THE COLUMBUS DISPATCH

Edward Cutler doesn't understand why it takes so long for the checks he deposits into his account to clear, when it seems the checks he writes to other people clear almost immediately.

"I've taught math, studied differential calculus, have a doctorate degree and even I can't figure out what my balance is to keep from bouncing checks," the Columbus pediatrician said.

One thing is clear: Managing checking-account transactions can be confusing, sometimes causing otherwise responsible customers to bounce checks.

People who do accidentally overdraw their accounts are paying a heftier price.

Bounced-check fees are at an all-time high, according to Bankrate.com. The average fee nationwide is $27.40, up from $23.06 in 1999.

And consumers seem to be paying more of them.

Banks collected $33 billion in insufficient-fund and bounced-check fees in 2003, according to research firm Moebs $ervices in Lake Bluff, Ill. Fees are expected to reach $53.1 billion this year.

A confluence of events has made it harder for consumers to manage their checking-account balances, making them more likely to overdraw their accounts, said Jean Ann Fox, director of consumer protection with the Consumer Federation of America in Washington.

"The only thing you used to be able to bounce was a

check. But now, you can overdraw your account at an ATM and using your debit card," Fox said.

"People assume that if they don't have money in their account, the bank won't clear those transactions, but that's not the case anymore."

Changes in the regulations that govern checks have also made the process confusing and frustrating for consumers, said Greg McBride, a financial analyst with Bankrate.com.

"The fact is that checks clear faster because of Check 21," he said.

Check 21, a law that went into effect in 2004, sped up checking-account debits by allowing banks to use electronic images of checks to process transactions. It turns paper checks into electronic debits that can clear almost immediately.

Unfortunately, Check 21 didn't speed deposits.

Adding to the problem is the variation in the way banks and retailers process checks and debit-card transactions. That makes it harder for consumers to keep a handle on their balances.

"Wal-Mart can take your check and convert it into an electronic (debit) right there, but a check you write to a mom and pop (store) might not get to the bank for a week," said Jeff Kastelic, senior vice president of product management with National City.

"People think the banking system works in real time, but it doesn't."

Debit transactions aren't always processed immediately, either.

A person can overdraw his account multiple times in a single day paying with a debit card, because some retailers wait until after business hours to process payments. In that case, the money isn't subtracted from the account until the end of the day. In the meantime, the bank clears purchases because it appears there is money to cover it.

"Banks assume all the transactions you authorize are against good money that you know you have in your account," said Tom O'Hara, senior vice president and director of deposit products with Huntington National Bank.

Also, no laws govern the order in which banks process the checks people write, said Val Young, vice president of retail operations with Fifth Third Bank in central Ohio.

Most national banks and larger regional banks cash the largest checks first, she said.

It's a controversial practice, Fox said. When larger checks clear first, it can cause several smaller checks to bounce, socking customers with multiple bounced-check fees.

"It's very profitable for banks," Fox said.

Banks say profit isn't the motive.

"Large checks are usually the most important in peoples' lives: their rent or their mortgage payment," said Jeff Lyttle, spokesman for Chase Bank. "Consumers don't think about it, but would you rather bounce the check you wrote to the dry cleaner or for your mortgage?"

Some banks also process withdrawals before deposits, Fox said, causing more checks to bounce.

To stay out of trouble, she said, "You have to assume the banks adopt policies to benefit the bank, not you."

"There's a misconception that banks want people to bounce checks," O'Hara said. "Unpaid overdrafts are a liability for banks. The second-most-common type of check fraud is from overdraft customers who don't pay."

American banks lost about $677 million to check fraud in 2003, according to the American Bankers Association. About 17 percent of that is attributed to unpaid bounced checks.

Overdraft fees, the group said, are "supposed to be a deterrent" to keep check fraud at the lowest level possible.

But there is no doubt that banks profit from them.

In 1984, fees accounted for 25 percent of bank income. By 2001, the amount had risen to 43 percent, according to a report by Federal Reserve economist Kevin Stiroh.

"Fee income has taken a more prominent role in bank revenue," McBride said. "The (bank's) goal is to stabilize earnings that would otherwise be subject to the fluctuation of interest rates."

Customers, it seems, are getting angry. "It's an emotional transaction. People feel guilty when they make a mistake and don't want to walk away feeling the bank was mean to them," O'Hara said.

Some banks have addressed this by implementing tiered fees for overdrafts. People who rarely bounce a check pay a lower fee than those who bounce checks more often.

Chase, Huntington, Key Bank, National City and U.S. Bank use tiered fees on some of their accounts.

Huntington recently eliminated fees on overdrafts that are less than $5, to reduce fees from debit-card slip-ups.

Banks also have tried to help customers by "spending a significant amount of money to make sure people know in real time what their balances are," O'Hara said.

Customers can keep tabs on accounts online, through automated phone services, at ATM machines, and with their monthly statements, he said.

Consumer advocates aren't buying it.

"Banks say you can avoid fees," Fox said. "But they are putting out a bunch of hurdles then telling you it's your fault if you can't get over them. There is no coincidence here."

Some relief might be on the horizon, McBride said. Regulators will be reviewing the hold times on deposits next year, to see if they can be shortened.

In the meantime, McBride said, "fees aren't going away." •

Sidebar: Account vigilance

Check your account balances frequently

* About 59 percent of people check their balance at least once a week. "That means (up to) 41 percent don't really know if the money is there or not" when they write a check, said Tom O'Hara with Huntington National Bank. Online or phone banking can give you a better idea of your balance.

Sign up for an overdraft-protection program linked to a savings account

* For less than the cost of an overdraft fee, money is automatically transferred from another account to cover the check or debit.

Forget the float

* You no longer can write a check, then deposit the money to cover it the next day. To avoid fees, assume that every check written or debit-card purchase will clear instantly.

Fake yourself out

* Stash $100 in your checking account, but don't include it in your balance. That way, when you think your account is at zero, you really have $100 to cover any accidental overdrafts.

Read the fine print

* The terms-and-conditions brochure for checking accounts should outline the bank's funds availability policy for deposits, fees for each account, and to some extent how transactions are processed. If you don't see an answer, ask before opening an account.

Sources: Bankrate.com, Consumer Federation of America, Huntington National Bank, National City Bank