Bad Check Laws

A person who writes a check or a holder who negotiates a check knowing that there are insufficient funds or credit to honor it is guilty of check fraud. Each state has both criminal and civil laws governing check fraud. Most statutes provide that in any prosecution, proof that a check, draft, or order was made or delivered, and that payment was refused because of lack of funds or credit, establishes a prima facie case of intent to defraud. In some states, the intent to defraud is sufficient cause for prosecution, whether or not the fraud actually occurs.

Time Period to Make Good

In many states, the issuer is given a time period in which to "make good" after receiving notice that the check was returned. Under some statutes, prosecution cannot begin until the time period expires. In some states, prosecution is dismissed if the check is made good within the time period. In other states, if the check is made good within the time period, the presumption that the check was passed with fraudulent intent is dismissed.

Stopping Payment on Checks

Bad check laws do not apply where an individual stops payment on a check issued with sufficient funds. However, if it can be proven that the issuer passed the check intending to stop the check in the future, then such laws may apply.

Postdated Checks

The Uniform Commercial Code defines a check as "a draft drawn on a bank and payable on demand." A postdated check, since it is not payable on demand, does not satisfy the definition. Consequently, in most states issuing a postdated check does not constitute fraud and is not within the scope of bad check laws.

How to Take Advantage of the Statute

If a check is returned, most states require the holder to give written notice to the issuer and a demand that the check he made good within the number of days specified in the statute. Many states authorize the holder of a bad check to collect a service charge for costs incurred. No legal proceedings are necessary to collect service charges. Some states also allow for the collection of damages.

Civil Penalties

Credit grantors should consider using civil remedies in order to recover bad check funds. In addition to provisions contained in the Uniform Commercial Code relating to bad checks, most states have other provisions which provide for civil remedies.

Criminal Penalties

Issuing a bad check also may constitute a crime, based on the facts and circumstances of the transaction. With respect to criminal laws, the criminal courts discourage using a criminal bad check procedure as a vehicle for collecting on the check. Creditors should initiate criminal proceedings only when the intent is to punish rather than to collect on the bad check.

Source: "Manual of Credit and Commercial Laws," edited by Charles M. Tatelbaum and John K. Pearson, available at the NACM Bookstore.