You own a business, and one of your customers writes a check as payment for your goods or services. After you cash the check, the bank returns it to you, unpaid, for lack of funds in the customer’s bank account. Now what?
Most business owners understand how frustrating this can be—especially if the attempted payment was for goods already provided or services already performed. So-called “bounced checks” or bad checks can result from a mistake or misunderstanding that can sometimes be resolved quickly and painlessly. But what if your customer continues making and breaking promises? What if your customer outright refuses to pay? Has the customer attempted to defraud you? Your options can vary from making a quick phone call to pressing criminal charges. Gertsburg Licata attorney Maximilian A. Julian, ESQ. answers all your questions about how you can get paid after being handed a bad check.
Bounced Checks and Non-Sufficient Funds (NSF)
A “bounced check” is an informal way to describe what happens when a check cannot be processed because the person signing the check (the “drawer”) has insufficient funds in their account to cover the dollar amount written on the check. These are also called “NSF” checks—meaning Non-Sufficient Funds. The drawer’s bank (the “drawee” or “payor” bank) won’t honor an NSF check and will return (i.e., “bounce”) it to the person attempting to cash it (the “payee”).
Let’s review:
- Bounced Check: a check that can’t be processed because of lack of funds
- NSF: Non-Sufficient Funds
- Drawer: the writer of the check
- Drawee/Payor: the drawer’s bank
- Payee: the person trying to cash the check likely you
After an NSF check event, the drawee will notify the payee and typically also assess a monetary penalty against the drawer. Business owners have a number of decisions to make when considering how to deal with customer checks that are returned marked NSF.
Should I contact the customer?
Yes.
You should contact the customer (drawer) right away and explain what the NSF check was for, how much money is owed, and ask the drawer to make good on the NSF check and/or fulfill their payment in cash. Sometimes, a phone call or email can be all that’s required to resolve the matter.
Caution: Under applicable law, various kinds of businesses—not just debt collection agencies—may be deemed “debt collectors” for fair debt collections purposes. “Debt collectors” are subject to certain regulations designed to protect debtors from oppressive and/or predatory collections practices. Be careful about how often and what time of day you call, and don’t contact anyone but the customer regarding the debt. If you have questions regarding whether your debt collection practices comply with applicable laws and regulations, then you should consult with a lawyer licensed to practice in your jurisdiction.
Can the customer’s bank help me collect?
Maybe.
The payor bank may be able to assist you, depending on applicable law and subject to its internal policies and procedures. Wait a couple of days after receiving an NSF check to contact the payor bank because the drawer might have been paid in the meanwhile. Tell the payor bank how much the check is for and ask if the drawer’s account is sufficiently funded to cover that amount; if the answer is yes, take the NSF check back to the payor and ask if they will cash it.
Should I send the customer a formal demand letter?
Yes.
In Ohio, for NSF checks that are written for less than $5,000, demand letters must be sent by certified U.S. mail, return receipt requested. See Ohio Revised Code [hereinafter, “R.C.”] 2307.61(A)(2)(b), available at http://codes.ohio.gov/orc/2307.61.
Your letter demanding payment also must include an explanation of the circumstances surrounding the NSF check, as well as five (5) other statutorily required explanations. See R.C. 2307.61(C)(1)–(5). Importantly, failing to abide by any one of these requirements can cause you to waive the right to recover your collections costs, including your attorneys’ fees.
Can I press criminal charges over an NSF check?
Yes. You may have an option to press charges.
In Ohio, passing bad checks (or otherwise purporting to effect a payment by any other means without intending to actually pay) is a criminal offense. See R.C. 2913.11, available at http://codes.ohio.gov/orc/2913.11. Writing a bad check for $7,500 or less is a first-degree misdemeanor. See R.C. 2913.11(F). Writing a bad check for an amount between $7,500 and $150,000 is a fourth-degree felony, and writing one for more than $150,000 is elevated to a third-degree felony. See R.C. 2913.11(F).
There are many issues for you to consider around the decision to press criminal charges. Notably, in some states, threatening the customer with criminal prosecution may constitute harassment or otherwise be prohibited under applicable law. Remember that police and/or prosecutors usually have many other law enforcement priorities in addition to checking fraud cases. Also, keep in mind that an open criminal case can complicate and/or slow down the proceedings of a civil lawsuit for claims based on the same conduct.
Can I file a civil lawsuit over an NSF check?
Definitely.
Victims of “criminal acts” in Ohio might, in certain circumstances, have statutory civil claim(s) against the perpetrator(s) of those acts. See R.C. 2307.60(A)(1), available at http://codes.ohio.gov/orc/2307.60. Crime victims filing civil suits under R.C. 2307.60(A)(1) may recover compensatory damages or punitive/exemplary damages, and they may also have the opportunity to recover their court costs and attorneys’ fees. See R.C. 2307.60(A)(1).
Passing a bad check is a criminal offense in Ohio, and it is also, more specifically, one of the criminal “theft offenses.” Thus, a business owner receiving an NSF check as payment for goods or services is the unfortunate victim of a theft offense under Ohio law and, as such, may be entitled to recover statutory liquidated damages amounting to three times the amount of the NSF check. See R.C. 2307.61(A)(1)(b)(ii).
Should I press criminal charges and file a civil lawsuit at the same time?
It depends.
Victims of check fraud, especially business owners, may need to weigh their righteous thirst for justice against the practical need to get paid. Where the same underlying conduct gives rise to both criminal and civil proceedings, complications between the two proceedings may arise. Criminal proceedings can collaterally impact a related civil case in a number of different ways including by, for example, slowing the civil proceedings down, impeding the progress of civil discovery, and/or reducing the resources available to the defendant for settlement of the civil claims.
Should I contact a collections agency?
Maybe.
If you receive an NSF check written for a relatively small amount, going to court may not be an economically worthwhile solution. Working with a collection’s agency may be the better choice. Of course, the agency will take its cut of whatever amount is ultimately collected, but the agency will also be doing most of the work, minimizing your involvement in the matter.
Should I contact an attorney?
Dealing with NSF checks can be a costly and often time-consuming experience that frustrates business owners, many of whom just want to get back to doing business. Fortunately, there are steps you can take to prepare yourself for the next time you receive an NSF check. Ohio law provides numerous incentives and mechanisms in addition to those identified above that are designed to encourage the full and prompt payment of NSF checks. If properly used, these mechanisms can help increase your chances of getting paid in the end. You should contact an attorney for additional information regarding this area of the law.
Maximilian Julian is a partner at Gertsburg Licata. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a national, full-service business law and strategic advisory firm offering a full range of legal services. Call 216-573-6000 or contact us here.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction.
