THE TOUGH CUSTOMER- Pick a good bank: Learn to float without sinking

Shelton Cartwright Jr. of Charlottesville wrote recently because, as he put it, "I really have a beef with the impact check cards and 'Check 21' has had on our poor souls."

Unlike many of the cases I cover, Cartwright's complaint is not a personal one. "Educating the consumer," he wrote, "that's what captivated my thoughts."

Given growing economic anxiety, not to mention the fact that paying December's credit card bills might require some fancy financial footwork from some folks, Cartwright makes a good point. A little education couldn't hurt, and could save some money, as fees for bounced checks ("NSF" in bank parlance, for "Not Sufficient Funds") can run $30 or more.

When someone wrote a check in the good old days, by which I mean before October 28, 2004, it typically required a few days to clear because the bank had to have the actual paper check before it could make payment. What's more, all transactions– deposits and withdrawals– were processed in batches at the end of the day, with deposits processed first and checks second regardless of the time of day the transactions occurred. Taken together, this process tended to provide flexibility in making sure an account had enough money in it.

But the 2004 change in the law called "Check 21" permitted banks to rely on electronic copies of a check to make payment. This cut a few days off the process, especially for out-of-town checks, and it allowed banks to process checks individually as they arrived in the bank, rather than in batches at the end of the day, further speeding up payments.

According to Cartwright, while some banks, including "one of the large banks in C'ville" that he didn't name, are quick to take money from patrons' accounts, they're not quite as rapid when it comes to giving them access to their deposits.

  "My point is," Cartwright says, "the [regulations] are tilted for the banks, and we're at their mercy."

But as with any consumer industry, policies vary from bank to bank.

Virginia National Bank's COO Steve Perry stresses that his bank doesn't do business like that, although he adds he can't speak for the industry as a whole. Still, he agrees that as a general matter, "People playing the float will be less able to do that as checks clear faster." 

Still, VNB's Chairman Mark Giles says VNB has not seen an increase in NSF fee income since Check 21's enactment.

While neither Perry or Giles would discuss what other banks do, Giles says that as a local community bank, VNB cuts customers a good amount of slack. For example, VNB permits customers one bounced check per year before imposing a fee. Perhaps more unusual, VNB attempts to call every customer who bounces a check to give them a chance to make good.

In addition to being a goodwill gesture, Giles explains, "We don't want people bouncing checks. We want merchants believing in VNB."

Giles thinks it's a smart idea to arrange for overdraft protection on a checking account, under which a bank will cover checks and treat any deficit in funds as a loan, akin to a line of credit. But, Giles warns, it's a bad idea to use overdraft protection as a long-term loan, which some people tend to do, because interest rates are usually steeper than for other forms of bank credit.

Still, he notes, you're better off paying a few bucks in interest, even at a higher rate, for a loan of several days than a $30 NSF charge.

Finally, if you do get hit with an NSF charge, ask your bank to remove it. Banks compete over good customers. At VNB, for example, Giles says that assuming you don't regularly bounce checks, his bank will work with customers to waive or reduce the NSF fee.

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