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§6.01 Bad Checks—Insufficient Funds

Lesson 6:
Checks & EFTs

The payee of a check that is issued on insufficient funds (including no account) has a cause of action for the amount of the check plus a $25 service charge for the first bad check and $35 for each subsequent bad check to that payee. [CC §1719(a)(1).]

If the drawer of the check does not pay the full amount of the check, the service charge, and the cost of mailing a written demand within 30 days of the date of mailing of the demand, the payee may recover treble damages for any amount not paid within 30 days, plus any amount not paid. Treble damages may be recovered for not less than $100 but not more than $1500. The payee may not recover the service charge in addition to treble damages. [CC §1719(a)(2).]

Tip Click

A debt collector recovering on a dishonored check may not recover both a service charge under CC §1719(a)(1) and prejudgment interest under CC §3287. [Imperial Merchant Services, Inc. v Hunt (2009) 47 C4th 381, 393394.] Debt collectors still have the option of bypassing the bad-check law and suing under general civil law for breach of agreement to pay for goods or services. If they win, they would be entitled to prejudgment interest.

A person is not liable if he or she gives the payee written confirmation from a financial institution that the check was returned because of the institution’s error, or that the account had insufficient funds as a result of delay in the scheduled transfer or posting of a direct deposit of a social security or government benefit assistance payment. [CC §1719(a)(4)–(5).]

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