Why does bank charge a returned item fee?

[Downto0]

If a request for payment comes to your account and the money is not there to cover, the bank, depending upon your relationship with the bank, will either honor the request and send the money for the transaction, or it will not. In most cases the bank will charge a fee for this overdraft, whether they honor the request for payment, or not.

The bank provides a service when they pay the transaction but the bank provides no service when they simply return the item unpaid. They generally charge the same overdraft fee for either.

I have never really understood this because when you are at a POS and you do not have the money for that POS, the bank simply denies the transaction and does not charge a fee.

What's the difference?

[WhoCares1000]

Because it is pure profit. It goes back to the old days before computers when bad checks had to be handled by real people and took extra time to deal with. The bank of course had the right to charge for the extra time you caused them. The people believed that those who wrote bad checks, even if there was not an intent to defraud should still be punished for it.

Today, since computers do the work, it does not cost a bank more than $1.50 to bounce a check and yet they get $35 - $40 for doing so. Now do you see the profit motive? That is why they resisted telling people at POS that their account was overdrawn and reordered how they handle checks and deposits. It is really pure greed to increase bonuses and stock price.

Remember the above the next time a bank employee tries to shame you for having the "nerve" to overdraw your account.

[Downto0]

I doubt if it costs $1.50. The instructions are already in the bank's software as what to do in a given situation.

I haven't re-read the agreement I signed for my bank account but I think I probably would find (in the fine print) that I agreed that they can do this. Anyone who has a bank account, or most other types of accounts, has probably unknowingly agreed to the same thing.

This "take it or leave it" agreement reeks of the same tactics which were enforced in an confession under duress. Just the same as a witness gives their interrogators the information they want to stop the beatings, the account holder, if they want to be an account holder, will agree to whatever the banks wants.

There should be some sort of recourse for the consumer to take to counter these agreements under duress. The consumer should not have to empty their wallets into the bank's coffers just because they need a checking account to do business.

Switching banks or to a credit union misses the point. They all have these take it or leave it agreements.

I'm seeking a legal stance rather than profit clarification. I already know that banks, and credit unions, are looking to squeeze profits from the uninformed and poor consumers because those consumers do not know how nor have the financial backing to object.

What laws or acts are there that deal with this issue? Or is congress still sleeping on this one?

Edited February 4, 2010 by Downto0

[rikkivs]

You are right on a moral level but legally, the banks ALL have folks agree to contracts of adhesion. Technically these types of contracts tend to be unconscionable but they abound in our every day lives.

An unconscionable contract of adhesion heavily restricts the rights of one party while preserving the rights of the opposing party. I believe that the judge in Clevenstine may have felt that since account stated required a meeting of the minds- which requires EQUAL footing between parties, that the credit card contract suit under account stated had the flavor of an adhesion contract that was legally unenforceable.

Edited February 4, 2010 by rikkivs

[Bigwoodystyl]

When you endorse a check, you are vouching for the validity of the item. It is not the bank's responsibility to take on additional risk of unpaid items you send to them for deposit, yet they do this everytime a deposit is made.

If you have questions about a check's validity, you should not endorse or deposit it. Instead, you should take it directly to the drawing bank for direct collection. [Note: the drawing bank will likely charge you a fee if you are a non-customer.]

This is so far from unconscionable I hardly know what to say. If you are depositing items that are being returned, the bank is taking a risk each time they are processed, especially since I know from reading your past posts that you are apt to overdraw your account. If your bank account gets charged off, that's a real loss that the bank would incur.... perhaps not you personally, but without these fees, banks would incur losses in the Billions [merely for providing checking account services].

[rikkivs]

The unconscionable aspect comes in with the excess fees and the fact that the consumer has no recourse legally or otherwise.

1.Example 1- State usury laws do not apply to nationally chartered banks. Yet, if I give someone a loan and charge them 35% interest COMPOUNDED daily and try to sue them, my loan is legally unenforceable but a bank's is? That makes no sense. The will of the people of the states that have interest ceilings has been usurped.

2.Example 2-If you look at credit card contracts you will see that prior to regulations that are to come into effect this year, the creditor could change your credit limit and interest rate WITHOUT cause or notification. That is unconscionable but legal.

