Following asked this morning: (1) Customer Balance is $100. (2) Incoming checks $200, $30, $25. (3) We return the $200 and charge account $27 return fee. Leaves balance of $73. (4) We pay $30 & $25 check. Leaves a balance of $18. (5)Can bank charge OD fee on the $30 & $25 check? (6) Currenlty, if asked the bank will say we post largest items first.

My initial reaction is no. However, mgmt wants to see where this is actually prohibited.

Any help is appreciated.

If the account is not overdrawn, why would anyone charge an overdraft fee. The returned check warrants the return check fee, but two checks that are paid that don't overdraw the account . . . I would hate to be the employee having to deal with the customer if this was done (although to be the attorney, hmmmm)

Although I can't site any sources, I basically look at it this way (and I can be all sorts of wrong )

The customer at the end of the processing day was overdrawn three items...regardless of what your decision was to pay or return the following day. As long as you've disclosed properly, I don't see any reason why you can't charge them. Again, I could be horribly wrong. haha.
Now, customer service might dictate that you waive the fees, but in my opinion, I don't think you'd be forced to.

Again, could be horribly horribly wrong.

It all comes down to posting order. If you post the large items first, then all three are OD and will have caused OD Fees. If you post by check # order, it is possible that one or two of the others posted first and didn't cause a fee.

Maybe I think this just because I work at a small bank, but I feel this is a big reason why banks get a bad reputation. I know that it's technically allowed to charge for all three, but let's be serious. Look at it from their side. This is a big complaint I hear from my friends about banks. Always looking for ways to charge more money instead of being reasonable. Ok, my rant is over with. Sorry!

Thanks for the responses. I have sent an email to legal counsel at TBA to get their opinion.

Blue- I agree but I tell this to all of the people who complain about it: The OD/NSF fee is a fee that can be fully avoided by the customer. Bottomline: Don't write checks off of funds you don't have yet.
And yes, I agree, there is a customer service standpoint. I have no problem waiving a fee for a customer who rarely if ever is overdrawn and had a mathematical error. But I don't have much sympathy for those that are so blatantly writing bad checks either because they hope the check won't clear until payday...five days away or they simply don't care and write a check to the casino.
But the majority of my overdrafts happen to be people in the latter group. I'll help them out to a point but there comes a time when they've got to accept responsibility.

I'm not arguing that fact with you at all Amy. I'm just talking about customer who is a first time offender. My mom had never been overdrawn in the 15 years at her small bank, accidentally wrote a deposit down wrong and it caught up to her 3 months later, called the bank and brought in the money as soon as she found out, and was still hit with roughly $50 in O/D fees. Or about my friend who was overdrawn by 25 cents and charged $30. Is this right? Yes, the customers were technically wrong, but this is the stuff that gives banks a bad name.

If you have a large to small posting order you could charge them 3 overdraft charges if you pay all the checks. However, if you return the $200 check - you cannot charge them for the two smaller items. You can't have it both ways - if you don't pay the $200 check then you have to pay the two smaller ones. Try not doing it that way and see how long it takes you to wind up in court for wrongful dishonor.

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You can't have it both ways.

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Ditto. I understand that some computer software would show the possibility that three fees would be assessed. Rather than management saying you should look for something that says you can't do it, they would be smarter to ask you to look for something that says you can; i.e. where does it say you can charge an NSF fee for a check that was not presented against insufficient funds?

Think "Unfair and Deceptive"...

IMHO - Your bank is headed for a class action lawsuit that they are not going to be able to win. I would recommend contacting an knowledgable attorney regarding this practice.

IMHO - the determination of whether an item is chargeable as an NSF item is how your contract with the customer indicates you pay items -- in this case high to low and I assume also that an NSF fee is disclosed as a per item charge. Then the fee is for items that are posted against insufficient funds. In the above example, all three items are NSF exception items which carry a fee. That determination has been meet in accordance with the account contract. Some banks then further determine how much that fee is depending on whether it is paid or returned; however, most charge the same. Don't confuse the trigger for the fee with what action you take after you have the exception item in hand.
Randy's point is well taken regarding wrongful dishonor, but you can (and should) charge for the two lower amount items because the fee is for exception handling, not because the account balance has been now modified and the two remaining exception items somehow dissappear.
With all this said, I'm not in favor of high to low processing given check number order is far easier to explain and justify to customers.

I'm going to run counter to the tradition in my left-leaning commonwealth and argue that the fee, if properly disclosed, is legal and justifiable based on the deposit contract. I agree with the logic in Strategery's post, including the suggestion that check order posting is the easiest to explain.

That said, I also agree that assessing NSF fees on paid items in a high-to-low posting environment is an easy target for potential "unfair and deceptive practice" charges and potential legislation. And I don't think the "we think paying largest items first protects the customer better" argument stands up to the laugh test. Let's just admit that high-to-low brings better fee income, and it's (currently) legal.

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Don't confuse the trigger for the fee with what action you take after you have the exception item in hand.

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That's what I was thinking but couldn't put into words.

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And I don't think the "we think paying largest items first protects the customer better" argument stands up to the laugh test.

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I agree with that. Which is why I'm all for the customer service end of it. There are a lot of factors but I will waive fees if the items are a certain amount, if they aren't in a habit of OD'ing...things like that.
I don't like the hardnosed stance of the 'charge for anything that is NSF' attitude that a lot of people take.
I'm mean but I'm not THAT mean!

Original Poster Here -- I am glad to report that we will not implement this practice. Thanks to all for your responses.

Edge... did this discussion have an impact on your decision?

This idea came from the CFO. (He is currently out of the bank for surgery.) When I brought the info from this discussion to the CEO, he had already decided against it. He did seem pleased that most of the comments supported his decision.

This thread is about 4 years old & was curious what the current thinking is on charging fees on the original scenario presented. (1) Customer balance is $100. (2) Incoming checks of $200, $30, & $25. (3) We return the $200 check and charge account $27 return fee. Leaves balance of $73. (4) We pay $30 and $25 check. Leaves a balance of $18. (5) Can the bank charge an OD fee on the $30 & $25 check? (6) Currently, we post largest to smallest.

Current opinions?

Whether the $30 and $25 post before or after the $200 attempts to post, sufficient funds are in the account to pay those smaller items. I don't see how you can charge an od/nsf fee for either of these items.

Given the increasingly hostile attitude toward ODP as indicated by wave after wave of regulation. I think my prior reference is an understatement.

The practice is blatantly dishonest...

Thanks for the update & confirmation. We agree & will not be charging.

But from what I read here and on BankingQuestions.com, it's something that some bankers persist in doing. They are probably cut from the same cloth as the bankers that started the whole abusive overdraft protection practice that got all bankers tarred with the same regulatory brush.

I'm surprised they haven't been sued for wrongful dishonor.

Since the scenario describes the smaller checks being paid, I don't see where wrongful dishonor would apply.

Of course, if they had been returned (and I'm sure that somewhere, it has hapened), then I would agree with you.