Wednesday, July 25

Try these 'Foreign Check' Bank Fees on for Size

Congress (mainly the Democrats in Congress) keeps claiming that the oil companies are price gouging through the high price of gas. Of course gasoline prices are mainly controlled by both taxes and the laws of supply and demand. While there have been claims of gouging, there has been a distinct lack of evidence to support the claims.

A while back I had documented that it is the Government who are the price gougers. On everything from taxes on tourists to Alaska, Taxes on the oil companies (ExxonMobil paid $25.8 billion in taxes the first quarter of 2006 resulting in $8.4 billion in net revenue.), to the State of Delaware that gouges every traveler driving up and down I-95.

If the Government wants to investigate an industry for gouging, then I suggest they take a look at the Banking Industry. They have to be the poster-children for gouging. I had already posted how the banks skim wire transfers through 'Intermediary Bank Fees' which of course are not disclosed to the senders and are not included in the fee when the senders pays for all charges associated with the transfer. (See: Are Banks Skimming International Money 'Wire Transfers'?)

Now lets take a look at what happens when you deposit an International Bank Draft/check at a typical US Bank:


So, out of a $100 check, you receive back less than half. This of course did not include the fee to issue the check, if any, as well as any fee to exchange the local currency into dollars for the check. At least, the fees would have been the same regardless of the amount of the check. So in effect the small clients are the ones being screwed.

The most interesting part in all of this is that the 'foreign bank' is charging a fee to cash it's own check. Pretty slick isn't it. These fees could have been avoided if the check had been payable in the US. That means that a US bank is listed on the check as the payable address. This would eliminate the local (our) bank fees and shift the foreign bank fee to the purchaser of the check/bank draft.

One problem that we have had with foreign bank drafts payable in the US is that occasionally the bank will lose the check and not credit our account. Of course the payer provides us with a copy of the front and back of the check cashed by the bank. I have yet to get a decent explanation how a bank can lose an electronic copy of a check. (They claim the chek cannot be cashed as they have misplaced the orignal. And no, that does not make this their fault.) You see, they scan these things and toss the originals. Which is a real joke explaining to a foreign customer that the yellow piece of paper is the check that he sent us that the bank will not cash for any number of reasons, the biggest being a mistake in one of the US banks, resulting in a refusal to cash the check. (I wonder if the system is flooded with fraudulent checks that results in this steady stream of valid checks being kicked out of the system.)

Amazingly, this foreign check is still cheaper than the total cost of sending a wire transfer.

You have to wonder why the international banking system is so incompetent when it comes to moving money around the planet. There is too much manual input at mid-locations. Too many errors. Lost payment details. Lost payments. Even double payments. (The bank sends the same payment twice.) Clearly it can be much better.

Take credit cards. I can travel to most countries and there at the airport is a cash machine. Pop in the credit card and out comes local cash. In most cases the fee, if any, is minimal. Then you have Western Union and Paypal, which are also valid options for making small payments.

I hope the banks clean up their act. It seems that they think that there is more profit in it for them if they keep the system slow and screwed up. That is great, as long as there are no alternate ways of making a payment. The internet is quickly changing that. Until they change, people's impression of banks is just going to stay in line with the theme of the commercial below.

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Are Banks Skimming International Money 'Wire Transfers'? - 6 April 2007

4 comments:

Eagle1 said...

My son took his pay check to the bank on which the check was written - and with which I maintain my business accounts.

Bank proceeds to charge him $5 for the privilege of cashing his check there.

He has now switched to USAA bank.

Fred Fry said...

USAA

Great bank. I use them as well.

One thing that used to piss me off was how banks would refuse to cash Government checks. Now with direct deposit it does not matter any longer.

Anonymous said...

Are those flat fees or are they based on percentages? In other words, would the bank deduct the same amount if the check were for $10,000?

Fred Fry said...

In general, it is a flat fee.

HOWEVER, it might take longer for the funds to clear and actually end up in your account, leaving the bank an extra day or two to use the money before they have to start paying you interest for the opportunity to do so.