Our "get all the fees we can" committee has asked if it is OK to charge a "dishonored item fee" on the loan side and an NSF fee on the checking side for NSF auto debits from our checking accounts to our loan accounts. Somewhere in the archive of my mind, I know that this is not allowed but I cannot remember where to look for the answer. I've been to the U.C.C., but may be in the wrong spot. Anyone have a clue?

Look to your State Law. In Indiana we can charge a NSF fee on the DDA account and a NSF on the loan account. However, we are limited to $20 on the loan side.

Debbie, I just noticed you were from Muncie. The Indiana Code is IC 24-4.5-3-202 (f)

I forgot to remind you that you must contract for this fee in the loan documents. If it is not in the loan document, you can not charge the fee. Therefore, if this is a new fee for your bank, you can not charge it to existing customers until they obtain a new loan or renew an existing loan.

So if the loan payment date comes and there is not enough for a loan payment, you hit them for $20 on the loan (plus a late fee 10 or so days later if contracted for?) and an NSF fee on the DDA? I assume you do this only once a month. Your system likely tries the account for 10 or more days.

While I can see that it would be that way had the customer issued a check, they didn't issue a check. Is this a practice at many banks?

We don't. And please don't talk about this very loud - or our committee that charges fees for everything will want to!

Oh good l-rd! It's c*#p like this that brings more regulations down on the heads of all of us!

The problem I have with this is that most banks do EVERYTHING in their power to get customers onto an automatic loan payment because it saves the bank money. No manual processing of paper items, etc. So to hit a customer up with a double-whammy fee on something that your bank, in all likelihood, did everything in its power to convice the customer to do - well that just ain't right!

The issues that come to my mind on this kind of thinking are:
Bait and Switch; Unfair trade practices, bad faith, horrible customer service, and something else that Washington Mutual can lampoon in their radio ads (and rightly so!)

Compliance starts with basic ethics. While a technicality may allow for something like this, it just looks and smells bad. Mark my words, the small increase in fee income will be wiped out by the Class Action lawsuit that will inevitably follow.

(Personally, I can support the Late Fee on the loan. But really, WHAT costs has the bank incurred on the deposit side? You're not really returning anything to anyone.)

We have the same bad check charge built into our loan documents that other merchants are allowed to charge for bad checks used to pay for goods or services. HOWEVER, we only charge this for checks not drawn on our bank. It is regulated by state law.

Andy, in essence under our state law we can double whammy them. If they agreed to the automatic payment, they agreed to have the money in the account as of that day. However, our bank does not contract for the charge on the loan side. I know of several other banks that contract for it, but they don't collect it, they use it as a determent.