Comments on: Reader Question from Erik - Are Not Sufficient Fund (NSF) Charges Ethical?

By: Traciatim

Traciatim — Sat, 15 Dec 2007 15:29:33 +0000

At the point that the fee charged is larger than the agreed upon fee disclosed in the account agreement.

By: Nancy (aka money coach)

Nancy (aka money coach) — Sat, 15 Dec 2007 06:35:51 +0000

as someone who works part-time for a bank, which is in turn owned by a credit union - ie. there to provide banking service for the members, not gouge to make profits for people scatterered across the globe, i can say definitively at least on our end:
1. nsf fees have nothing to do with moralism or judgement. It’s a purely technical thing. It’s easy for people to feel judged when crappy experiences like Erik experiences occur. Don’t. It’s purely mechanical - there is no human being inside smugly metaphorically spanking anyone who muddled up on their account, via nsf fees!
2. nsf fees, in our case at least, are about recouping the loss of staff time. Each day, we get a list of accounts (and it’s long) of people who are overdrawn. They are charged $5 - and each account is personally reviewed. If they have payroll coming in within a couple days, they are removed from the list and the item is not sent back. The others have approx 24 hrs to get the funds in. The next day, the list is again reviewed by a live human being. If the person has got the funds in, great. If not, the (staff) human being has to enter the data into a system to get the money back from wherever it was originally sent ( a bill payment, or someone else’s checking account). And a $25 fee is applied to the account. The whole process spent on the nsf account is a good 30-45 min of staff time, plus system stuff.

That’s it, pure and simple. No judgement. It’s about recouping staff costs and minor system costs.

Regarding how the staggering of the items, the story above seems outrageous. There’s no way we would do that.

By: Steve Rhode

Steve Rhode — Fri, 14 Dec 2007 20:50:01 +0000

The EU and the UK have taken a different approach than the US and it is illegal for banks to profit from collection activity above and beyond the actual cost of the collection activity. I suppose this is a reflection of government finding it not right to kick someone when they are down.

For example in Germany Citibank charges â‚¬3 per returned item and Â£25 in the UK. Forget doing the currency conversion because this is about relative monetary units. Banks in the UK have been taken to court by the Office of Fair Trading and have been refunding millions of Â£ back to consumers. The OFT has been generous in saying that bank charges can be no more than Â£12 but the actual charge of processing a NSF item is a bit less than Â£4.

So at what point is a NSF fee a penalty fee or a punitive and unfair charge?

By: Traciatim

Traciatim — Fri, 14 Dec 2007 02:02:26 +0000

I agree mostly with Sundeepkumar. The NSF fees are needed as a punishment to those who lack financial responsibility. The only practice that I think is unethical is the reordering of the charges so that they post in the order that generates the most fees to the bank. They should be required to post them in chronological order, or if reordered then done in the way most beneficial to the client.

By: sundeepkumar

sundeepkumar — Mon, 10 Dec 2007 00:48:33 +0000

I think in the US we are are obsessed with bailouts and subsidies, rather than encourage financial responsibility. I am certainly against any pernicious practices by banks to basically bank on a customer getting into financial trouble and paying NSF fees to augment income, but I feel, in most cases, high fees and fines are more designed to prevent customers from being lax and taking more responsibility for their actions.

I believe, most fees like NSF Charges act to ward against “moral hazard” - bailout someone who has engaged in risky behavior and irresponsible financial behavior and you are likely to encourage the behavior in the future.

Oned thing is for sure - the banks need to make these charges known to the customer from the begining - not hidden in some fine print somewhere - now that would be unethical.

By: MaryMargaret

MaryMargaret — Sun, 09 Dec 2007 23:52:12 +0000

I can certainly see why there is a charge for a NSF check but a couple of issues come to mind. First, at $31 a pop the bank is profiting from your pain. There is no reason why the charge should be so high. It would be very doubtful that any bank could show that their cost of processing an NSF item is more than $5 since most of this happen automatically.

This then leads to the bank profiting from a rejected item at a time when you are already financially disadvantaged. However, it is an easy event to identify that can be used to maximize fee income.

Of concern also is how a bank actually rejects items presented. If the larget item is allowed to clear first then more smaller items will be NSF and generate more fees. And this is what some banks do.

There should be a charge for an NSF item but it should be more in line with actual cost plus a reasonable markup, and not 600%.

Additionally banks should clear as many small items presented as possible and leave the big ones to last to minimize the returned check charges.

For me, someone that has experience inside banks, it is a conflict between maximizing income instead of doing the right thing for the customer.

I’d love to hear from some other bank people on this also.