Ok here it goes,
When we close a checking account for Overdraft - Anything over $100 gets reported to ChexSystems. ChexSystems charges us 40% of what we report. So, follow me closely now...
If a customer is overdrawn $500 and we report them for $500.00. Whether ChexSystems recovers the money or not... when the $$ is recovered. They charge us 40%. So We end up getting back only $300.00 back from CS OR if we collect and report it as paid. We collect the $500... and then CS charges us the $200.00 (40% of what was reported for the customer).
Ok...
So what we've been doing is if a customer is OD $500 and we report them, we report them for $700. (This INCLUDES the 40% fee that CS charges us) That way.. when CS charges us the 40% of the $700.00 which is $280.00 - We make back $420.00 and don't lose as much. This is something that was put in place a few years back by our loan department as they are the ones that used to close the OD Accounts. Now it's in bookkeeping.
Now...
We spoke to ChexSystems a couple days ago and inquired about this and they mentioned something about it being either illegal or in violation of something to do that.
We are now wondering what to do?! Are we in violation?? Were not making any money off of this OD. Were just trying to recoup our fees. Help?!

FCRA requires you to report accurate information, which you are not doing. IMO you would be in violation.

If you choose to use ChexSystems, then that percentage they take out would be charged to collection expense (at least that is what we do). If you don't want to incur the additional expense, then you need to collect on your own.

Technically... couldn't we tag on the 40% to the customer as a collection expense? There is a spot on ChexSystems that asks you what they owe... plus fees... then total. Our letters clearly state that if they do not pay their overdrawn balance within the time allotted that they may owe us additional collection fees. ????
Hmmm.....

We've never run into a problem with the way we have been collecting.... and also on our letters after we close the account – we state that "this action does not relieve you of your legal obligation to us to repay your outstanding overdraft "balance, including our normal fees and charges, immediately.
Then it also states – "If the total amount due is not received by us within ten (10) days after the date of this letter, we will pursue all legal remedies and collection actions available to us under applicable law. You may be liable for all collection costs." -

Wouldn't that cover us with passing on the extra expense to them? Technically.. isn't this like saying "Well, you owe us $500.00, but because you didn't pay on time and we had to report you, we incur a $200.00 collection cost (40% of 500) So you are liable for this collection cost."
??

Hmm, I guess I would talk to legal counsel on that one. If you contracted for it when they opened the account then I would be more inclined to agree, but I'm not sure how much legal weight your letters carry. Keep in mind I have NO legal background, so it's very possible this would be okay - I just don't know that.

Or, maybe it's not a legal issue at all and a more seasoned person can answer it for you. Good luck!