In this blog, we will discuss in detail about bad checks, what are the civil and criminal bad check penalties, what are some of things that you should do and not do, how to deal with credit card chargebacks, the procedure involved, and some pro tips that you can follow.
What are Bad Checks?
Before we dive into bad checks and how to deal with them, let us understand what a check is. A check is essentially a promise to be paid in the future. It can be termed as a negotiable instrument which needs to be deposited in the bank and cleared by them for you to receive the actual money. Cash, on the other hand, is a legal tender which you receive immediately.
Since a check is just a promise and not an immediate transaction, there are chances that when you try to honor it, it does not get cleared by the bank. This is when a check is termed as a bad check. There are three main types of bad checks:
a. Non-Sufficient Funds (NSF)
This means that the account from which the check must be cleared does not have sufficient funds. For example, you have received a check for $10,000 but the account does not have $10,000.
b. Account Closed/Not Found
This means that when you present your check, the bank comes back to you saying that either they cannot find the account, or the account is closed at the time you present the check.
c. Stop Payment
This means that the person who handed you the check has instructed the bank to stop payment or not to honor the check whenever it is presented.
One key point to remember is that a check can be dishonored even after 30 or more than 30 days of presenting it. Another important point that people get confused between is funds availability and check clearance. They are both different and it is vital that you are aware of this difference.
For example, you have received a check for $10,000 and you already have $100,000 in your account. The bank will make the check available to you which means the balance in your account now is $110,000. This is done not because the check is good, but because the bank knows that if they find the check to be a bad check, your account has sufficient funds for them to take back the money. Ideally, the funds are made available within a day or two whereas the check may take 30 or more days to be fully cleared.
What are the Penalties for Bad Checks?
Passing a bad check can result in both civil as well as criminal penalties. A civil penalty means you can sue someone while a criminal penalty means someone could get arrested and go to jail. In Florida, a bad check of over $150 is considered as a felony and it comes with severe consequences.
What Should You Not Do with a Check?
Here are some of the things to keep in mind about what not do with a check.
a. Holding a check does not mean you have the money
Do not believe that just because you have the check in your hand, it means that you have the money in your hand. For example, if you are given a check but you are also instructed not to deposit it and yet you are asked to provide your services, just remember that there is always a chance of the check turning up as bad check later.
b. Do not sign a bond or lien release
If you have the slight doubt that the check may not be good, then do not sign a bond or lien release. If you do have to sign a lien release, make it a conditional release on actual receipt of payment.
c. Do not record a satisfaction of lien before clearance of funds
Make sure that you do not record a satisfaction of lien before the funds have been cleared. This is because if you do so, then the lien is no longer in the public record and if the check bounces, then you will be in a difficult situation.
d. Do not accept post-dated checks
A post-dated check is when you receive the check today but it has a future date mentioned in the check’s date line. Do not accept such post-dated checks because you cannot deposit it until the date mentioned. Also, there is no criminal prosecution against bad checks which are post-dated.
e. Do not agree to hold a check
Do not agree to hold a check and provide your services because this is another situation whether the maker of the check cannot be criminally prosecuted if the check is not honored.
What to do with a Check?
Now that you are aware of what not to do with a check, let’s look at some of the steps that you should take when presented with a check. If in case you have a bad check and would like to press for criminal penalties, then you must follow all the below steps:
a. Accepting check in person
If you are accepting the check in person, then you must ask the presenter to include the below details behind the check – their full name, home address, phone number, gender, date of birth, driver’s license of state identification number. Although it is a lot of work, these details are important of you want the district attorney to prosecute the check presenter.
b. Accepting checks through mail
If you are someone who accepts checks through mail, then the check must also have the original contract with the signature of the person whose signature should be on the check as well.
If the check is returned and it is marked as NSF or account closed by the bank, then you need to send a written notice through certified mail and U.S. mail to the check presenter. This statutory notice basically informs the presenter that the check number so and so which was presented to this person was dishonored. It also includes information that pursuant to Florida Law, they have 15 days to make good on the check, post which they may be criminally prosecuted.
