Debt collectors and creditors routinely pressure consumers into issuing post-dated checks, usually over the telephone. What happens if you do make a postdated payment and the debt collector or creditor cashes it early? You may have a claim against the debt collector for violating federal law. But your options for claims against the bank or a creditor that cashed a check early are more limited. Read on to learn about the law, and what steps to take so this doesn’t happen to you.
(To learn more about laws that apply to debt collectors, see our Debt Collection Agencies area.)
Claims Against the Bank for Releasing Funds Early
The bank can cash your postdated check at any time, even before its authorized date, unless you specifically instruct it otherwise. This means that you don’t have a claim against your bank unless you notified it not to release the funds.
In order to instruct the bank not to issue the funds early, both state and federal banking laws require that you give the bank “reasonable notice of the postdating.” Federal lawdoes not provide a minimum time period within which you notify the bank. You should do it as soon as possible to allow the bank time to process the instructions. You should also describe the check to the bank with “reasonable certainty.” In other words, provide the check number, date, amount, and name of payee.
If the bank releases the funds even after you’ve instructed it not to, the bank may then be liable to you for damages that are caused by honoring the post-dated check. That may include reimbursing you for not-sufficient funds fees and penalties you incurred for subsequent checks that bounced as a result of the premature deposit.
Claims Against the Debt Collector for Cashing a Check Early
You are more likely to have a claim against a debt collector that cashes your post-dated check early. Federal law restricts what a debt collector can and cannot do with your postdated check. Specifically, under the Fair Debt Collection Practices Act (FDCPA), a debt collector cannot:
- coerce you into making a postdated payment by threatening (or instituting) criminal proceedings
- accept a payment that is post-dated more than five days in the future, unless three to five days prior to cashing the payment the debt collector notifies you in writing that it intends to deposit the payment, or
- deposit (or threaten to deposit) your postdated payment early.
You can sue the debt collector in state or federal court for violating the FDCPA. You can get up to $1,000 for each action. In addition, you may be able to get actual damages (these are damages based on actual harm you suffered, such as not-sufficient fund charges from other transactions caused by the premature deposit), attorney’s fees, and court costs.
Claims Against the Creditor for Cashing a Check Early
The FDCPA does not cover creditors because they are not usually considered to be debt collectors. However, creditors are governed by the Federal Trade Commission Act (FTCA), which prohibits them from engaging in unfair or deceptive acts or practices. The Federal Trade Commission (FTC) may consider the creditor's early deposit of your postdated check to be an “unfair or deceptive act or practice.”
However, unlike with the FDCPA, you cannot sue the creditor for violations of the FTCA. Instead, you should file a complaint with the FTC. You can do so by visiting its website at www.ftccomplaintassistant.gov. The FTC will then conduct its own investigation and, where relevant, take action against that creditor.
State Law Remedies
Your local and state laws may also offer additional protection from the premature deposit of postdated checks. Your state's law may also cover both debt collectors and creditors, and provide for greater damages than what is allowed by federal law.
To find information about your state or local law, do some research on your own (visit Nolo’s Legal Research area), contact your state attorney general office or state consumer protection agency (see State Consumer Protection Offices to find yours), or consult with a local attorney.
How to Protect Yourself
It is almost never a good idea for you to give a debt collector a post-dated payment or other information that allows it access to your financial accounts. The best way to protect yourself from the risk that a collector or creditor will cash a check early, is to never give a creditor, debt collector, or any other person a postdated check.
In addition, don’t ever disclose your personal financial information to collectors and creditors, including the name of your bank and account numbers. The best way to pay a creditor or debt collector is with certified funds, such as a cashier's check or money order.