What happens if you unknowingly cash a bad check at a check cashing exchange and they threaten me with arrest?

If there is no evidence that you knew the check was bad, then you did nothing wrong criminally and should not be arrested--though if the police do come, cooperate with them, and sort the matter out later. You will have to repay the full amount of the check.

How you act after the bad check was cashed can help reinforce your innocence of an actual criminal act--or your guilt. Innocent people, for example, who simply made a mistake (such as by not balancing their checkbook and not knowing how much they had) are more likely to try to fix that mistake—by offering to pay the money that was in the bad check. With an offer to repay, you make it appear more likely that the bad check was an unfortunate, but honest, error and not criminal. On the other hand, guilty people--someone who intentionally passed a bad check--are less likely to do this: not taking responsibility for the check and offering to fix the problem can suggest guilt. Therefore, if the check turns out to be bad, a good idea is to 1) state that you had no idea it was bad, and 2) offer to return the money.

Offering to return the money does two important things:

       1) If the check cashing exchange receives their money back, that significantly reduces their incentive or reason to go to the trouble of taking any action against you, including pressing charges. (After all, what they really want is to get their money back.)

      2) Even if the exchange still wants to press charges, as stated above, returning the money is evidence that you made an innocent mistake and should significantly reduce the chance that the police will take action.

There is also no "downside" for you in returning the money. You are not allowed to keep it no matter what. While a crime is only committed if there was criminal intent ("mens rea"), or knowledge that you were passing a bad check, regardless of your intent, you cannot keep the money you get from a check if there are insufficient (or no) funds to cover the check.

If the exchange were to sue you, you'd have to return the money. Since you have to give it back anyway, why not get ahead of the curve and return in voluntarily, in a way that will help protect you from arrest and criminal charges?

That said, it is not impossible that, even if you return the money, that the exchange might still look to file or press charges and that the police might arrest you. If that happens, while you can and should calmly and respectfully tell your story to the police, otherwise cooperate with them. The last thing you want is to add a charge of resisting arrest. If there is no evidence that you knew that the check was bad or logically should have known that it was bad, you should not be convicted. More, in the absence of evidence, the case will very likely be voluntarily dismissed.

If you are arrested, cooperate with the authorities and call a criminal defense attorney to then get the charges dismissed and/or defend you in court.