If the amount is not paid within 15 days, you can report it to the local State Attorney’s Office. You can google the name of your city and ‘State Attorney’s Office’ to find your closest State Attorney. The next step is to look for a division specifically dedicated for bad or worthless checks. Once you find the division, provide them with all the details – a copy of the letter that you sent, proof that you sent it via certified mail, and a copy of the returned check with all the details on it.
A key point to consider is that most of the State Attorneys may not be very interested in pursuing bad check cases unless it is a very large check or has unusual circumstances around it. However, this does not mean that you shouldn’t approach them.
Steps to follow if you want Civil Penalties to Apply
For civil penalties to apply, you do not have to get all the details written on the back of the check. All you need to do is accept the check and it is also recommended that you get a copy of the check presenter’s driver’s license.
Civil penalties are applicable on NSF, account closed, and stop payments, and you may also be eligible for treble payments which are three times the amount of the original check. So, you will receive the original amount plus three times the original amount.
For civil penalties also you need to send a statutory notice just like how you send for criminal penalties. Although both the notices may look the same, they are slightly different. Hence, if you wish to prosecute for both civil and criminal penalties, then you need to send two different statutory notices. Unlike the criminal statutory notice which has a deadline of 15 days to make good on the check, the civil notice provides 30 days.
If the check is not made good within 30 days, you can sue them for the original amount of the check plus three times the amount of the check as well as your legal fees and costs. You are eligible for treble damages, only if you send this statutory notice.
Before you sue them for the bad check and treble damages, remember that if they were unable to pay you let’s say $10,000, how will they make good on $40,000? This does not mean that you should not pursue the legal course of action but remember to keep your expectations in check.
What are Credit Card Chargebacks?
Let’s investigate credit card chargebacks, how they work, and what possible courses of action.
a. Submit a complaint
When someone issues a charge or you charge a credit card, the first step that the consumer takes is they submit a complaint to the issuing bank. It can take anywhere between 60-120 days for the bank to accept a chargeback request.
b. Verification of the dispute’s validity
The next step is that the issuing bank verifies whether the dispute is valid or not. If the bank finds the dispute to be valid, it immediately moves ahead with the chargeback and the amount is refunded to the customer.
The cardholder’s bank then initiates the chargeback process on the merchant bank which is your bank since you are the vendor. The merchant bank also conducts their own investigation to verify the request.
- If the chargeback is found to be invalid, then the requestor will be informed, and they will contact the customer.
- If the merchant bank finds the chargeback to be valid, they will ask you to provide documentation which is where you get to submit all the proof.
- If the proof is sufficient, then the chargeback will be removed from the record and the issuing bank will retrieve the funds from the cardholder’s account. If the proof is insufficient, then the chargeback stays, and the funds will be removed from your account along with some additional fees.
How to Deal with Credit Card Chargebacks?
Here are some of the ways that you can deal with credit card chargebacks.
- Make sure that you get all the proper verification from the customer.
- Ensure that they sign the receipt which has the name of your business mentioned clearly.
- Verify that the card has not expired and whether the cardholder is who they say they are. This can be done by verifying the signature on the back of the card and ask for some identification.
- Ensure that you are using updated and the current security standards like chip readers.
- If possible, capture your customer’s signature digitally and verify it with the signature on the back of the card.
- One of the strongest and most effective ways to protect yourself against chargeback is to have robust terms and conditions of sale in place that the customer signs at the time of sale.
Tips to Remember
Here are some essential tips that you should remember while dealing with bad checks and credit card chargebacks.
- If you are ever in doubt, opt for a wire transfer. Wire transfers are cleared as soon as you receive them.
- Always ensure that you protect your lien and bond rights even when you are accepting credit cards. Also, if you have any concerns, do not sign a bond or lien release. You can opt for conditional lien release.
- If your funds have not been cleared, then do not record a satisfaction of lien. Once you record it, then you have given up on your lien rights.
- Finally, remember that even if you have lost your credit card chargeback procedure, it does not mean that you cannot approach a civil court to sue them. There are other alternatives that you can explore.