Suppose a friend owes you $20 and sends you a check for that amount in the mail. You take the check and deposit it in your bank and it bounces due to your friend’s innocent overdraft. Some banks will charge YOU as much as $20 for being the innocent victim.
Regardless of whether the check bouncer is innocent or not, banks in America — eighty five percent of them — are making a bundle charging and then deducting from your account fees for what they call “Deposit Item Returned.” (DIR)
We have long known that the banks keep increasing their penalties on people whose checks bounce. Indeed the average fee for bounced checks is $19.09 with a high of $30, bringing in billions of dollars yearly in what comprises a extremely lucrative profit center. The Federal Reserve estimates the costs of processing a bounced check through the system is well under $1.00.
But, charging the victims of bounced checks?? Yes indeed. The banks will earn over $1 billion in 1994 from this latest and growing outrage. According to a recent study by U.S. Public Interest Research Group (USPIRG), the number of banks charging the DIR fee increased from 35% of banks in 1991 to 85% in 1994, an increase of 143%. Bank profits from this imposition will reach $1.1 billion in 1994, up from $740 million in 1992.
Nationally, the average DIR fee was $5.29 with New York and New Jersey among the highest fee-charging banks.
U.S. PIRG consumer program director, Ed Mierzwinski, called on Congress to ban the DIR fee, due to its manifest injustice. The banks, he says, pay their customers pennies for interest and earn record profits. Unlike many gouging companies, gouging banks don’t wait for you to pay them for their gouge; they just deduct it from your account. Which partially explains why the public has been so passive.
Mierzwinski added that “Banks are raising fees, inventing new ones like the DIR fee, and making it harder to avoid fees, so more people pay more fees.” “In addition,” he said, “to banning the DIR fee, Congress should investigate rising bank fees and also enact legislation to establish a Financial Consumers Association which will be a non-profit consumer watchdog group that monitors bank practices.” That is a good idea, given the amount of subsidies and bailouts the government is giving banks on the backs of taxpayers.
A co-author of the USPIRG report, Professor Janice Shields, a Ph.D in accounting at Bloomsburg University (PA), “calculated that banks are earning profits as much as 6 times their own calculated costs on DIR fees and over 10 times costs on bounced check fees. Commercial banks have earned record profits in each of the last two years and one reason is the rising fee burden on consumers,” she added.
It is not only a gouge of consumers. Ask supermarkets and many small businesses who are on the receiving end of bounced checks.
Mierzwinski recommends shopping around to find banks who do not engage in such multiple fee gouging or consider joining a credit union (a consumer cooperative form of banking).
He noted that Rep. Joe Kennedy (D-MA), chairman of the Subcommittee on Consumer Credit and Insurance, is planning hearings soon on rising bank fees. So send Cong. Kennedy your complaints and copies of bank statements overcharging you. He welcomes your letters.