Insufficient Funds Checks

SUBJECT: INSUFFICIENT FUNDS CHECKS NUMBER:
B.4.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 01/79 REVISED: 12/00
 signed
 David E. Sundstrom, Auditor-Controller
1. POLICY
All County departments and agencies shall charge and attempt to collect a returned check service charge on all checks payable to the County of Orange that are returned unpaid by the bank, with certain exceptions as enumerated below in Section 2. All departments and agencies shall charge a $25 returned check service charge for the first returned check, and a $35 charge for each subsequent returned check by the same payor, pursuant to California Civil Code Section 1719. If the payor fails to pay the amount of the check, the returned check service charge, and the mailing costs of the demand letter 30 days after mailing a proper written demand, the payor could be liable instead for the amount of the check and treble damages. This Policy and Procedure does not apply to the County Treasurer-Tax Collector. That department is covered by separate law covering insufficient funds checks.
1.1 Purpose
The intent of this procedure is to provide more efficient and cost effective collection of returned checks by imposing a service charge and pursuing treble damages when appropriate. This will partially compensate the County for additional time spent on collection efforts, and also may provide a deterrent to future writers of checks on insufficient funds. The service charge is to be $25 or $35, as applicable, and treble damages are to be three times the amount of the returned check, but in no case less than $100 or more than $1,500, in accordance with Civil Code Section 1719.
1.2 Authority
1.2.1 State of California Civil Code Section 1719
California Civil Code Section 1719 imposes the $25/$35 returned check service charge on payors of checks on insufficient funds, provides for imposition of treble damages for failure to pay after demand for payment, and provides for certain exceptions.
1.2.2 State of California Government Code Sections 25257 to 25259.5
California Government Code Sections 25257 to 25259.5 govern the discharge of accountability of debts due and payable to the County and allow the Board of Supervisors, by resolution, to authorize the County Auditor-Controller to discharge any department, officer, or employee from accountability for collection.
1.2.3 Board of Supervisors' Resolution No. 79-675 dated May 8, 1979
Board Resolution No. 79-675 authorized the Auditor-Controller to discharge County departments, officers, and employees from accountability for collection of debts due and payable to the County.
1.2.4 Board of Supervisors' Resolution No. 00-445 dated December 5, 2000
Board Resolution No. 00-445 directs all departments and agencies to charge the returned check service charge provided in Civil Code Section 1719 (with the exception of the Treasurer-Tax Collector).
1.3 Definitions
1.3.1 Insufficient Funds Checks/Checks Returned from the Bank Unpaid
"Insufficient Funds Checks," "Checks Returned from the Bank Unpaid," or "Nonsufficient Funds Checks (NSF Checks)" are terms used interchangeably. They include, but are not limited to, checks returned because of: insufficient funds, closed accounts, stop payments, incorrect date, inconsistency in amounts, incorrect signature, and/or lack of signature.
1.3.2 Treble Damages
Treble damages is an additional amount for which the writer of a returned check shall be liable for if the check amount plus the returned check service charge and the mailing cost are not paid within 30 days of the date that the County mails, by certified mail, a written demand for payment. In addition to the amount of the check, the writer of a returned check shall be liable for treble damages of three times the amount of the returned check, but in no case less than $100 or more than $1,500. When a person becomes liable for treble damages through a court judgment, the returned check service charge and mailing cost of the demand notice no longer apply.
1.4 Allowable Waivers of Returned Check Service Charges
1.4.1 Civil Code Section 1719 Waivers
The returned check service charge shall be waived in those instances as provided in Civil Code Section 1719 as follows:
  1. The payor of the check has stopped payment in order to resolve a good faith dispute, as defined in Civil Code Section 1719(b), with the payee (the County), as provided in Civil Code Section 1719(a)(3).
  2. The payor of the check presents the County with written confirmation by the payor's financial institution that the check was returned to the County by the financial institution due to an error on the part of the financial institution, as provided in Civil Code Section 1719(a)(4).
  3. The payor of the check presents the County with written confirmation that the payor's account had insufficient funds as a result of a delay in the regularly scheduled transfer of, or the posting of, a direct deposit of a social security or government benefit assistance payment, as provided in Civil Code Section 1719(a)(5).
  4. The payor of the check has become liable for treble damages for a check that is the subject of a written demand, as provided in Civil Code Section 1719(a)(2).
1.4.2 Department/Agency Waivers
Board Resolution No. 00-445 authorizes County department/agency directors to waive the returned check service charge in the following instances:
  1. The department/agency finds that the payor of the check is indigent, and further efforts at collection of the service charge would be fruitless due to the indigence of the payor.
  2. The department/agency determines that the collection of a returned check service charge from a particular payor would be adverse to the effective provision of County services to that payor under the program being provided by the department/agency, such as, behavioral health services or other health services.
  3. The department/agency determines that very few returned checks in small dollar amounts are handled by the department/agency, and that charging and collecting the returned check service charge would occur so infrequently that the cost of charging and collecting the returned check service charge would exceed the amount of additional collected service charges.
2. PROCEDURE
2.1 Collection by Auditor-Controller
The Auditor-Controller provides returned check collection services for many County departments, agencies, and districts. The procedures in this Section 2.1 apply to insufficient funds checks for those departments, agencies, and districts.
2.1.1 County Treasurer-Tax Collector and Bank Procedures
The County Treasurer-Tax Collector forwards checks received by County departments, agencies, and districts to Bank of America for deposit. Bank of America re-deposits any "unpaid" checks in an attempt to clear checks covered by a subsequent deposit. Checks returned "unpaid" after the redeposit are returned to the County Treasurer-Tax Collector. The County Treasurer-Tax Collector retains the returned checks payable to that office and forwards the remaining returned checks to the Auditor-Controller, together with copies of the Notice of Checks Returned Form (refer to Exhibit I of this procedure).
