Steve Harms

Wednesday, September 18, 2013

More on collecting on bad (NSF) checks

Many states have laws which impose serious penalties on the act of writing insufficient funds checks.  Some of these laws are criminal where you can call the police upon receiving an NSF check.  The criminal law consequences are typically applicable when a check fails to clear based on a C.O.D. delivery.  Refer to this as a contemporaneous exchange of value and intent to defraud.  Intent is presumed from the fact the customer didn’t put enough money in the account to clear the payment.  Contemporaneous is the lack of credit terms where the customer was supposed to pay you at the same time he delivered the goods or services.  Payment on the account or post dated checks failing to clear would not be considered Acontemporaneous@ and therefore will not be prosecuted. 

Consider this: a customer is to purchase a box of nails from your company.  He is new or just has not been approved for credit yet, so he must pay by cash or check.  That is called C.O.D. which stands for collection on delivery.  The law frowns on people who bounce checks for such purchases and this is an example of where the police or the prosecutor might prosecute on the bad check you have received. 

Many states also impose civil penalties which are different from criminal penalties.  Civil penalties occur where you can sue the customer for additional sums of money such as 2 or 3 times the amount of the insufficient funds check.  Michigan, for example allows the recipient of a bad check to sue for the amount of the check plus twice the amount, plus $250 costs…basically three times the check amount plus costs!

Theft by check may be a misdemeanor or even a felony (a bad crime punishable by more than one year in prison) but that does not guaranty you will ever see your money.  If the offender is put in jail for the crime, he may even become less collectible for the insufficient funds check.  How ironic.

For the police to even look at a case where there was an NSF check, there must have been no agreement to hold the check for a period of time.  Also, if the NSF check was given as a payment on open account  or other credit transactions, it is not a crime.  You can sue in civil court however.

Contact your own bank and arrange for overdraft protection as a defense mechanism for receiving bad checks.  Overdrawing an account is easy.  When you arrange in advance for an overdraft protection, an accidental overdraft will be covered and you won=t have the embarrassment of having written an NSF check yourself.  You will then receive a bill or a debit on a line of credit you have established with the bank.  Planning like this, avoids embarrassment.