In this thread, Hello Again said, “No. What does the bank care if you bounce a check? They didn’t lose anything, in fact they gain something they love - a gigantic fee, applied each time the depositor resubmits the deposit (up to three times, if memory serves).” Common wisdom seems to be that if you have a history of bouncing checks in the US, your name goes into a database and then banks don’t want to give you a checking account.
Why exactly do banks not like customers that bounce checks? Seems to me that if I write a check that won’t clear, my bank will catch it, refuse to pay it, and hit me with a big fee. The bank doesn’t pay out any money. How is this bad for the bank? Does each bounced check have to be manually processed by an account specialist who makes $50 an hour and each bounced check takes two hours given all the forms they have to fill out and get signed in triplicate by at least five managers and overnight shipped to some office in Cleveland? If I write a dozen bad checks this month and my bank hits me with a $30 fee for each of them, has the bank nonetheless lost money because each bad check actually cost them $200 in employee wages and $20 in materials?
It is against the law for one thing. The banks don’t like you doing it even if they make money on most bounced checks because it can be considered a crime under some circumstances (if it looks intentional or repeated). The person who wrote the check can go to jail for it so the banks can’t encourage it. If you write a dozen bad checks in a month, the bank probably won’t get anything from you because your money will be going to lawyers who could help shorten your sentence.
Banks love bounced checks because, as you point out, they collect a lot of fees. What they don’t like is people who don’t have any money in their checking account, which includes most of the people who bounce checks.
Sorry - never had to worry about this. If I write a cheque to Acme Inc. for that giant slingshot, and the cheque bounces - is it me or Acme that pays the "bounce " charge? My understanding from notices posted by the cash register in a local business many years ago is that the poor sap who trusted you and took your cheque gets dinged. they may try to collect from you (in addition to the amount of the cheque). So generally, bounced cheques are very disruptive… hence the high service fees to discourage the whole process.
Each bank makes its own decision about fees and charges, but as a general rule, both will pay a fee. The person who writes a bad check will pay a fee to their bank, the person who then deposits the bad check will pay a fee to their bank.
There is a fee called “Returned Item/Non-sufficient Funds (NSF)… When a transaction such as a check or recurring payment is presented for payment and returned unpaid because the available balance in your deposit account is less than the amount of the transaction. Also called ‘returned check’ or ‘bounced check.’ A Returned Item (NSF) fee will apply.”
And there is a fee called “Cashed/Deposited Item Returned Unpaid … Items you cash or deposit into your account, that are returned unpaid for any reason.”
How much of these fees actually covers the bank’s cost of handling the bad check, and how much is pure profit? With today’s computerization it boggles the mind to see how a single bad check could cost more than a few dollars to process. Does each bad check have to be manually processed by a highly paid employee?
Let’s say you write me a bad check. I take the check to the bank and receive cash. Now the bank tries to withdraw money from your account and can’t. They can’t get the money from me, because I blew it on strippers. Maybe they can get the money from you, but maybe you decide this is a good time to retire in country with no extradition treaty.
Banks try to prevent this from happening in a number of ways, but it still happens. Until we have real-time check processing, you can’t prevent it entirely.
In the case of paper checks, what happens (figuratively speaking) is that the clearing house says “Here is a bag containing $10 million worth of checks drawn against your bank. We deducted $10 million from your clearing account. If any of these checks are bad, send them back by midnight tomorrow and we’ll credit back your clearing account the next day.” With electronically presented checks, they emulate this process electronically without actually trucking around sacks of checks.
The system is built around the assumption that most checks are good. The few checks that are outliers are dealt with as an exception.
From what I remember from having sketchy dumbass roommates, if you bounce a cheque, you pay a fee, and so does the person who tried to cash it. So when, say, the landlord calls your pothead roommate to tell him that the cheque bounced, the landlord will demand that the next cheque is for a higher amount to compensate them for whatever fee their bank charged them.
So what’s the difference between a bounced check and an overdraft? If you have $1000 in the bank and write a check for $1200, they will honor it and charge fees for it plus fees for being in the negative. How is that different than a bad check that could get you arrested?
In the overdraft situation the bank has agreed before hand to lend the customer the money to cover withdrawals into the red (with a handsome fee for the bank of course). The recipient of the check gets their money without any fuss, the bank gets their fee and everyones happy.
When a cheque is bounced the recipient doesn’t get their money, and are innocent victims of fraud by the customer - who has drawn a cheque and given in to the recipient representing it is a valid cheque that will be honoured by the bank. A very different situation.
And if you bounce a check, the fees are generally higher than they are for overdrafting. I used to just pay interest if I overdrafted. Now I pay a fee of $10 for each day that a transfer is made from my line of credit plus interest no matter how much money is transferred or how many checks are covered. On the other hand, if I didn’t have overdraft protection I would have to pay a $35 per check fee whether the check was returned unpaid or my bank decided to honor it.
I know the outcomes are different, but why? When I was younger, I had a couple overdrafts like I described. I had no overdraft protection so there was no agreement that the bank would honor the check unless it was in the fine print when I opened the account. If that were the case, it seems that check bouncing would be impossible at that whole banking chain, and that seems unlikely. So what determines whether my bad check results in an overdraft or an arrest?
There’s usually a limit on how much overdraft the bank will tolerate; sometimes this depends on your type of account, length of time as customer, etc. In any event, no bank will honor an unlimited number or amount of overdrafts. Eventually, even a bank that offers overdraft will start refusing checks outright.
It’s the bank’s discretion, and there are guidelines specified somewhere that vary by bank. I have a $250 unsecured overdraft protection. It’s based on my length of time as a reliable depositor who doesn’t usually overdraw. If I screw up once in a while, they’ll cover it and charge me $36 for it plus $6 a day until my balance is back to positive. I didn’t know this until I did manage to miscalculate a couple months ago. I realized the mistake and called them, and the banker seemed a little surprised I was so worried about it. He said the fee would apply, but it wasn’t a big deal since I have a 12-year good history with them.
If do this every month, or overdraw over that $250, the bank will simply not honor it any more and bounce it. New account holders don’t even get that until they’re past a certain grace period, whether that’s months or years.
I would bet your couple of overdrafts weren’t by egregious amounts, and a couple of obvious oopsies the bank could look past. Three in a month, likely the third would be bounced even for a smaller amount. A newer account holder overdrafting by $500 would likely bounce immediately and have the account closed. It’s usually pretty obvious looking at an account history whether you’re dealing with a person who sucks at math or someone who’s trying to get money for nothing. Chronically short balanced accounts are the ones that don’t last long, and give the bank cause for calling fraud.
For credit purposes. If you bounce checks used to pay a loan, you default. If you deposit your customers’ checks and they bounce, then you have a problem and you’ll be marked as bad credit. If your actions were intentionally done to swindle a third party, it puts the bank in bad light.