If you've ever been the target of a debt collection agency, you've probably been offered the option of using postdated checks to pay what you owe. Most people do not fully understand their rights or liabilities when using this form of debt settlement, nor the laws governing their use and acceptance. While these regulations do not necessarily impose penalties, you should nevertheless be aware that there are instances in which postdated checks presented by creditors but returned by the bank for 'non-sufficient funds' may be deemed fraudulent, and could thereby result in civil and criminal penalties. With that in mind, let's take a look at the current regulations governing post-dated checks given to creditors, collection agencies and banks.
According to the Uniform Commercial Code (UCC) Subsection 3-104, a check is defined as a "draft payable on demand and drawn on a bank." A postdated check, since it's not necessarily payable on demand, does not meet this requirement. Consequently, most states generally hold that a postdated check does not constitute a present fraud nor does it fall within the scope of the 'bad-check laws.'
Concerning your bank paying a postdated check before its time, UCC Subsection 4-401 states that "a bank may honor an otherwise properly payable postdated check before its date unless the customer has given the bank reasonable notice of the postdating." The notice of postdating is simply a means by which you can place the bank on formal notice that you've written a postdated check, and it orders the bank not to pay the check before the date written thereon. If, after reasonable notification, the bank makes payment before the pay date on the check, it could be held liable for losses occurring due to its actions.
When does a postdated check fall under the scope of bad-check laws? Well, if you're paying a creditor on an ongoing basis and you issue a postdated check, you could possibly be considered to be passing a fraudulent check. Furthermore, if you've sent a check to a creditor and it's returned for non-sufficient funds, it's vital that you make good on the check as soon as possible to avoid additional (and more serious) penalties.
You do, however, have some protection under the Fair Debt Collection Practices Act. According to this federal regulation, a debt collector is not allowed to use "unfair or unconscionable means to collect or attempt to collect any debt by:
- Accepting a check or other payment instrument postdated by more than five days unless the debtor is notified in writing of the debt collector's intent to deposit such check or instrument not more than ten nor less than three business days prior to the deposit.
- Asking for a postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.
- Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on the check or instrument."
It's generally recommended not to give postdated checks to creditors for any reason. Though they may threaten, you cannot be made to do so. Know the laws governing your rights; it's the surest way to protect yourself.