What Is a Rubber Check?

Rubber check is a colloquial term used to describe a written check that does not have the funds available to be cashed by the recipient. It is also commonly known as a bounced check.

The two reasons why a rubber check will not be cashable are either that a) the sender does not have sufficient funds in the account on which the check is drawn, or b) the sender placed a stop-payment or cancellation order on the check after providing it as payment.

Key Takeaways

  • A rubber check is a check that cannot be cashed because of insufficient funds or a stop-payment order made by the sender.
  • Rubber checks are often unintentional, and generally face few or minor penalties.
  • In some cases, however, a repeat issuer of rubber checks may be found guilty of fraud.

How Rubber Checks Work

In the United States, it is not a crime to inadvertently write a check that cannot be processed due to insufficient funds or a subsequent stop-payment order. However, these instances can result in fines and penalties, such as the overdraft fees occasionally charged by banks. To help mitigate against this risk, banks often offer overdraft protection policies which allows customers to avoid these fees if they accidentally issue a rubber check.

In some cases, it can be possible for the recipient of a rubber check to levy penalties on the sender. This is particularly true if the transaction takes place between businesses with a pre-existing contractual relationship. Some contracts will contain clauses that punish either party for rendering a rubber check, such as by entitling the recipient to a discount on the services rendered. Other approaches, such as accruing interest on the amounts unpaid, are also used.

While inadvertent rubber checks are generally left unpunished, systems are in place to detect wilful or repeat offenders. Through databases such as TeleCheck and ChexSystems, banks and other financial service providers can monitor the frequency with which a given person or company issues rubber checks. As a result, those flagged as suspicious through these systems may find that merchants and payment processors begin to turn down their checks.

When the size or frequency involved becomes sufficiently large, individuals who routinely write rubber checks may find themselves faced with criminal charges. In the United States, doing so deliberately can be viewed as a form of fraud, which in some states is classified as a felony offense.

Real World Example of a Rubber Check

Steve is the manager of a wholesale distribution company which sells to various retail outlets throughout his local community. One of his regular customers is ABC Retailers, which recently experienced a change of ownership. Since their sale, ABC’s new owners have begun paying their invoices by check instead of electronically. Steve grants his customers 30 days to pay their bills, after which he begins charging interest on the unpaid balance.

As a courtesy to his long-term customer, Steve decides to wait 30 days before cashing ABC’s cheques, since typically they would have taken about 30 days to pay his invoices electronically. To his surprise, however, Steve finds that the checks given to him by ABC were actually rubber checks. Each time he tries to cash them, the checks fail either for lack of funds or because stop-payment orders were placed by ABC after the checks were rendered.

Initially, Steve suspects that the rubber checks were given by mistake. However, after many successive checks faced the same issues, he realizes that ABC may be issuing rubber checks intentionally. In response, Steve hires a business lawyer to advise him on a potential lawsuit against ABC. In the meantime, he suspends business with ABC and requests interest from ABC for its unpaid balances.