3.Example 3-If you overdraft by $0.30, you will still get a $30-$35 overdraft fee. Banks and credit unions can (and often DO) refuse to waive the NSF fees for such trivial amounts. That is unconscionable. The consumer KNOWS that if he or she goes over the amount in their account that they can get an NSF fee, and the majority of consumers will not let their accounts dip that low. BUT stuff happens and over $0.30 a $30-$35 NSF fee is inappropriate. This is from personal experience at a CREDIT UNION. My account went over by ten cents and I got a $28 NSF fee which they refused to waive, despite the fact that the members are supposed to own the credit union.

[Bigwoodystyl]

I summarily disagree with you on each point.

Further, these new laws that you tote are actually going to indirectly hurt a lot of people they were intended to "help"--likely you included.

[rikkivs]

I do feel that the new legislation will not be effective in helping consumers at all and that in an ideal world, the government should not be imposing these restrictions on banks in the first place.

But we don't live in an ideal world and these banks have done everything they can to take advantage of consumers. Even some employees of large banks have admitted to practices like Citibank zeroing out credit card balances that were positive so they could extract over the limit fees and so forth.

You can disagree but the facts speak for themselves. $0.30 overdraft hardly justifies an NSF fee of $30 by no reasonable standard. I am not saying that some fees shouldn't be imposed by the bank for any losses they take, but it should be a set percentage of the overdraft amount so that if you go over by $0.10 you won't be charged $28!

[Downto0]

I know from reading your past posts that you are apt to overdraw your account.

This really isn't the point either, but no, I usually don't overdraft my account more than once or twice a year, sometimes not at all.

If you are depositing items that are being returned, the bank is taking a risk each time they are processed...It is not the bank's responsibility to take on additional risk of unpaid items you send to them for deposit

Your assumption is wrong.

I'm not depositing checks. The items being returned are regular monthly requests for payment such as aol and electricity.

Your assumption causes you to miss the point here also. The point is, by returning the request for payment, the bank takes no risk and provides no service, yet charges the same overdraft fee as if it did both of these things.

And, let's take a look at the definition of contract of adhesion, which was appropriately brought up by rikkivs:

adhesion contract (contract of adhesion) n.

a contract (often a signed form) so imbalanced in favor of one party over the other that there is a strong implication it was not freely bargained. Example: a rich landlord dealing with a poor tenant who has no choice and must accept all terms of a lease, no matter how restrictive or burdensome, since the tenant cannot afford to move. An adhesion contract can give the little guy the opportunity to claim in court that the contract with the big shot is invalid. This doctrine should be used and applied more often, but the same big guy-little guy inequity may apply in the ability to afford a trial or find and pay a resourceful lawyer.

http://legal-dictionary.thefreedictionary.com/Adhesion+Contract

The last sentence of this definition pretty much hits the nail on the head as to why the banks rake in 40 billion dollars a year in overdrafts alone.

Edited February 5, 2010 by Downto0

[scardKaren]

What I want to know is... If they return the check, they charge the person you wrote the check to...

For example, if I write you a check, the bank doesn't like me, they return the check unpaid... You get charged... (15 years ago it was $10, not sure now).

[Downto0]

A representative for my electric company told me that the bank did charge them for a request for payment which was denied.

I've read somewhere that requests for payment are allowed twice for each EFT. The banks, then, would get a double payment for doing nothing twice.

Anyway, does anyone have any pointers as to what laws or acts I could research for some help concerning this issue?

[Bigwoodystyl]

I've read somewhere that requests for payment are allowed twice for each EFT. The banks, then, would get a double payment for doing nothing twice.

In some states, they can convert it to a paper entry [3rd party draft] and submit it a third time!! The maximum is twice by paper and once by ACH/EFT or twice by ACH/EFT and once by paper. Oh, those evil, unconscionable banks LOL!

Even some employees of large banks have admitted to practices like Citibank zeroing out credit card balances that were positive so they could extract over the limit fees and so forth.

Explain this to me in different terms. What do you mean by "zeroing out"? In indsutry terms, "zeroing out" is beneficial to the customer so I don't understand what you're saying here...

[Downto0]

In some states, they can convert it to a paper entry [3rd party draft] and submit it a third time!! The maximum is twice by paper and once by ACH/EFT or twice by ACH/EFT and once by paper. Oh, those evil, unconscionable banks LOL!

