Warning on sending items for collection

Posted By: RBanker

Warning on sending items for collection - 11/24/03 04:34 PM

The Texas Department of Banking is not very happy with excessive collection fees being charged - we need to make very certain that customers are aware of potential fees.

'Collection Fee Warning! It has come to our attention that large banks
are charging a collection fee on items sent for collection rather than
for deposit. These institutions simply net their fee out of the
proceeds and send you the balance. This can cause consternation and
anger on the part of your customer, who is expecting to receive the face
amount of the check!

Recently, this issue came up for an IBAT member state bank. A bank
customer brought in two large checks that were drawn on a German bank,
payable through a large interstate bank. The state bank was concerned
about collectability of these items. Reg CC permits holds, but the hold
periods are just not adequate to assure that the checks would be paid
before the hold expired. Thus, community bank sent the items to mega
bank for collection. Imagine their surprise when $250 was deducted from
the proceeds (which were received one month later). Imagine the
reaction of the customer!

The Department of Banking received a complaint from the irate customer
and concluded that it would not be fair for the customer to bear the
cost when the bank-not the customer-had elected to send the item for
collection rather than through the deposit system. The Department of
Banking recommended that the community bank reimburse the customer the

Action. We recommend that you advise customers of the possibility of a
fee (which is outside of your control) before sending an item for
collection. If the customer is unwilling to pay the fee, then you have
the option of placing a hold on a questionable item in accordance with
Reg CC. If the hold period is not going to be long enough to protect
the bank, then your ultimate option may be to close the account.'

I would, however, take a little different tack, instead of closing the account, if the customer was not willing to accept the possible fees, that we would not accept the item for deposit.
Posted By: Lestie G

Re: Warning on sending items for collection - 11/24/03 04:56 PM

Wasn't there a thread recently in one of the other forums about a $250 collection fee? Apparently it was not a misunderstanding!
Posted By: RBanker

Re: Warning on sending items for collection - 11/24/03 07:07 PM

I think what the customer claimed (in the thread) was that no one had ever informed them of a fee. And that's likely what the Texas Dept of Banking was told. Who knows if the customer was actually informed or not. I'm thinking that it wouldn't hurt an institution to have the customer acknowledge somehow that they were informed of potential fees being passed on from correspondent banks.