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Could Banks Be Encouraging Your Mistakes?
March 11, 1999
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Dear Ben: While listening to your radio show a couple of weeks ago, I was flabbergasted by your revelation that many banks will process checks in a certain order, which will guarantee they'll end up bouncing checks, thus generating excessive fees. Can you share additional information about this procedure and tell me how I can avoid getting nailed by this?
---Rodney B., Dallas
Dear Rodney: The strategy you're referring to is known in banking circles as high-to-low check processing. According to a Wall Street Journal article that ran Feb. 25, here's how it works: If several checks are drawn on the same bank account on the same day, the bank processes the largest check first, increasing the odds that checks presented later will bounce. The end result? Multiple bounced-check fees, a potential profit center that can generate huge profits for banks. A local bank representative confirms that this practice occurs in many North Texas banks. Consider that a bad check costs a bank anywhere from 50 cents to $1.50 in processing fees, vs. the average $20-per-bounced-check fee levied against consumers by North Texas banks - you do the math!
Profitable? Yes and no. According to testimony from a lawsuit filed in an Illinois state circuit court, NationsBank projected a $14 million jump in annual "fee revenue" by clearing the largest checks first. So should we accuse the banks of being opportunistic mercenaries? Probably not. Out of 173 million checks that banks process every single day, 1.3 million of them end up being bad, costing the banks $615 million in annual losses from check fraud. Who pays? The banks, and ultimately you and me. How can you avoid being sucked into this trap? Easy. Don't play the float game and make sure you've got enough cash in the bank when you write a check. You've been warned.
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