Then, to top that off, when you receive your next billing from the business who attempted to EFT your account, one wouldn't be surprised if there were another 3 add-on fees.

I think this is okay with you because if the banks are draining the poor consumer's wallet they won't need to think up new ways to add charges to your account.

There is such a bill, which, somehow, is passed over year after year, which limits overdrafts to 1 per month and a cap of 6 per year. I think you would be at least a little concerned if this bill were passed.

We already know that banks are innovative when the profit margin is down. I imagine that a guy like you might find that he may all of a sudden be doing something wrong with his money and the banks would explain it to you through a series of newly invented add-on charges.

Is the adhesion contract, which rikkiv spoke of, the only thing which allows the banks to go wild with add-on charges...or is there actual law which supports this money grabbing?

[rikkivs]

I am quite certain you are not only aware of the Citibank case in CA where our attorney general got them for their 'sweeps program'. The program would zero out or erase POSITIVE account balances. This is not beneficial to the consumer at all because once their balance dipped to zero, they would have to deal with paying fees which Citibank ILLEGALLY extracted from them. I am here to provide information and learn. It is not my goal to get into arguments with people like you who are being disagreeable for the sake of being disagreeable.

For those who actually care about this topic, Downto) is right and brings up good points. Here is part of the article about Citibank's scams below:

SAN FRANCISCO- California Attorney General Edmund G. Brown Jr. today announced that he has reached a settlement with Citibank after a three-year investigation into the company's use of an illegal "account sweeping" program. Nationally, the company took more than $14 million from its customers, including $1.6 million from California residents, through the use of a computer program that wrongfully swept positive account balances from credit-card customer accounts into Citibank's general fund.

"The company knowingly stole from its customers, mostly poor people and the recently deceased, when it designed and implemented the sweeps," Attorney General Brown said. "When a whistleblower uncovered the scam and brought it to his superiors, they buried the information and continued the illegal practice."

Between 1992 and 2003, Citibank employed a computerized "credit sweep" process to automatically remove positive or credit balances from credit-card customer accounts. An account could show a credit balance if a customer double-paid a bill or returned a purchase for credit. The credit sweeps were done without notifying the customer and without regard for whether the customer had any unpaid balances or other charges owed to Citibank.

The credit sweeps targeted more than 53,000 customers nationwide. All of the affected accounts were in a recovery status, which includes accounts of customers who have died, sought bankruptcy protection, or been the target of litigation or other collection efforts by Citibank.

In July of 2001, a Citibank employee uncovered the practice and brought it to the attention of his superiors. The employee was later fired for discussing the credit sweeps with an internal audit team. In the words of a Citibank executive, "Stealing from our customers is a business decision, not a legal decision." The same executive later said that the sweep program could not be stopped because it would reduce the executive bonus pool.

[WhoCares1000]

Now I remember what sweeps were. It was not the zeroing out of credit balances but of debit balances (or even simply debits) in cases where the accounts either have not been paid or were dormant. For example, say you paid off your card and you overpaid by about $3. The bank should have written you a check for the $3 to zero the card out. What Citibank was doing was moving the balance to their company account and calling it profit.

In fact, it was that case, as well as the Providian case (also in California), that got the Office of the Comptroller of Currency to issue a notice stating that they had authority over National Banks and that the State AGs were powerless to bring suit when wrongdoings were noted. This however has not been tried in court yet.

[WhoCares1000]

Now, back to the topic at hand.

Personally, I am not adverse to overdraft fees. They should reimburse the banks for their expenses (such as stamping and mailing) and they should be high enough that there is somewhat an ouchie moment. In this case, a $5 or $10 OD fee would be reasonable to cover both. The fees now are outrageous however and need to be reined in.

Something along of the lines of "You may only charge an overdraft fee equal to your actual cost unless you follow the guidelines below:

1) Any deposits made during normal business hours at a branch are counted for that day (normal business hours means between 9am and 5pm).

2) Deposits are listed first before any withdrawals, POS debits, or Checks

3) The first $1000 of any deposit must be available immediately. After that, the 3 and 7 day holding periods can apply for anything over $1000 as well as immediate availability for checks that are already considered for immediate availability (Payroll, Fed Government, etc)

4) Withdrawals, POS debits, and Checks must be cleared lowest to largest.

