Bad Checks Can Be Expensive

It happens to lots of folks at one time or another. Someone pays them with a check that bounces for lack of funds. What can they do to collect?

As with any breach of contract, the person who is paid but later unpaid by an NSF check can sue for breach of contract. That means getting the benefit of the contract creating the payment obligation that was initially satisfied by the bad check. Suit is for the amount of the check.

That’s not very exciting. There are no attorney fees recoverable for breach of contract unless the contract provided attorney fees would be added to any judgment for breach of the contract. That’s even less exciting. Unless the NSF check was pretty big, hiring an attorney to collect could cost more than the amount of the bad check.

Florida’s Legislature agrees and in 1979 adopted Florida’s first worthless payment instrument collection statute. The statute applies whenever someone makes payment by check, draft, order of payment, debit card (not credit card), or electronic funds transfer. The statute makes it very expensive for a person who writes an NSF check and does not subsequently pay the amount due. Let’s take a look at the statute.

The statute provides a remedy when a payment is made and the payment instrument is dishonored for lack of funds, lack of credit, lack of an account, or when the maker stops payment with intent to defraud. It excludes a maker stopping payment because of a dispute.

The person who was supposed to be paid starts the collection process with a written demand to the check writer for the amount of the check plus a service charge of no less than $25 up to 5% of the amount of the check. The demand must be sent by certified or registered mail with return receipt or by regular mail evidenced by an affidavit of mailing.

The demand for payment must be in form substantially following form in the statute. The demand must warn the check writer that if the amount of the check plus service charge is not paid within 30 days, the person receiving the payment instrument can sue. Suit is not simply for the amount of the check. Suit will be for three times the amount of the check, plus the amount of the check, plus attorney fees and court costs. The statute imposes a penalty of three times the amount of the check and requires the bad check writer also pay the attorney fees of collection. That is quite a penalty.

There are opportunities for the check writer to reduce liability even after suit is filed. The statute provides that after suit is filed, the check writer may make payment of an amount equal to the sum of the bad check, service charge, court costs, and bank fees incurred to avoid the extra three times addition. But the maker will still be liable for the attorney fees of the person trying to collect.

The Legislature provides the maker one defense when hard times cause an NSF. If the check writer can establish failure of the maker to satisfy the payment obligation is due to economic hardship, the judge has discretion to waive part or all of the statutory damages.

Writing a bad check is also a criminal violation. If face amount of the check is under $150, it is a misdemeanor, but at $150 the bad check writer is subject to felony prosecution. Payment of a dishonored check is not a defense against criminal prosecution for the check.

Even in criminal cases, the state attorney has an option to allow the offender to avoid full prosecution. The state attorney may refer the case to a diversion program under which the check writer is given an opportunity to pay before formal prosecution.

The one time these cases can fall into a gray area is when someone stops payment. Stop payment is not a violation of the statute unless it is an effort to defraud. That means the maker stopping payment is not subject to triple damages and fees if there was a legitimate dispute. The legitimate dispute often argued is that the maker never got the services contracted or that the performance was unsatisfactory. That is often enough to get off the triple damages hook.

The biggest problem with bad check cases is many of the defendants do not have any money. Judgment against such a defendant is judgment against an empty bag. But Florida judgments are collectible for 20 years and they bear interest. Judgments also show up on credit reports and various background searches, all of which can push a debtor to arrange payment. A judgment against a bad check writer with no money today could eventually turn out to be like a savings bond if the bad check writer gets money later.