2.1.2 Journal Voucher Preparation and Notification
Upon receipt of the returned checks, the Auditor-Controller General Ledger Section makes the appropriate journal entries to cancel the payments, and forwards notification of each returned check to the payee department, agency, or district.
2.1.3 Auditor-Controller Collection Procedures
The Auditor-Controller Collections/Accounts Receivable Section sends a letter to the writer of a returned check, requesting payment by cashier's check or money order (refer to Exhibit II of this procedure), and, if payment has not been received, sends a follow-up demand letter, by certified mail, two weeks from the date that the first demand letter was mailed (refer to Exhibit III of this procedure). The Auditor-Controller Collections/Accounts Receivable Section also utilizes other reasonable means available to obtain payment when cost effective (e.g., state tax intercepts, outside collection services). If payment is received for the original amount due, but the returned check service charge is omitted, the Auditor-Controller will make reasonable efforts as described above to collect the service charge.
2.1.4 Legal Action
If payment has not been received within thirty (30) days from the date the certified letter was mailed, the Auditor-Controller initiates legal action against the payor for the amount of the check plus treble damages.
2.1.5 Collection of Payment
When a payment is received by the Auditor-Controller as a result of Auditor-Controller collection efforts, the Auditor-Controller notifies the payee department, agency, or district, and deposits the original amount of the check plus the returned check service charge in the appropriate fund of the payee department, agency or district. The original amount of the check is credited to the account that was credited when payment was first made, and the service charge is credited to Revenue Source Code 7690, "Returned Check Charges." Treble damages received as a result of Auditor-Controller collection efforts are deposited in Auditor-Controller Fund/Agency 100/003, Revenue Source Code 7670, "Miscellaneous Revenue," sub revenue 21.
2.1.4 Relief of Accountability
After all collection efforts have been exhausted, the Auditor-Controller grants relief of accountability, in accordance with Government Code Sections 25257 through 25259.5 and County Accounting Procedure (CAP) #B.3., Discharge of Accountability for Collections, and notifies the affected department, agency, or district when relief of accountability has been authorized.
2.2 Limited Responsibility for Collection by Certain Departments/Agencies
Due to legal restrictions or department/agency preference, certain departments/agencies are responsible for their own initial efforts for collection of returned checks, and are excluded from the initial collection process of the Auditor-Controller described above in Section 2.1. These departments/agencies are:
  • Clerk of the Board of Supervisors
  • Community Services Agency - Public Administrator/Public Guardian
  • County Clerk-Recorder
  • District Attorney - Family Support
  • John Wayne Airport
  • Sheriff-Coroner - Marshal Division
  • Orange County Housing Authority
  • Probation
  • Social Services Agency
  • Other small agencies who have infrequent returned checks and do not use Auditor-Controller Collection Services.
The procedures in this Section 2.2 are applicable to the above-listed departments/agencies.
2.2.1 Receipt of Returned Checks/Journal Entries
The County Treasurer-Tax Collector retains the returned checks payable to that office and forwards the remaining returned checks to the Auditor-Controller Collections/Accounts Receivable Section, together with copies of the Notice of Checks Returned Form. The Treasurer-Tax Collector also sends copies of the Notice of Checks Returned Form to the Auditor-Controller General Ledger Section. Upon receipt of the Notice of Checks Returned Form, the Auditor-Controller General Ledger Section makes the appropriate journal entries to cancel the payments. The Auditor-Controller Collections/Accounts Receivable Section then forwards the returned checks to the departments/agencies listed above, along with the Notice of Checks Returned Form.
2.2.2 Department/Agency Collection Responsibilities
The payee department/agency has a responsibility both to monitor their own returned checks and the applicability of the $25 or $35 returned check service charge, and make a reasonable effort to collect the returned checks and the applicable returned check service charge. The payee department/agency must attempt to contact the payor by telephone and, if the telephone contact fails, send a letter requesting payment (refer to Exhibit II of this procedure). Notification of possible legal action should be included in this correspondence. If payment is not received, the payee department/agency sends a follow-up demand letter, by certified mail, two weeks from the date that phone contact was first made or the first demand letter was mailed (refer to Exhibit III of this procedure).
2.2.3 Referral to Auditor-Controller
If payment has not been received within thirty (30) days from the date the certified letter was mailed, the returned checks, together with copies of all correspondence, may be referred to the Auditor-Controller Collections/Accounts Receivable Section for final collection efforts and the enforcement of treble damages. If payment is received, the Auditor-Controller Collections/Accounts Receivable Section notifies the payee department/agency. The original amount of the check is credited to the account that was credited when payment was first made, and the service charge is credited to Revenue Source Code 7690 in a fund of the payee department/agency. Treble damages received as a result of Auditor-Controller collection efforts are deposited in Auditor-Controller Fund/Agency 100/003, Revenue Source Code 7670, sub revenue 21.
2.2.4 Relief of Accountability
After all collection efforts have been exhausted by the Auditor-Controller, the payee department/agency is notified. The payee department/agency must request relief of accountability in accordance with Government Code Sections 25257 through 25259.5 and CAP #19, Discharge of Accountability for Collections. The Auditor-Controller notifies the payee department/agency when the write-off has been made.
2.3 Notification to the Public
Departments/agencies are responsible for providing appropriate signage and notification to the public of insufficient funds check service charges. Examples of appropriate notification are signs placed on counters or statements printed on invoices or envelopes.
Back to Top