Knowledgebase-Maximum Fee For Bad Checks


Information Product

Title:Maximum Fee For Bad Checks
Summary:A legal opinion on the maximum that a city can charge for a bad check.
Original Author:O'Hara, Stephanie
Co-Author:
Product Create Date:04/24/2017
Last Reviewed on::04/25/2017
Subject:Finance--Bank services
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document:
April 2017
Via Email

Dear MTAS Consultant,

A city has asked for the maximum fee that a city may charge for bad checks. Tennessee Code Annotated 47-29-102 states:
          When any check, draft, or order is not paid by the drawee because the maker or drawer did not have an account with or sufficient funds on deposit with the financial institution, or the draft, check, or order has an incorrect or insufficient signature thereon, the payee of such check, draft, or order is authorized to assess a handling charge against such maker or drawer in an amount not to exceed thirty dollars ($30.00).

This language and definitions do not exclude local governments. This section was originally passed in 1988 with a $15 maximum charge, and it was amended in 2005 to be $30 maximum charge. Tennessee Code Annotated 9-1-109 (emphasis added) provides:
          If any check or money order so received is not duly paid, in addition to other penalties provided by law, there shall be paid as a penalty by the person who tendered such check or money order, upon written notice and demand by the state, county or municipal officer to whom such check was tendered, an amount equal to one percent (1%) of the amount of such check or money order, except that if the amount of the check or money order is less than two thousand dollars ($2,000), the penalty under this section shall be twenty dollars ($20.00) or the amount of the check, whichever is lesser.

This section was first passed in 1969 with a 1% charge for amounts over $500 or $5 for checks between $5 and $500. The section was replaced in 1992 with the current language. The charge under Tennessee Code Annotated 9-1-109 is a mandatory charge per the statute.

We have reviewed the legislative intent. While I cannot determine if the legislature intended for Tennessee Code Annotated 47-29-102 to add a charge or cap the charge, I recommend that the city charge between $20 (minimum) and $30 (presumed maximum) for all checks under $2,000. If the check is over $2,000, the city is required under Tennessee Code Annotated 9-1-109 to charge at least the 1% of the check amount. If the city chooses to charge over $20, the “all checks under __” should be adjusted for their policy. For example, if the city plans to charge $25 for each returned check, the policy would be “$25 for each check returned for less than or equal to $2,500 and 1% for any check over $2,500.” Stated another way, here is example language for an ordinance: “A charge of (choose $20-$30) or 1% of the amount of the check, whichever is greater, shall be assessed against the maker or drawer of any check not paid because the maker or drawer did not have an account with or sufficient funds on deposit with the financial institution, or the draft, check, or order has an incorrect or insufficient signature thereon.”

Please let me know if you have any additional questions.

Stephanie Allen O’Hara
MTAS Legal Program Manager

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

Always consult with your city attorney or an MTAS consultant before taking any action based on information contained in this database.