What Is a Returned Payment Fee?

A returned payment fee is an additional charge issued by a financial institution when a consumer bounces a payment. Payments may bounce because of insufficient funds, or because of account closures or freezes.

Returned payment fees discourage customers from submitting checks or other forms of payment they know will not clear.

Understanding Returned Payment Fees

Returned payment fees are charged when a customer makes a payment with insufficient funds to cover a payment. Credit card companies generally 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 fees are also charged by other creditors including cable subscription services, cell phone, and wireless service providers, and gyms. Many contracts like car leases and financing may also come outline returned payment charges.

Payments may be returned for any number of reasons including insufficient funds in a consumer's account or because of closed accounts. Banks may also freeze accounts for suspicious activity or government garnishments, which can also result in returned payments.

[Important: Returned payment fees may also be incurred if online payments are made using incorrect banking information.]

Some institutions may grant a waiver of the first returned payment fee for good customers. Others may also waive the fee in case the consumer has a good reason why the payment was rejected. It's always best to talk to your financial institution if there was a viable error for which you had no control.

Returned Payment Fee Precautions

While returned payment fees are most common with checks, they may also occur with online scheduled payments. Consumers should be cautious when paying with a check or setting up an 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 an NSF fee on top of that.

For automated payments, customers can easily cancel the recurring payment or change the payment method to an account that can cover the charge.

Key Takeaways

  • A returned payment fee is a charge incurred when a consumer bounces a payment.
  • Payments may be returned for insufficient funds in a consumer's account or because of closed accounts.
  • Credit card companies generally have the highest returned payment fees.
  • Returned payment fees are also charged by service providers like cable subscription services, cell phone, wireless service providers, and gyms.

Returned Payment Fee Consequences

A customer may submit a check that won’t clear to try to avoid incurring late payment fees and interest by making it look like the credit card bill is paid on time. Returned payment fees may also be assessed on scheduled payments declined for insufficient funds.

Lenders must specify the amount of any fees including those for returned payments. The amount is listed in your agreement with the lender. If it’s your first returned payment, the fee may be lower, though. You may be able to 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 payment doesn’t clear, your minimum payment becomes overdue, and you will owe a late fee. 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.

Even if a late fee doesn’t apply, interest charges will almost always apply. You may also be subject to an increase in your interest rate if your returned payment means you’ve missed your minimum payment deadline. Your bank may also charge you an insufficient funds fee—also known as an NSF fee—for writing a check that didn't clear.

NSF Fees

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.