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Federal Court Says "OK" To Pay Large Checks First
There have been eleven lawsuits filed to date against banks that process the largest amount checks against customers' accounts first, before smaller items. The objection by consumer advocates is that if banks processed checks from the lowest amount to the highest, customers would not be hit with excessive overdraft fees.
The most important of these court cases was the latest, decided in the U.S. District Court in Alabama. Judge Richard W. Vollmer Jr. ruled the class action suit against Amsouth had no merit, and threw out the lawsuit.
He specifically wrote, "The Truth-in-Savings Act and its implementing regulations do not impose on the defendant a duty to disclose its posting order policy or its per check policy…"
Other court cases have played out in the state courtrooms, with four already decided in favor of the banks (two dismissed, one settled and one withdrawn). There are still six pending lawsuits in Alabama, Illinois and New Mexico. Bank lawyers are confident, given the latest ruling in federal court, that these too will be dismissed.
Banks have traditionally paid the largest checks first, hailing back to early days when the largest item written against a demand deposit account was the mortgage check. In the first era of home purchases, the mortgage payment was the most important debt, and it was the check the customer wanted paid, even if no others were.
The reasoning persists to date, with most banks paying checks presented for payment on a single business day in order of descending dollar value. Bankers feel the larger checks are more important to the customer.
Though it was a long, drawn out process, the court now says it is legal for the banks to pay checks in either sequence.
Copyright © 2000 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 10, No. 8, 8/00
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