Fees Collected for Bad Checks Called Excessive : Banking: Consumer group accuses financial institutions of 'price gouging.' Fee is easy to avoid, industry says.

Fees Collected for Bad Checks Called Excessive : Banking: Consumer group accuses financial institutions of ‘price gouging.’ Fee is easy to avoid, industry says.

L.A. Times Archives

Dec. 10, 1993 12 AM PT

From Times Staff and Wire Reports

Banks earned billions of dollars last year in “excess profits” on fees for bounced checks, a consumer group said Thursday.

The Consumer Federation of America said the commercial banking industry generated nearly $3.67 billion in profits from bounced checks--in which customers wrote checks without having sufficient funds in their accounts--in 1992.

Fees typically range from $10 to $20 per check. Industrywide, those charges totaled $4.35 billion in 1992--or more than six times the $685-million cost of handling those checks, the group said.

“The results of our analysis confirm outright price gouging of consumers by the banking industry,” said Chris Lewis, the CFA’s director of banking and housing policy.

“Bounced-check fees are a raw grab for profits--picking the pockets of millions of unsuspecting small depositors who overdraw their accounts,” Lewis said.

When asked about California banks, however, Lewis cited a survey released in October by the Bank Rate Monitor, a financial newsletter, that found California banks levied some of the lowest bounced-check fees in the nation.

The survey found that the average fee among Los Angeles banks was $11.05 per check, compared to a high of $28.90 in Philadelphia.

Bank Rate Monitor attributed the relatively low fees in California to lawsuits filed against the banks by unhappy customers.

Nonetheless, Lewis said the average bounced-check fee nationwide climbed to $18.35 this year from $15.11 in 1990.

The CFA made its statements in a study that it prepared with Janice Shields, an accounting professor at Bloomsburg University in Pennsylvania.

It utilized industry data and a survey on check processing by the Bank Administration Institute, the CFA said.

Bankers defend their fee policies, saying the penalty is meant to discourage customers from writing bad checks.

“Everybody hates it when they bounce a check. And the financial institution is penalty-pricing to try to get you not to do the practice,” said Diane Casey of the Independent Bankers Assn. of America, which represents small-town banks.

Ed Alwood, a spokesman for the American Bankers Assn., said banks never intended to establish a connection between the fees for bounced checks and their cost.

“They are set at the level they are set to discourage the writing of bad checks,” Alwood said. “The idea that they are a profit center is absurd. The fee is so easily avoided--you just don’t write bounced checks.” Alwood also noted that 68% of commercial banks offer overdraft protection, which allows a customer to set up a line of credit on a checking account to cover bad checks.