Rubber Checks (Monday, June 17, 2013)

 

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Excessive Overdraft Fees

Let’s be honest, who hasn’t bounced a check?  It’s usually when your payday falls on a weird day, and when you bounce one check, you end up bouncing a few checks.

 

Did you know that your bank can intentionally help you bounce those checks?  Why would a bank do that?

 

Insufficient Funds

Well the worst thing about bouncing checks are those “returned check fees” charged by your bank and the business you wrote the check to.  These fees can range between $20-$40 at both your bank and the business.

 

Let’s pretend for a moment that you write 4 checks: one for rent, one for groceries, one for water bill, and one for a slush at Sonic Happy-Hour.  For whatever reason, your paycheck isn’t deposited on time and you don’t have enough money in your account to cover all of these checks.

 

Right now, you’ve got enough money in your account to cover the rent to the penny, but those others are going to bounce right out of the door.  Now, the logical thing for the bank do to would be to pay those 3 smaller checks so you’d only have 1 bounce, but that’s not what happens.

 

Isn’t That Against the Rules?

Well, you’re right that the bank has certain rules that it must play by.  Under the Texas Business & Commerce Code, a bank may pay checks in any order, and has no obligation to determine the order it was actually written or received.

—See Tex. Bus. & Comm. Code § 4.303(b)

 

So the bank can take your 4 checks, determine how to pay out so that you will bounce the maximum number of checks, and then make a decent profit from your returned check fees; all within the bounds of the law.

 

What About Post-Dated Checks?

Well now you’re thinking!  Postdating your check is when you put a future date on the check hoping that it won’t be cashed until then.  Well I’ve got bad news, banks don’t look at that date when they receive the check and can pay them out at any time.

—See Tex. Bus. & Comm. Code § 4.401(c)

 

If you want to ensure that the check doesn’t pay out until a future date, you have to do more than simply postdating the check.  You must also take steps to inform your bank that you have postdated a check so they do not pay it early and cause you financial hardship.

 

You must give your bank a Notice of Postdating, which must reasonably describe the check.  You should include the check number, amount, payee, etc.

 

Change the Facts

Lets presume that you had postdated your rent check above, and you gave proper notice of postdating to your bank, but the bank paid it anyway. 

 

Well, not only would the bank be liable for any damage for loss resulting from their act, but the bank would also be liable for any losses that resulted from subsequent checks that were dishonored.  

—See Tex. Bus. & Comm. Code § 4.401(c)

 

--Authored by Matthew L. Harris, Esq.,

 

Matthew Harris Law, PLLC  - Business Law Division

1001 Main Street, Suite 200, Lubbock, Texas, 79401-3309

Tel: (806) 702-4852 | Fax: (800) 985-9479

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