Making Bad Checks Good

As small businesses are painfully aware, there are many consumer protection statutes to protect consumers. In fact, aside from state and federal protection, most counties also have offices of consumer affairs that act as advocates for the consumer. Unfortunately, most small businesses also need protection from other dishonest businesses or dishonest consumers.

One of the most frustrating notices a business receives from its bank is a returned check from one of its customers for insufficient funds. Now, not only have you suffered a loss in the amount of the bad check, but your bank is probably assessing an additional service charge for the transaction. Our office has had many requests from businesses for information on protection provided to the small business when a bad check is received.

The Maryland legislature has created relatively powerful protection regarding bad checks given to you in payment for goods or services. In particular, Sections 15-801 through 15-804 of the Commercial Law Article of the Maryland Annotated Code deal with a specific method and steps to be followed in helping insure collection of those funds.

The statute provides for a form "Notice" to the maker of the check regarding dishonor of a check by your bank. If you follow the steps outlined in the Code, the debtor has 30 days from the date that you mailed the notice to make the check good along with an additional charge of $35.00. If you follow the proper steps and the maker of the check fails to make good on the funds within 30 days, you then may be entitled to file suit against the person who made the bad check and obtain a judgment for as much as three times the amount of the check that was dishonored.

The notice you send must be sent by certified mail and the statute provides that "(t)he holder shall obtain a certificate of mailing from the US postal Service for each notice sent by the holder..." Therefore, the best approach is to send the notice certified mail, restricted delivery, return receipt requested. The Notice must substantially comply with the following form (and, in fact, it is probably most sensible to use the exact wording that appears in the statute):

NOTICE OF DISHONORED CHECK

Date
Name of Issuer
Street Address
City and State

You are according to law hereby notified that a check or instrument numbered and dated , drawn on the Bank of in the amount of $ has been returned unpaid with the notation the payment has been refused because of . Within 30 days from the mailing of this notice, you must pay or tender to sufficient money to pay such check or instrument in full and a collection fee of $ (Not more than $35). If payment of the above amounts is not made within 30 days of the mailing of this notice of dishonor, you may be liable under 15-802 of the Commercial Law Article, in addition to the amount of the check or instrument and a collection fee of $35.00, for an amount up to 2 times the amount of the check or instrument, but not more than $1,000.00. In addition, you may be prosecuted under the Maryland Criminal Code (Article 27, 140 through 144) and subject to the following penalties:

  • If the property or services has a value of $500.00 or more, a fine not exceeding $1,000.00 or imprisonment not exceeding 15 years, or both;
  • If the property or services has a value of less than $500.00, a fine not exceeding $100.00 or imprisonment not exceeding 18 months, or both.

It shall be a complete defense to any action brought by any holder under 15-802 of the Commercial Law Article that, within 30 days from the mailing of "the Notice of Dishonored Check", the maker or drawer has paid the holder the full amount of the check or instrument and collection costs of not more than $35. A holder may not recover any damages if the holder has demanded of, and received from, the maker or drawer collection costs exceeding $35.

It shall be a complete defense to any action brought under 15-802 of the Commercial Law Article by a holder to whom a dishonored check or other instrument was issued that the dishonor of the check or other instrument was due to a justifiable stop payment order or to the attachment of the account.

In any action brought under 15-802 of the Commercial Law Article by a holder or holder in due course to whom a dishonored check or other instrument was negotiated, the action is subject to all valid defenses that may be raised by the maker or drawer against the holder or holder in due course under Title 3 of the Commercial Law Article.

The Statute also provides that the holder to whom a check or other instrument is issued or negotiated may post a clearly conspicuous notice at or near the point of receipt stating the liability of the maker or drawer for the collection fee and damages provided in 15-802 of the Commercial Law Article and criminal penalties provided in article 27, 143 of the code. If you have any questions about the notice or other collections procedures call the law firm of Bromberg Rosenthal LLC at (301) 251-6200 and ask for Jonathan Bromberg, Esq. or contact us by using the form below.