Banks making
a killing off
bounced checks
Banks making
a killing off
bounced checks
by Robert Heady
Bank Rate Monitor
What's
the No. 1 bank rip-off in America, in your opinion?
I
think it's bounced-check fees, which now cost up to $30 or more, according
to the Consumer Federation of America. The advocacy group says that:
Banks
make $6.2 billion a year in profit from bounced checks 11 to 32 times what
it costs them to process those rubber items.
The
little guy gets hit hardest because although he's more prone to bounce a
check, he's also the person who can least afford to pay steep penalties.
Banks
have figured out a number of "traps" and tricks in their check-processing
procedures to increase bounced-check fees.
The
Consumer Federation of America, based in Washington, D.C.; charges that
banks are using "consumer-unfriendly schemes" to boost their revenues.
And when the banks' spin doctors argue that big fees are only used as a
"deterrent" to discourage people from writing rubber checks, that's
a lot of hooey. Only 5 percent of institutions reported a decrease in bounced
checks when the fees went up, says CFA.
Citing
Bank Rate Monitor data, CFA said bounced-check fees were highest in Philadelphia,
averaging $28.29, with some outfits charging above $30, while Los Angeles
was lowest at $11.71. Plus, adds the Federal Reserve Board, the bigger the
bank, the more you're apt to get nailed. Large banks average $20.29, medium-size
banks $18.97, and small banks $15.05. By contrast, the typical charge at
a credit union is $15.42.
Here's
how banks are becoming filthy rich with NSFs (non-sufficient funds checks,
as they're called): Of the $6.1 billion profit, $5.2 billion comes from
penalty fees against the person who wrote the check, and $900 million against
the guy who deposited the bum check into his account.
The
latter fee averages $5.50.
Mentis
Corp., which does research for the banking industry, estimates that a bank's
average cost of processing a bad check is between 50 cents and $1.50, vs.
48 cents to 65 cents for returning the item to the depositor.
"NSF
(bounced) check fees are a source of income that's yours for the taking,"
one unidentified industry consultant told CFA. When anybody criticizes the
fees, bankers reply that "the fees must be acceptable because consumers
pay them." That's also baloney. Aside from the social (and criminal)
stigma of writing rubber checks, customers are afraid if they don't pay
the fees, it will louse up their accounts and credit report.
You're
being trapped into paying more bounced-check fees because of how banks process
their checks. They program their computers to pay the biggest checks first
every day, then the smaller ones. Here's an example:
Say
you have $800 in your account, and deposit $600. You write checks for $400,
$350 and $500, which arrive in that order at the bank for payment on the
day before your deposit clears. If the bank clears the checks in the order
in which they arrive, only the $500 check will bounce. But if the computer
subtracts the biggest checks first, you'll be hit by two bounced-check
fees.
Warning:
Today it's easier to bounce a check because of the growth of electronic
banking. Besides ATMs, you're also using more debit cards that deduct money
from your account immediately. If you don't keep your checkbook constantly
balanced, you're a perfect candidate for NSFs.
You
say you've got a "free, no-frills checking account"? The bounced-check
charges on these darlings can be double those on regular checking.
Who gets whacked? The low income folks who use freebie checking.
Besides
keeping your checkbook balanced, do this:
Learn
your bank's check-clearing practices. They should be two business days for
a local check and five days for all others. Note the time you must make
a deposit to have it credited that same day.
Overdraft
protection is good, but some outfits charge $15 a year for the privilege.
Others will provide a minimum line of credit of $300, but if you're just
a few dollars overdrawn they'll make you borrow the whole $300 and charge
you 16.5 percent interest, to boot.
If
a check bounces, ask the bank to waive the feeespecially if you've been
a good customer.
If
your bank charges ugly fees, shop around and move your account to a small
community outfit or credit union.
All
this reminds me that 20 years ago, when I was covering the news of a major
banking convention, when banks really started going after consumer accounts,
one of their top guys bounded to the stage and proclaimed: "We've just
discovered a great new profit center. It's bounced checks! ".
Boy,
was he right.
Editor's Note: Robert
Heady is the founding publisher of Bank Rate Monitor and is the co-author
of the book, "The Complete Idiot's Guide to Managing Your Money. You
can write to him in care of the Bull & Bear, P.O. Box 917179, Longwood,
FL 32791 or e-mail him at jrnl8888@aol.com.
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