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The bad check business.

The Bad Check Business

Every business day of the year, 8,000 Arkansas open their daily mail to discover an overdraft notice from their banks. According to figures released by the Federal Reserve Bank in Little Rock, Arkansas will write nearly $900 million in bounced checks in 1990.

For every $30 cleared through Arkansas' banking system, one dollar goes bad. Those estimated 1.5 million bad checks would paper the highway centerline from Little Rock's War Memorial Stadium to Razorback Stadium in Fayetteville.

The dreaded "non-sufficient" checks are a double-edged sword: On one side, consumers and businesses are coping with the aggravation and expense of returned checks; on the other exists a gusher of millions and millions of dollars in income for banks, attorneys and collection agencies.

According to a Federal Reserve source, "One billion dollars in returned checks for 1990 is a very real possibility. If not 1990, definitely 1991."

Cashing In On

Bad Debt

Banks, unlike most businesses, simply charge the check back to the original customer and collect their fees (averaging $17.50) to the tune of $120,000 a day. Despite overdraft protection, the customer is charged a fee even though the check was paid. All of this occurs before the returned check has left the bank and becomes the problem of the recipient of the check to collect.

Even so, 90 percent of all returned checks are collected by businesses themselves within 10 days. The credit manager of a large chain store operation in Pulaski County says that "while returned checks are a headache to deal with, the $1 million or so in extra revenues make it worthwhile."

If insufficient checks have created a booming business, it's in the collection area.

There were 26 collection agencies listed in the 1980 phone book, and almost 40 listed in the 1990 edition. Several of these specialize in check collections only.

Ronny Caldwell of CheckMasters, Little Rock's newest and smallest collection agency, says, "I handle approximately 250-300 checks for collection per month. One of my competitors handles close to 5,000 checks per month. Business is such that I should triple my size within the next year."

Attorneys benefit as well. They gain through client representation, and several attorneys have their own collection systems. The courts charge filing fees, levy fines and liens.

Even police departments benefit through processing and serving arrest warrants. Countless companies do nothing but design and sell collection programs to agencies and businesses.

The fact that 2 percent of all returned checks (anywhere from $8 to $20 million) will go uncollected doesn't seem to have much effect on anyone, except perhaps the small business owner and the consumer.

With an estimated $50 to $60 million in revenues a year at stake in the bad check game, is it any wonder there is such reluctance to change the status quo? Everybody wins - well, almost everybody.

To some it would seem that the consumer continues to play "beat it to the bank" roulette and in the long run comes up empty-handed even if his paycheck doesn't bounce.

No Checks, Please

Most returned checks are the result of careless bookkeeping, or a bid for time in the hope of reaching the bank before the check bounces. When the bad check catches up with the consumer, fees three or four times the original amount of the check are not unusual.

These costly mistakes also provide the impetus for higher prices on services and consumer goods.

More and more businesses, especially "Mom and Pop" operations, are refusing to take checks because of the time and expense involved.

"I found that I was spending half my day trying to collect on returned checks," explains the owner of a small retail store in west Little Rock. "It just wasn't worth the hassle. If I had a direct line to the banks and could confirm the checks, then it would be different."

An informal survey in that same area revealed that over half the small businesses didn't take checks. However, credit cards were readily taken because income is guaranteed.

While most businesses collect their own returned checks through an inhouse accounting office, several chain operations have established working relationships with collection agencies. If a check bounces, the bank automatically returns the check to the collection agency.

If all attempts to collect the check fail, then a lawsuit is filed against the check writer and the matter is settled in court. With filing fees and court costs, a $25 bounced check could result in a court appearance and several hundred dollars in expenses, not to mention a possible police record.

Bouncing All The Way To The


If the returned check is more than $250, a jail sentence could result. The statute of limitations for bad check misdemeanor charges is one year and three years for a felony. In 1989, 14,504 arrest warrants were issued with 839 convictions of the felony bad check law in Arkansas.

Even though most major banks now have overdraft protection plans (usually up to $200), and recent changes in the bad check laws have streamlined the collection process, the problem still costs consumers and businesses money, time and inconvenience.

Follow The

Bouncing Check

Writing a "hot" check sets into motion a series of events that has an impact on everyone.

"Non-sufficient funds" or the use of non-existent funds is, by its strictest interpretation, a violation of federal banking law.

However, banking practices and conventions have made the immediate impact rapid and minimal.

Charges may include:

* The original check amount;

* Payment of a fee to the bank ($15-20);

* A fee to the store to which it was written ($15-20);

Thus, a $25 check that "bounces" could cost up to $65 to redeem.

"I know everyone says it, but I had never bounced a check before," says one depositor. "But I was certain I could beat the two checks ($4 and $8) to the bank. Well, I didn't and by the time everything was straightened out it had cost me $60 in fees and a whole lot of embarrassment for $12."
COPYRIGHT 1990 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Arkansas business based on bounced checks
Author:Worthen, Gene
Publication:Arkansas Business
Date:Oct 22, 1990
Previous Article:Investing is saving.
Next Article:Ungreasing the skids.

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