Bad Check Laws & Restitution Program For Check Fraud
Checks can bounce for a number of reasons, ranging from bad recordkeeping to just plain carelessness. But such blunders typically aren’t considered crimes unless the issuer intended to defraud the recipient.
If you promptly make good on a bad check and pay the resulting fees, this will demonstrate to the payee that your check bounced accidentally. Wait longer, and the situation will look more suspicious. If your bounced check was unintentional, WalletHub provides more information on what to do to avoid further fees and complications.
But other consumers do intend to commit fraud, and the punishments for such fraudulent behavior are more severe. Read on to learn the repercussions of check kiting, writing bad, or “hot,” checks and failing to pay for them, as well as unfair collections practices to watch out for if you write a bad check by accident.
Bad Check Laws
There are two types of bad-check penalties for people who routinely write bad checks or who fail to cover checks that bounce:
These penalties are owed to the bad-check recipient if you don’t pay back in a timely manner. In some states, the penalty is equivalent to triple the value of the bad check plus legal fees and damages. Collection agencies or unpaid recipients may be required to send you a written demand for payment specifying a deadline by which you must pay the debt before they can sue and impose civil penalties.
If the bad-check recipient wins a judgment in court, you may also be charged with a misdemeanor or felony. To make matters worse, a civil judgment on your record will be noted on your credit history, so future credit applications are likely to be denied.
Bouncing a check is usually a crime only if you intend to defraud the payee. In other words, the payee must be able to prove that you knew your check would bounce and therefore you intended to commit check fraud. Fortunately, most consumers don’t wait long to repay bad checks and aren’t charged with criminal penalties.
If you don’t pay or if you do commit fraud, however, you can be prosecuted or even arrested. The punishment depends on the amount of the bad check and how many you wrote. Small amounts are considered a misdemeanor, and larger amounts are considered a felony, with the cutoffs varying widely by state. If you are convicted of check fraud, you will have a criminal record that will affect every part of your financial life, from applying for a job to renting an apartment.
- If you’re convicted of check fraud, your bank will close your account(s), and businesses will refuse to accept your checks in the future.
- You will be reported to ChexSystems and other similar consumer reporting agencies that track your deposit account activity. A blemished ChexSystems consumer report will make it hard to open a new bank account in the future.
- Debt will end up on your credit history if a bad check is turned over to a collection agency.
- A civil judgment could appear on your credit report and stay there for years.
Bad Check Restitution Program
If you ignore a demand for payment on a bad check, one option for the recipient is to seek the services of a bad check restitution program. Also called “bad check enforcement” or “bad check diversion,” these private debt-collection agencies contract with the local prosecutor’s office to make themselves available to recover money on bad checks.
In a demand letter made to appear from the prosecutor’s office, the program gives the bad-check writer two options: 1) make good on the bad check — in addition to paying a program fee of usually $200 or more and participating in a financial management course — or 2) face criminal prosecution. This is done prior to any investigation.
To qualify for investigation, or prosecution review, one of two conditions must be met: 1) the bad-check writer failed to respond to the program’s demand letter and pay restitution and fees by the deadline, or 2) the bad check initially met a minimum dollar threshold — for instance, as little as $500 in Greene County, Mo., and as high as $20,000 in Douglas County, Colo. — stipulated by the prosecutor. If the prosecutor determines fraud, the debt collector can then proceed to threaten the bad-check writer with possible prosecution.
Beware Of Abuse By Debt Collectors
The Consumer Financial Protection Bureau (CFPB) advises, “Under the law, a company operating a bad check diversion program cannot contact you about the program until a prosecutor’s office has reviewed your case and determined that prosecution is necessary.”
Unfortunately, many bad check restitution programs routinely ignore this rule. Even consumers who wrote checks for amounts smaller than the threshold can receive notices with prosecution threats, and consumers who committed no fraud can be accused of doing so. Often, however, the prosecution threats are unfounded and are meant only to frighten consumers into paying exorbitant fees. So it pays to know your rights if you find yourself in this situation.
What To Do If You’re A Victim Of An Abusive Collector
The CFPB states that these companies must inform consumers of certain rights, including their right to dispute check-fraud allegations. If a debt collector failed to inform you of your rights, is attempting to collect the wrong amount or is inappropriately accusing you of check fraud, you can:
- Check Your State’s Statute Of Limitations On Bad Checks: States typically have a two- to three-year statute of limitations (SOL) on bad checks. If you receive a collection notice for an old check, don’t pay it before checking your state’s bad-check SOL with your state attorney general’s office. Even if the statute has expired, a debt collector can still send you notices and sue you. However, you can defend yourself in court on the grounds of an expired SOL.
- Dispute The Debt: Ask the debt collector to verify the debt in question. Send a certified letter (and request a return receipt) asking for verification. Keep a copy for your records. The bad check restitution program must respond to you within 30 days or drop the case.
- File A Complaint With The CFPB: You may be able to resolve the issue without taking legal action. If you believe that a debt collector has misrepresented itself or violated your rights, file a complaint with the CFPB. They’ll forward your complaint to the company, work to get a response within 15 days and usually resolve the issue within 60.
- Seek An Attorney: Hiring a lawyer is expensive, but it might be an avenue worth pursuing if you’re being threatened with prosecution for a crime you didn’t commit. Just keep in mind that your attorney’s fees may exceed the amount in dispute. As you speak with potential candidates, make sure to ask each attorney about his or her experience handling bad-check cases and about your rights under your state’s bad-check laws. You may be entitled to sue for damages. If you have low income, visit your nearest legal aid office.
Image: Evlakhov Valeriy / Shutterstock
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