5) At a POS, if there is not enough funds to cover the sale, the consumer should have the right to either decline the sale or the sale should be declined automatically.

6) Fees are limited at $10 per transaction and $30 per day.

The above rules would limit the greed at least.

[rikkivs]

I think that a set percentage of each transaction might be used as an NSF fee. But what I don't get is why the hold on checks for amounts over $1K? The technology is there already for no holds to even be necessary. A lot of the problem with the banking sector is that we have technology at our disposal that renders a lot of the old pro

cedures obsolete.

[Downto0]

What allows banks to charge an overdraft fee for a request for payment which was denied? Why is this different than a POS where the request for payment is also denied?

[Downto0]

Okay, so I'll bump this up once because I'd really like to know if there are any laws or acts which support the banks charging for returned items when they never paid them in the first place.

[Bigwoodystyl]

First things first, saying "returned items" is confusing. You really mean "NSF".

--When one says "returned item" s/he typically means "RDI" or returned deposited item, which I explained in my first post in this thread, and which "ScardKaren" asked about as well.

--An item that is returned NSF is to what you are referring and this is typically called NSF or ISF. The subsequent charges are NSF/ISF charges.

--An item that is paid, but which overdraws one's available balance is an overdrafted item and causes "Overdraft charges/fees".

Most banks make an explicit distinction on your statement between NSF/ISF charges and overdraft fees. Some banks do not; however, regardless of the terminology, a distinction remains.

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Historically, there is a precedent that any item which overdraws one's available balance would not be paid AND a fee would be charged. This is the way it is in most countries. This is the way banking has almost always been. In this country, before the prevalence of Internet Banking and Telephone Banking, the only way one would know his/her checking balance was either by keeping an up to date register and reconciling this register with monthly statements or by going in to a branch office and sitting with a personal banker. Banks typically charged a "reconcilation fee" for this service. To avoid this reconcilation/research fee, keeping one's own ledger up to date was of paramount importance. Further, one wouldn't even know if his/her bills were being paid or if there was an NSF until the statement was mailed. [Only important customers had their overdrafts paid by the bank.]

In the late 90's banks began opting customers into "customary overdraft protection" whereby the bank pays the overdrafted items and charges an Overdraft Charge instead of an NSF Fee. At first, this was a convenience and a great thing, but with the advent of Check Cards/Debit Cards, many customers blindly swiped their cards and at the same time, Internet Banking and Telephone Banking offered 24/7/365 let these customers feel as if they didn't need to keep an up to date register. The result is "cascading overdraft fees" that add to a staggering amount in aggregate, but which are paid 90% by those who can least afford them.

MOST DEPOSIT ACCOUNT AGREEMENTS REQUIRE YOU TO KEEP YOUR OWN RECORDS, INDEPENDENT OF THE BANK'S.

The 24/7 online banking, telephone IVR menu and even the live assistance of bank officials and tellers are only tools which the bank provides to assist you in keeping your own register up to date. Nothing is truly "official" until your bank statement is sent to you at the end of the month.

It wasn't all that long ago that none of that stuff existed and the only way someone would ever know their balance up to the minute is if they either paid for an account reconciliation at their local branch or at the end of the month when the statement came in the mail.

The bank is not your nanny. There is absolutely no excuse for OD Charges or NSF Fees and it's my personal opinion that the fee amounts should be raised to $100/occurrence or even more, considering that the higher the fee the better the deterrent and customers who habitually overdraw their accounts are the only deposit customers who ever cost the bank money.

1. Know your account balance.

2. Don't spend more than your account balance.

3. Take some personal accountability. Your perpetual negative balances are not the bank's fault.

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I've written a good deal about this in the following threads:

FDIC Study: Outrageous Overdraft Fees

charge a overdraft fee and get sued? how to beat the banks!

The point is: most people in your situation would be happy to have their overdrafted items returned NSF as this avoids the cascading spiral of fees and the very large negative balances in checking. Most people in your situation are requesting to be opted out of the overdraft matrix and the "customary overdraft protection".

[Bigwoodystyl]

Because it is pure profit. It goes back to the old days before computers when bad checks had to be handled by real people and took extra time to deal with. The bank of course had the right to charge for the extra time you caused them. The people believed that those who wrote bad checks, even if there was not an intent to defraud should still be punished for it.

