Executive Summary
A check is essentially an article of faith. It is a contract between two people. From time to time, people write checks that they simply do not have the money to cover. They are penalized, and they pay a fine by their bank which averages $22.
While everyone would reasonably expect to be charged a fee for writing a bad check, what many consumers might be surprised to learn is that at 75% of banks nationwide, the person who receives the check, who is already out the amount of money that they were supposed to be given, is also charged a fee – commonly know as a Deposit Item Returned (DIR) fee.
It is true that it costs the bank extra money to process a Deposit Item Returned. But that cost is estimated at between $.48 and $.65 per transaction, while the average DIR fee is $6.88 -- 10 to 14 times the actual cost. Even factoring in the transaction costs, commercial banks make an estimated $1.64 billion in annual profits off of these DIR fees. These profits come on top of the $6.67 billion in annual profits that banks make from overdraft fees charged to the issuers of the bad checks.
The bottom line is that consumers are getting charged a fee that they cannot avoid, and the banks are making billions in the process. We conducted a study to determine how these fees impact New York consumers and found that DIR fees hit New Yorkers disproportionately hard. Among our findings:
-
New York banks are charging consumers Deposit Item Returned fees which are more than double the national average.
-
Although the average DIR fee decreased nationwide in 2002, the average fee in the New York/New Jersey metropolitan area increased 14% -- more than 5 times the rate of inflation.
-
DIR fees in New York are 21 to 29 times the cost to process these bad checks.
-
Some New York City banks actually charge a higher fee to the person who deposits a check with insufficient funds, than the person who wrote the check.
The Deposit Item Returned fee is indefensible. It penalizes someone who has done nothing wrong. It does not encourage any activities that would protect against bounced checks. And making matters worse, it disproportionately hurts New York consumers. That is why Congress should immediately pass my Fairness for Check Cashers Act, which would prohibit these unjust fees once and for all.
Study Findings
Finding #1: New York banks are charging consumers Deposit Item Returned fees which are more than double the national average.
A survey by Rep. Weiner’s staff of every FDIC insured bank in New York City found that the average DIR fee in New York City was $13.94. A June 2003 report by the Federal Reserve found that the average DIR fee nationwide was $6.88. [1]
Finding #2: Although the average DIR fee decreased nationwide in 2002, the average fee in the New York/New Jersey metropolitan area increased 14%.
The Federal Reserve reported in June 2003 that the average DIR fee in the New York/New Jersey Metropolitan area increased from $10.80 in 2001 to $12.36 in 2002. During this same time frame, the average DIR fee actually declined nationwide, falling from $7.11 to $6.88.[2]
Finding #3: The increase in the New York/New Jersey metropolitan area’s DIR fees from 2001 to 2002 was more than five times the rate of inflation.
The New York metropolitan area saw a $1.56 increase in the average DIR fee from 2001 to 2002, a 14.4% increase. During that same time period, the Consumer Price Index in New York only increased by 2.6%.[3]
Finding #3: DIR fees in New York are 21 to 29 times the cost to process these bad checks.
Mentis Corporation estimates that banks incur average transaction costs of $.48 to $.65 for DIRs.[4] With New York banks charging an average fee of $13.94, that comes out to 21 to 29 times the processing costs.
Finding #4: DIR fees in New York City vary significantly – ranging from no fee to $30.
Our survey found that 97% of all New York City banks charged DIR fees, compared to 75% of banks nationwide. The amount of those fees varied widely. Two banks, Victory State Bank and Banco Popular North America, report charging no DIR fee. However, five banks – Astoria Federal S&L, Delta National Bank and Trust, Flushing Savings Bank, Israel Discount Bank of New York and Dime Savings Bank – charge DIR fees of $30.
Finding #5: Some New York City banks actually charge a higher fee to the person who deposits a check with insufficient funds, than to the person who actually wrote the check.
Our survey found 18 of 76 banks charged the same for depositing a bad check, as they do for writing the bad check. Six banks actually charge a higher DIR fee than overdraft fee – Delta National Bank and Trust, Israel Discount Bank of New York, Arab Bank PLC, Ponce de Leon Federal S&L, Maspeth Federal Savings, Sound Federal Savings.
Finding #6: Nationwide, commercial banks generate more than $1.64 billion in annual profits from returned deposit items
Banks generate more than $1.8 billion in annual revenue and $1.64 billion in annual profit from DIR fees. This profit comes on top of an estimated $6.7 billion in annual profits from overdraft fees charged to the issuer of the bad check. (See Methodology for calculations)
Finding #7: Nationwide, larger banks are more likely to charge DIR fees, but the larger banks also charge lower fees.
