Bounced Checks

Why do bounced checks now cost $29 to process? Isn’t the whole process basically automated? Is this a big moneymaker for banks instead of investing?

I wouldn’t put it past them to charge $29 for a process that only costs a buck or two.

On the surface though, I would say that it is a deterrent to make sure that people keep better track of their checking accounts.
Zev Steinhardt

also - I’d guess that in the world of bank investments, bank profits, mega mergers, loans, etc. squeezing an extra $4 out of the occasional forgetful little guy can hardly be considered a big money maker in that world.

Great, AWB, this is going to set me up for all kinds of flames and derision, but I’ll answer as best I can. It would take a novel to fully answer your question, because there are literally hundreds of variables - Was the check paid or returned? Was it drawn on this bank or another? Has the return deadline passed? Why is the check being returned (NSF, Refer to maker, account closed, etc)?

Actually, it’s not. These checks are subject to what is known as exception processing. That means the check (or electronic information representing the check) is pulled from the automated flow and requires manual intervention. The exception process may be completely manual and paper based or it may involve automation. How automated depends on the financial institution and the reason for return.

The answer to the underlying question, though, is no. While it does cost the bank money to handle exception items, that cost does not approach $29.

A source of revenue, yes; a big moneymaker, no. I don’t have the figures handy, but I would venture to say that fees on returned checks account for less than 1% of income at the bank where I work. The bank does invest deposited funds, hopefully making money in the process. We also loan funds and charge interest. The money for both these activities comes from funds on deposit. If the bank pays your check and overdraws your account they have effectively issued you a zero interest loan and that money is not available for the bank to invest or loan for profit until you make a deposit.

  1. To cover actual costs for exception processing
  2. To cover loss of income from investing or loaning those funds
    3)To cover losses from other customers who write bad checks and do not pay us back (by far the largest area of bank losses. Robberies and embezzlement combined are a nit in comparison.)
  3. Behaviour modification. Financial institutions do not want their customers to write bad checks.
  4. Profit

Banks love late fees, bounced check fees etc. They get to make money and you can’t blame them because you could have avoided the fee if you did things right. But they really do love you when you screw up and they hope you keep doing it.

I had a tenant who paid his rent late every month by a few days and earned me an extra few bucks. Man did I like that!

Over twenty years ago, the late great Sydney Harris pointed out that the most profitable transaction a bank made was bouncing a check. With fees two or three times that now, I’m sure the statement is still true.

According to the phamlet I got from TCF bank it is actually the bank that suffers as it isn’t automated and they just make up their losses by charging $25.00

That is their side anyway

That’s their justification, but it’s bogus. Assume a bank handles 100 bounced checks a day. They thus get $2500 a day in income. If they hire five clerks to handle this load, that $500 a day each. Nice salary they must be getting.

Here’s my two cents:

The fee you are charged is not even close to the actual amount it costs the bank to process and NSF check, but you’ll never hear them say that. For one thing, IIRC, it is illegal for them to issue a “penalty” or “fine” for such a transgression. That’s why it is usually listed as a “service charge” or similar language. As for the amount, as it is with almost everything in banking, it is regulated to some extent by the state and/or feds. I know of no bank that truly wants to discourage people who willingly pay the fee from writing more bad checks. (Now, if you leave the account sitting out there with a negative balance for any length of time, that’s another story).

Fee income in general is a good money maker for any bank, and those fees come from many sources. One of the biggest of these fee-income generators is the late charge on loan payments. Most banks won’t even call you to tell you are late until after your grace period has come and gone and you’ve been assessed the charge. The logic being that if you’re already, say, 5 days late they may as well wait 5 more days because they can then charge you the fee. If they call you, you might run down and make the payment before the fee is assessed. I once had a VP of a bank tell me his favorite customers were those who paid their mortgage payment on the 25th day past their due date and included the late charge (generally 5% of the principal and interest portion of the payment).

Gazoo declares:

Um, I just did…5 posts up.

YDRC (you don’t recall correctly). The financial institution (sorry, but it ain’t just the banks’ game anymore) can call it whatever they like. Have you never heard the phrase “sustantial penalty for early withdrawal”? I mean in the financial sense, deev. Most marketing departments prefer “service charge” to “account penalty” or “customer fine”. Go figure.

Horse hockey. It’s regulated by competition and what the market will allow, period. Regulations are numerous in this industry but fees, in general, are not regulated.

More horse hockey. You don’t get a call because it’s cost prohibitive to hire that many phone operators. I have never been involved in or heard of ANY decision being made on the basis of the “logic” you’re spewing.

I won’t dispute that your friend said this, but if he did he must love to live dangerously. Loan officers are responsible, to an extent, for making sure the money they lend is paid back. Too many of your loans go bad and you lose your job. Since chronic late payment is a bright, red warning flag that a loan may go to default, most loan officers would prefer to avoid the stress.

Yes, I know that you made the statement about the fee being more than the actual cost, my point was the company won’t say such a thing. They’ll spew on about costs and lossess, etc.

On the penalty part, after a little reasearch, it seems the point of law I was vaguely remembering was the enforceability of penalty clauses in general. Courts normally won’t enforce them unless they are related to the actual losses incurred.

On the calling before grace, that is NOT horse hockey. It is one of very few reasons why the bank I’m employed at waits until after the grace. A car loan with a 10-day grace will receive its first call on day 11. A loan with a 20-day grace will receive its first call on day 21. We easily have man-power to make the calls sooner.

Your following comment contradicts your stance on this. You say it’s cost prohibitive in one statement and follow it up by saying the loan officer wouldn’t want to wait for the late payment. Which is it? Most larger banks don’t have their loan officers involved to any real extent in collection anymore anyway. And although they are still graded in part by the quality of their loans they don’t even have the final say on the approving the loan. Their main job is to get quantity of applications and cross-sell customers on as many product types as possible.

There are no contradictions in my statements, they address two entirely different issues. My first statement (“cost prohobitive to call”) addresses loans in general, because your example was not specific. You’re second statement was specifically about mortgage loans, which is an entirely different animal. So different, in fact, that the mortgage arm of a financial institutioin is almost always a separate corporation under the same holding company. I never said the loan officer would call re: a late payment, only that a mortgage lender would prefer to see all payments presented on time. Much less heartburn for all involved.

No offense, I know you don’t make the decisions, but you work for a crappy company. Most banks in our peer group are finally starting to focus on the customer, even reducing and eliminating some fees. The realization has set in that growth by merger must end some time and continued growth must come through customer service if the brand is to survive, let alone prosper.

The loan approval process varies so widely from company to company, and even within a company depending on the type and size of the loan, that your statement cannot be taken for truth outside your employer. Some banks have a centralized approval process for all loans, some are centralized for certain loans, some leave all the decision making to the loan officer. Most, including mine, use a combination of approaches.

We could go on discussing bank practices forever, but we’re way, way off the OP now.