I've been looking for discussion on these two fees and didn't seem to find anything in my initial search. Can anyone point me in the direction of where I could find something on whether or not these fees should be the same, what the consequences are if they are not the same and if there is a difference, is that considered an interest charge?

We currently are charging two different amounts (and never have been critized) but management has asked that I look into this.

It's definitely a state law issue. Banks are usually free to disclose fees and charge fees as they wish.

For the record, we charge the same for the NSF regardless of whether we pay it or return it. We do impose different fees based on frequency. The more often an individual overdraws the higher the fee.

I would start with Findlaw.com and search under your state's banking laws. There has to be a definition of interest. My hunch is that an NSF charge is excluded because the customer's action triggered the NSF. But, some states have different views on this.

Take a look at the OCC Interpretive Letter #914. One of the issues they specifically mention is whether the same fee is charged whether the item is paid or returned. I have seen a further "informal" interpretation from them to indicate that charging two different fees DOES create a problem as it relates to Reg Z and the issue of finance charges. The ABA, in conjunction with Alex Sheshunoff Management, has just published an information booklet called "Overdraft Protection A Guide for Bankers" that helps to understand the issues as well.

As a result of the OCC Interpretive Letter we did change our fees for paid and returned items to be the same.

Although you have not been asked, someone could ask you to justify your fees, pay or return. You would have to conduct a cost study and you will find that the cost is a little less when a check is paid with that result ending the process. Returned checks continue to cost you money as they travel back through the system, e.g. float, FRB charges, possible corresponding bank charges, DP charges, etc.

If your pay fee is less than your return fee, you are in great shape to have a cost study support the fees. On the other hand, simply due to the fact that they are the same at most institutions does not mean that much as a cost study may reveal that the return fee is providing a break to the customer.

You simply need to be sure that your fees are aligned with other institutions in your community.

When you pay a check and overdraw the account, your deposit agreement probably states that the customer agrees to pay you back. Is this a loan and does Reg Z and Truth in Savings get involved? If your fee NSF fee and your Overdraft fee are the same, it is not an issue. However, if your fee to pay a check is higher than your fee to return it, you are in essence charging for the loan of the funds(interest, and this must be disclosed.