Today, since computers do the work, it does not cost a bank more than $1.50 to bounce a check and yet they get $35 - $40 for doing so. Now do you see the profit motive? That is why they resisted telling people at POS that their account was overdrawn and reordered how they handle checks and deposits. It is really pure greed to increase bonuses and stock price.

Remember the above the next time a bank employee tries to shame you for having the "nerve" to overdraw your account.

This is simply not true. If you are getting your information from the USA Today, I suggest another source.

(1.) It's a function of risk management [that just so happened to become profitable].

(2.) "bad" checks are still handled by individuals. They are held in the bank's exceptions department for a minimum amount of time determined by regulations and/or they are forwarded to loss prevention / deposit account loss control centers if they are large amounts. There is real human resources involved each time a check is "bounced".

[Bigwoodystyl]

I think that a set percentage of each transaction might be used as an NSF fee. But what I don't get is why the hold on checks for amounts over $1K? The technology is there already for no holds to even be necessary. A lot of the problem with the banking sector is that we have technology at our disposal that renders a lot of the old pro

cedures obsolete.

Nearly all losses that banks incur from deposit relationships are due to large deposits being returned and the depositor stuck on the hook to the bank but unable to pay off the returned item. Holds are absolutely necessary.

When a check "clears"

[Downto0]

You know, your whole thread was informative, helpful and friendly until you came up with this BS:

The bank is not your nanny. There is absolutely no excuse for OD Charges or NSF Fees and it's my personal opinion that the fee amounts should be raised to $100/occurrence or even more, considering that the higher the fee the better the deterrent and customers who habitually overdraw their accounts are the only deposit customers who ever cost the bank money.

1. Know your account balance.

2. Don't spend more than your account balance.

3. Take some personal accountability. Your perpetual negative balances are not the bank's fault.

You and I have already debated this issue. You know that I categoricaly disagree. There would not be any reason to bring the issue up again except to incite.

Sometimes I don't know if you are purposely slipping inflamatory remarks into your otherwise well-written responses or that it's just so natural for you that you don't even know that you're doing it.

Historically, there is a precedent that any item which overdraws one's available balance would not be paid AND a fee would be charged. This is the way it is in most countries. This is the way banking has almost always been.

So how did this become law?

At first, this was a convenience and a great thing, but with the advent of Check Cards/Debit Cards, many customers blindly swiped their cards and at the same time, Internet Banking and Telephone Banking offered 24/7/365 let these customers feel as if they didn't need to keep an up to date register.

And...the bankers blindly rake in 40 billion and feel as if they don't need to take responsibility and warn the consumer who have overdraft protection that at the POS, for example, their accounts will be overdrawn if they make that POS.

Here we are again, debating issues which miss the point.

I'd like to know if a law exists which permits the banks to charge a fee for NSF when they took no risk nor provided any service.

[Bigwoodystyl]

I am quite certain you are not only aware of the Citibank case in CA where our attorney general got them for their 'sweeps program'. The program would zero out or erase POSITIVE account balances. This is not beneficial to the consumer at all because once their balance dipped to zero, they would have to deal with paying fees which Citibank ILLEGALLY extracted from them. I am here to provide information and learn. It is not my goal to get into arguments with people like you who are being disagreeable for the sake of being disagreeable.

I'm aware of that case, but that is an isolated incident. Further, you didn't explain the issue correctly, which makes me think you don't even understand it. FWIW, this issue has little to do with fees and nothing to do with deposit accounts. Citi was, in fact, stealing credit balances from credit card accounts and keeping the money as profit. It's apples/oranges to what we're talking about. The exception doesn't prove the rule, especially if it's not even the same type of account.

I'm not being disagreeable for the sake of being disagreeable. I disagree with you. That is all.

[Bigwoodystyl]

I'd like to know if a law exists which permits the banks to charge a fee for NSF when they took no risk nor provided any service.

Well, they are providing a service. They are paying or not paying your items. Pay/No Pay decisioning is a "service" IMHO and it costs money.

I'm not aware of any law that explicitly allows this, but I'm also not a lawyer. I think the 200+ years of precedent would lead a reasonable person to infer that this is not illegal. So, while I do not know of a law that allows this, I can disprove the converse. That is, I know there is no law or regulation that says they cannot do this.