance in your check account, but you’ll probably be better off than you would be without the overdraft protection.
Returned Check Fees
If you have opted out of the overdraft protection or have exceeded what your bank believes to be an acceptable number of overdrafts during the year, the bank might not cover the amount of the check. In this case, the recipient of your check will be informed that your check bounced. When the check bounces, you get charged a bounced check or insufficient funds fee. These fees are similar in amount to bank overdraft fees.
Merchants are not happy when you bounce a check because they don’t get the money you promised to pay them. In addition to not getting your payment, the merchant’s bank charges a fee called a return deposited item fee. Now, the merchant will likely tack on a variety of fees that you will owe on top of the amount you still owe because your check payment failed to clear. Adding up all the returned check fees, the total penalty can easily exceed what you would have been charged with just an overdraft fee from your bank.
Unfortunately, this is not necessarily the end of the penalties for bouncing a check. If your payment did not clear due to a bounced check, you may face additional penalties in the form of late fees. Most companies charge additional late fees for rent payments, mortgage payments, utility payments, and credit card payments. Late fees in the range of $25 to $100 could be added to the returned check fees you already owe.
For someone who’s already facing some cash flow problems, the penalties associated with a bounced check can be pretty severe. Writing a check that ends up bouncing can easily end up costing you an additional $100 in fees. Unfortunately, some of the potential long-term effects are even worse than the upfront financial penalties. Purposely making a payment with a check knowing the funds are not available can be considered to be a form of check fraud.
TeleCheck is a consumer reporting agency that creates a database of consumers who may pose an above-average risk for fraud. Unlike credit reporting agencies that report credit scores and credit history, consumer reporting agencies like TeleCheck report information about consumers who are a higher risk for bounced checks and consumer fraud.
Large merchants such as Target and Walmart use databases such as this in order to decide whether or not to accept check payments from customers. If you bounce a check a few times, you could get flagged for being a higher-risk customer. Then, you simply won’t be able to use a check to make a payment with many merchants.
Furthermore, your bank could end up closing your account and reporting you to another consumer reporting agency that banks use before allowing customers to open new checking accounts. Bouncing a check is costly in the short run, but it is even more costly in the long run if you have problems opening a checking account at all.