Owners and operators frequently are tendered bad checks or checks not honored by financial institutions. Three statutes are relevant in these situations, the first of which is based on a criminal theory and the second and third of which provides remedies for those damaged by the receipt of bad checks.

The statute, which is based in criminal law, states that a person who knowingly or intentionally possesses, manufacturers, uses, or alters a document, instrument (check), computer program, or device with the intent to obtain property to which the person is not entitled commits fraud, which is generally a Class A misdemeanor.(Ind. Code § 35-43-5-4(a)(3).) If the offense results in a loss of at least $750 the offense becomes a Level 6 Felony. (Ind. Code § 35-43-5-4(b)(2)). The owner or operator has the burden of proving the criminal acts, including criminal intent. Additionally, prosecution for criminal check fraud is entirely within the discretion of the local prosecutor. Prior to 2021, Indiana had specific statutes dealing with bad checks. However, in 2021, the Indiana General Assembly repealed those statutes, claiming prosecutors rarely used them to prosecute offenders.  

In addition to potential criminal liability, a resident that presents a bad check can also be pursued in civil court. The first of the two remedial statutes (the Pecuniary Loss Statute) provides that an owner or operator may initiate a civil action to obtain damages for any “pecuniary loss” caused by check deception. The owner or operator may be awarded an amount not to exceed three times his/her actual damages; the costs of the action; reasonable attorney fees; and other related expenses. (Ind Code § 34-24-3-1.) To recover, the owner or operator must prove by a preponderance of the evidence that the resident committed check deception.

The second remedial statute (the Banking Law) provides victims of bad checks remedies similar to those in the Pecuniary Loss Statute. However, it also provides for interest at the rate of 18% per annum on the face amount of the check from the date of the check’s execution until payment in full is tendered. (Ind. Code § 26-2-7-5.) To recover, an owner or operator must prove that the writer of the check: (1) without valid legal cause stopped payment on the check; or (2) allowed the check to be dishonored by a financial institution because of a lack of funds, failure to have an account or lack of an authorized signature of the drawer or a necessary endorser. (Ind. Code § 26-2-7-4.) The resident may avoid paying damages to the owner or operator if s/he pays the check in full within ten days after notice, as previously described. Suppose the owner or operator sends written notice by certified mail and the check writer refuses to pay for longer than 30 days. In that case, the Banking Law directs the court to award the owner or operator three times the face amount of the check if the face amount of the check is not greater than $250 or the face amount of the check plus $500 if the face amount of the check is greater than $250 (the Enhanced Penalty). (Ind. Code § 26-2-7-6(b).) This comes in addition to the other available remedies. This Enhanced Penalty is inapplicable if the resident reasonably believed there were sufficient funds in the account to cover the check and the insufficiency of funds was caused by the dishonoring of a third-party check that had been deposited into the resident’s account. (Ind. Code § 26-2-7-6(a).) An owner or operator must choose whether to pursue a remedy under the Pecuniary Loss Statute or the Banking Law. (Ind. Code § 26-2-7-7.)

Keywords: returned check, bounced check