Rubber check definition
/What is a Rubber Check?
A rubber check is a check that has been rejected by the bank on which it was drawn. This situation arises when the maker did not have sufficient funds in the underlying account to cover the amount of the check. A rubber check is a sign of poor cash management by the maker. When this situation occurs, the bank will likely charge a fee to the maker. If the maker has an overdraft protection agreement with its bank, then the bank will lend the shortfall to the maker, so that no checks will bounce.
Characteristics of a Rubber Check
The key characteristics of a rubber check are as follows:
Insufficient funds. The primary reason a check bounces is that the account does not have enough money to cover the amount written on the check.
Bank fees and penalties. The bank typically charges overdraft fees or NSF fees to the issuer. The recipient (payee) may also face a returned check fee from their bank.
Legal and financial consequences. Writing a rubber check may be considered fraud in some jurisdictions, especially if done intentionally. Repeated offenses can lead to legal action, including fines or even criminal charges.
May affect creditworthiness. Businesses and individuals who frequently issue rubber checks may damage their financial reputation.
Can be resubmitted. Some banks automatically retry processing a bounced check a few days later. If funds become available, the check might clear upon resubmission.
Example of a Rubber Check
Sally writes a check for $200 payable to Henry, despite having only $150 in her bank account. Henry cashes the check, not knowing that there is insufficient cash in her account to support the check payment. The bank rejects the check and charges Sally a $30 not sufficient funds fee. She still owes Henry the $200.
Terms Similar to a Rubber Check
A rubber check is also called a bounced check.