What is a 'Returned Payment Fee'

A returned payment fee is a charge a credit card company may assess to a customer’s account if the customer attempts to pay a credit card bill with insufficient funds. Returned payment fees discourage credit card customers from submitting checks that they know will not clear because their checking account cannot cover the balance. A credit card customer might otherwise submit a check that won’t clear to try to avoid incurring late payment fees and interest by creating the appearance of having paid the credit card bill on time. Returned payment fees may also be assessed on scheduled payments declined for insufficient funds.

BREAKING DOWN 'Returned Payment Fee'

Returned payment fees can be charged by any entity if a customer makes a payment with insufficient funds to cover a payment. Credit card companies will typically have some of the highest returned payment fees. These fees are usually outlined in a borrower’s credit card agreement. To find out whether your credit card has a returned payment fee and how much it is, check the card’s terms and conditions.

Returned Payment Fee Consequences

Lenders will usually specify a returned payment fee of “up to $35.” If it’s your first returned payment, the fee might be lower — perhaps $25. If your minimum payment due was only $10, your returned payment fee might be just $10. Sometimes you can convince the credit card company to waive the fee if you have never had a returned payment before and your account is in good standing.

A returned payment fee often comes along with late payment fees and interest. If you try to pay your credit card bill at the last minute but your check or card doesn’t clear, your minimum payment becomes overdue and you will owe a late fee if your credit card’s terms and conditions permit it. A few credit cards do not charge late fees at all or will waive the late fee the first time the customer has a late payment, but most charge late fees of $25 to $35. Even if a late fee doesn’t apply, interest charges will almost always apply, and possibly an increased interest rate, if your returned payment means that you’ve missed your minimum payment deadline. Further, your bank will probably charge you an insufficient funds fee (NSF fee) for writing a check that couldn’t clear.

NSF Fee

NSF fees are charged by a bank when a customer writes a check with insufficient funds in their account to cover the payment. An NSF fee is charged by the bank for any payment by check that a consumer makes with insufficient funds. This fee is in addition to a returned payment fee from the entity being paid.

Returned Payment Fee Precautions

Returned payment fees are most common with checks but they may also occur with online scheduled payments. Therefore, consumers should be cautious when paying with a check or setting up a automated payment. If you know you won’t have enough money in your checking account to cover your credit card payment by the due date, don’t send the credit card company a check. While you will still have to deal with late fees and interest, at least you won’t have a returned payment and NSF fee on top of that. For automated payments payors can easily cancel the recurring payment or change the payment method to an account that can cover the charge.

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