DIR fees vary significantly, depending on the size of the financial institution. Ninety-eight percent of large depository institutions (assets of more than $1 billion) charge DIRs, and the average fee is $6.13. Eighty-eight percent of medium-sized institutions (from $100 million to $1 billion) charge DIRs, and the average fee is $6.82. 63.5% of small institutions (less than $100 million), and the average fee is $7.03.[5]
Finding #8: The percentage of banks which charge DIR fees has increased 36% since 1997.
In 1997, only 55.7% of banks nationwide charged DIRs, a bare majority. In 2002, more than 75% of banks nationwide charged this fee.[6]
DEPOSIT ITEM RETURNED FEES (DIR) IMPOSED BY NEW YORK BANKS
NAME: DIR FEE:
Astoria Federal S&L $30
Delta National Bank and Trust $30
Flushing Savings Bank $30
Israel Discount Bank of New York $30
Dime Savings Bank $30
Arab Bank PLC $25
Atlantic Bank of NY $25
Community Mutual Savings Bank $25
Entertainment Industry FCU $25
Flatbush Federal S&L $25
Metropolitan National Bank $25
Ponce de Leon Federal S&L $25
Ridgewood Savings Bank $25
Abacus Federal Savings Bank $20
Artist’s Community FCU $20
Atlantic Liberty Savings $20
Bank of India $20
Cross County Federal Savings Bank $20
Excel Bank $20
MashreqBank, PSC $20
Sound Federal Savings $16
Allied Irish Bank $15
Brooklyn Federal Savings Bank $15
Carver Federal Savings Bank $15
Fourth Federal Savings Bank $15
Independence Community Banks $15
Marathon National Bank $15
Staten Island Savings Bank $15
Sterling National Bank $15
Community Federal Savings Bank $12.5
Commerce Bank $12
Apple Bank $10
Atlas Savings and Loan $10
Bank Leumi USA $10
Bank of China $10
Bank of New York $10
Chase Manhattan Bank $10
China Trust Bank $10
Citibank $10
City Suburban Federal Savings Bank $10
Country Bank $10
NAME: DIR FEE:
Emigrant Savings Bank $10
First American International Bank $10
First Central Savings $10
Fleet Bank $10
Gotham Bank of New York $10
Great Eastern Bank $10
Green Point Bank $10
Habib American Bank $10
HSBC $10
Hudson Valley Bank $10
Interbank of New York $10
Maspeth Federal Savings $10
New York Community Bank $10
New York National Bank $10
North Fork Bank $10
Northfield Savings Bank $10
Provident Bank $10
Reliance Bank $10
Sleepy Hollow Bank $10
State Bank of Long Island $10
Berkshire Bank $10
Mahopac National Bank $10
Union State Bank $10
Valley National Bank $10
Washington Mutual $10
Amalgamated Bank of New York $9
Broadway National Bank $9
Cho Hung Bank $9
Liberty Bank of New York $9
Amerasia Bank $8
Eastbank $7
Asia Bank $4
Putnam County Savings Bank $4
Banco Popular North America $0
Victory State Bank $0
SOURCE – Phone survey conducted 7/9/03
DEPOSIT ITEM RETURNED (DIR) AND OVERDRAFT FEES CHARGED BY LARGEST NEW YORK BANKS, SORTED BY FEE
NAME: DIR FEE: OVERDRAFT FEE:
Astoria Federal S&L $30 $30
Dime Savings Bank $30 $30
Chase Manhattan Bank $10 $30
Citibank $10 $30
HSBC $10 $30
Green Point Bank $10 $30
Emigrant Savings Bank $10 $25
North Fork Bank $10 $30
Fleet Bank $10 $30
Bank of New York $10 $30
Methodology
To conduct the check fees survey, members of Rep. Weiner’s staff contacted every FDIC insured bank in the New York City metropolitan area, as well as those listed by the state of New York Banking Department index of banks headquartered in New York. Each bank was asked whether they provide personal checking accounts, and if so, what their deposit item returned and overdraft fees were.
To calculate the profits for bounced checks and DIR fees, we first determined the number of returned checks annually. Our source for this number was the August 2002 Federal Reserve Bulletin. We then multiplied those numbers by the average fees reported in the Federal Reserve’s June 2003 Annual Report to the Congress on Retail Fees and Services of Depository Institutions. We then subtracted the estimate costs of completing these transactions as estimated, as estimated by Mentis Corporation.
[1] Annual Report to the Congress on Retail Fees and Services of Depository Institutions. Board of Governors of the Federal Reserve System, Washington, DC, 2003.
[2] Ibid.
[3] U.S. Bureau of Labor Statistics
[4] Bank Rate Monitor, July 1997, p. 7.
[5] Annual Report to the Congress on Retail Fees and Services of Depository Institutions. Board of Governors of the Federal Reserve System, Washington, DC, 2003.
[6] Annual Report to the Congress on Retail Fees and Services of Depository Institutions. Board of Governors of the Federal Reserve System, Washington, DC, 1997; 2003.
