Bad-Check Fees Called Profitable

Banks are finding good money in bad checks.

Major U.S. metropolitan area banks are hiking the penalty fee for a bounced check to as high as $30, a financial newsletter reported Sunday. It said some banks even see rubber checks as an attractive and growing profit source.

The average bank fee for a bounced check is $19.35, said the Bank Rate Monitor survey of the 120 largest banks and thrifts in the 12 largest U.S. metropolitan areas. In contrast, the average fee was $18.58 a year ago and about $15 in 1987, the newsletter said.

“No doubt about it, banks make money off bounced checks,” said Robert Heady, publisher of the weekly that tracks interest rate trends. The survey is to be published today.

Heady said banks realized in the early 1980s that bounced checks were becoming “profit centers.” Consumers are often too embarrassed about bouncing a check to complain about the fee, he said.

A spokesman for the American Bankers Assn., John Hall, denied the allegation: “It’s certainly not a profit center for an institution. It’s strictly a deterrent.”

In addition, Hall said, the number of bounced checks has risen in recent years, costing banks more.

Banks have increasingly turned to fee-producing services as other companies have started making loans.

The survey found the average bounced-check fees ranged from $28.90 in Philadelphia to $11.05 in Los Angeles. Heady said fees tended to be lower in California because of lawsuits against financial institutions by incensed consumers.

Ed Mierzwinski, of the U.S. Public Interest Research Group, said it costs banks less than $1 to handle a bounced check.