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Bouncing customers.

Bouncing Customers Union Bank's New Method Of Bouncing Checks Squeezes More Revenues From Customers, But The Bank Defends The Practice

Almost everyone who has had a checking account long enough has gotten one: a bouncing check. The pink slip that comes in the mail notifying the owner that "non-sufficient funds" (NSF) exist in the account to cover the check is embarrassing emotionally and financially (average NSF charges in the Little Rock area run approximately $15 to $17.

Beyond that point, most depositors at $650-million Union National Bank probably never give bouncing checks a second thought. However, last year Union quietly reversed its method of sorting customer checks. As a consequence, more checks than ever before are bouncing and more pink slips are getting mailed.

Traditional banking practice in the area passes checks through for payment from smallest to largest. This generates the lowest number of bounced checks, if the account is headed for the red. By reversing this order, Union now generates more total NSF charges.

Union's EVP Hall McAdams defends the bank's move saying it is for customer benefit, not extra revenues.

"The reason we did it is due to customer comment," McAdams says. He has heard customer complaints in the past that the smallest-to-largest method would often leave a crucial large payment as the last check that bounced. "Why did you pay the $5 check to Magic Mart...and you bounced my house payment?" customers would ask, McAdams says.

It's worth noting that in the fall of 1987, a Houston banking consultant pitched the system to Union and other banks around the state. The consultant's spiel was direct and to the point: The new order would create more revenue.

No one would take the consultant up on his idea in 1987, partly because he wanted 20 percent of the new funds generated. Customer backlash is another objection to putting the system in place, a banking source says.

"The biggest risk is your customer relations. There is nothing in the law that says it is prohibited," the source says.

How much money the system can generate depends on each bank and its number of check-writing depositors. But it's worth looking into, the source says.

"There is a saying in the banking business that you can't afford to run off your bad check customers." He adds, "You are writing what you think is a dull story, but the public will be suprised at the number of NSF charges."

The exact amount Union is earning on the extra NSF charges is undertermined, McAdams says, but it is an increased amount. An average of less than 1 percent of all checks written bounce, according to industry sources.

"The only real solution is to not have any bad checks," McAdams says. "When people don't have enough money, that's the problem."

To help those customers who are strapped for cash, or careless, Union has a $200 overdraft plan offered free or charge that ensures checks clear where they are written. This saves individual embarrassment, but the customer still pays an NSF charge on each bouncing check.

McAdams says he's unconcerned customers might object to the bank's new check sorting policy. "I think the public is smart enough to know what's good for them," he says.

Random calls to other banks in Little Rock reveal a variety of systems in place. Most have a policy to first cash any checks drawn against the bank itself, against another bank customer, or against an automatic teller machine. From that point on, the traditional pattern of processing checks from smallest to largest is in place at First Commercial, Worthen and OneBank.

"We take them smallest first with the thinking being it's of benefit to our customer," says Bill Garner, a spokesman for First Commercial. "This has been the policy for as long as I can remember."

PHOTO : BOUNCING BANK: Union National Bank quietly switched its method of processing checks last year and is generating more bouncing checks as a result. The bank says it made the move to assist customers, but a banking consultant says the system is geared to generate profits.
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Title Annotation:Union National Bank of Little Rock's new method of processing checks
Author:Walker, Wythe, Jr.
Publication:Arkansas Business
Date:May 7, 1990
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