Paul has an account at St. Jerome Bank. He does not track his checking account balance in a checkbook register. Yesterday evening, he placed two checks in the mail for $156.66 and $238.94. Paul accesses his account online and finds that his balance is $568.40, and all the checks he has written except for the two checks from yesterday have cleared. Based on his balance, Paul writes a check for a new stereo for $241.00. Paul has no intention of making a deposit in the near future. What are the consequences of his actions?

The immediate consequence of Paul’s actions would be a return for insufficient funds or an overdraft, accompanied by related bank fees. If the check is returned, the vendor could cancel the purchase and charge Paul a fee. The bank might demand that Paul make changes to his account. Repeated instances of such behavior would damage his credit score or possibly even lead to legal action.

Expert Answers

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When Paul decided to attempt to make a purchase without having sufficient funds to do so, he was committing fraud. Because the amounts in question are small, it is unlikely that he would immediately face legal action. In the short term, the probable consequences of sending the check would be that he would not succeed in making one or more of his intended purchases. Depending on the bank and the type of checking account Paul has, the bank could return a check for insufficient funds or honor the check through an overdraft. Either of these situations will often generate a fee that is automatically charged to Paul’s account, thereby reducing his balance. In turn, this could result in his having insufficient funds to cover the next check he writes.

This process creates a snowball effect which could prove very costly. The affected vendor or vendors could charge Paul a fee as well as not sending the item, refuse to do future business with Paul, or even take legal action. The bank could request that Paul change specific features on his account or switch to a different type of account. For example, if the account did not already have overdraft protection, the bank could suggest that he add it to reduce the chances of this problem occurring again. This service might incur a monthly charge.

If Paul is unwilling to make the required changes, the bank could close his account. While a single returned check will have a minimal impact, repeatedly engaging in this behavior will damage his credit score and make his future financial dealings—such as obtaining credit cards or a mortgage—much more difficult and expensive.

Last Updated by eNotes Editorial on February 17, 2021
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