Bad checks are on the rise, and consumers aren’t the only ones paying for it. At a time when municipal revenues are falling and costs rising, some city and town halls are also feeling the crunch of their resident’s non-sufficient funds.
The town of Cumberland became concerned last summer when checks to Town Hall started bouncing about once a week, as opposed to the more normal once per month.
“Something definitely happened,” Finance Director Alex Kimball said, although he couldn’t necessarily explain it at the time.
After the economy tanked in October, the number of bounced checks dropped back to about once a month. Though perhaps counter-intuitive, Kimball had a guess at the trend: “Things started getting tight (last spring and summer), but people didn’t realize it yet,” he reasoned. “Now that they’re aware, it’s not happening as often.”
Not every local municipality has been so lucky – Portland and Cape Elizabeth both reported a two-fold increase from 2007 in checks bounced in December. Some towns reported no increase, including Brunswick, and South Portland. Freeport actually reported a slight decrease from last year’s December numbers.
Scarborough’s finance director, Ruth Porter, reported the number of bad checks received has been “slowly creeping up” over the last five years.
In 2003, she said, the town received 157 checks that bounced. In 2007, they there were 177, and in 2008, 186. Numbers actually peaked in 2005, with 211 bounced checks, but Porter added that the town’s decision to accept credit cards for municipal fees may have helped bring numbers back down slightly.
Nationwide, bounced checks have more than doubled since 2004, increasing from 619 million transactions with non-sufficient funds in 2004 to 1.28 billion in 2008, according to a report by Georgia management advisory firm Bretton Woods Inc.
In 2008, bounced checks resulted in $37 billion in fees to households, according to the same report. Mainers with checking accounts paid a total of more than $104,000 last year, or about $212 per banking household.
Multi-year trend date is not available for Maine, but the national figure is up nearly 23 percent from 2007, in part because of the increase in bad checks, but also because of rising bank fees.
For some checking account holders, those fees are still rising – according to Bretton Woods, Bank of America, which has 107 branches in Maine, is set to increase non-sufficient fund fees this month from $25 per item to $35.
Consumers aren’t the only ones facing fees for their bounced checks: town halls and other businesses are generally charged between $3 and $25 per bad check, depending on their bank, according to score.org, the Web site for the Counselors to America’s Small Businesses. Many municipalities, including Portland, charge that fee back to the customer.
According to City Treasurer Richard Lagarde, Portland charges residents $10 every time a check bounces and can’t be redeposited after repeated tries. Those customers will also find that the service they tried paying for isn’t performed: for example, a car reregistration could become invalid.
Lagarde said that while in some cases, bounced checks are ultimately classified as noncollectable, resulting in lost revenue to the city, the bigger problem is the increase in administrative work and costs. “If a bounced check doesn’t solve itself” through redeposit attempts, he said, city staff have to write letters and make phone calls to the customer.
In order to prevent future bounced checks, most local municipalities put repeat offenders on a no-checks list.
Cape Elizabeth reported that 16 residents’ checks are not being accepted by the town this year, including 10 who are listed indefinitely. The number was half that last year, according to Town Manager Michael McGovern.
While the town has some safeguards in place, McGovern said – for example, requiring bank checks from residents facing foreclosure – it eats the costs caused by bad checks, most of which are written for school lunches and community services programs.
The two-fold increase in bad checks and the associated costs come at the same time the town is facing an anticipated $500,000 shortfall in next year’s budget.
While the town did not report taking court action against residents, McGovern did want to remind people that writing bad checks “is not quite legal.”
Listed in Maine law as a civil violation, writing a bad check could result in up to $50 in civil penalties as well as court-ordered payment of the original check amount plus all court and processing fees.
Sue Borelli of the South Portland Finance Department reported this week that her town hasn’t seen an increase in the number of bounced checks – yet. Though hopeful that the economy won’t cause any more non-sufficient fund balances than normal, “there’s still time,” she said.