NSF – (Non-sufficient funds)
Non-sufficient funds (NSF) is a term used in the banking industry to indicate that a cheque cannot be honoured, because insufficient funds are available in the account on which the instrument was drawn.
An NSF cheque is often referred to as a bad cheque, dishonored cheque, bounced cheque, rubber cheque or returned item/cheque.
Reasons for Dishonoured Cheques
Bad cheques usually arise because the party issuing the cheque does not have enough money in their account to cover the cheque. Other reasons for not honoring a cheque include:
- the account holder deliberately cancelling the cheque in order to withhold payment;
- the account holder’s funds being frozen;
- the account not actually existing due to a false cheque being presented; and
- damage to the cheque.
When a bad cheque is drawn, the cheque writer may be charged a fee by their own financial institution. If paying the item puts the account holder in a negative status by a relatively small amount, the bank may choose to honour the cheque. When this occurs, the account will be overdrawn, and the fees charged by the bank will place an extra burden on the account until the overdraft is covered. If the paying of the item would render the account significantly overdrawn, the bank may choose not to honour the cheque. The item will be returned to the depositor’s bank, and ultimately to the depositor. The amount of the cheque plus the depositor’s bank’s fee will be debited from the depositor’s account.
Civil Lawsuit Consequences
The depositor then may choose to re-submit the cheque, hoping it will clear on a second attempt, or else proceed immediately with lawsuit to recover said monies.
Among the consequences of issuing a NSF cheque are actions by financial institutions, civil liability to the drawee, and possible criminal penalties. When a bad cheque is negotiated, the recipient of the cheque may choose to take action against the drawer. The action that is taken may be a civil action or lawsuit, or seeking criminal charges, depending on the amount of the cheque and the laws in the jurisdiction where the cheque is drawn.
We can assist you in successfully navigating the process of claiming loss associated with returned cheques.