High Price of Bounced Checks

Here is an arithmetic problem for you:

You have $700 dollars in your checking account. You are sloppy and forget how much you have. You write three checks for $600, $200 and $200. For every bounced check you are fined $25 by your bank. How much in fines will you have to pay for your sloppiness?

Solution: the fine depends on the transaction order. If they process your $600 check first, you will have two bounced checks. If they process a $200 check first, then only your $600 check will bounce.

The question is, what will your bank do if all three checks need to be processed at the same time? There are three options:

  • Your bank doesn’t have a good mathematician on the staff and is not aware of this situation, and it processes the checks in random order. In this case you will have either two bounced checks (with a probability of 1/3) or one bounced check (with a probability of 2/3).
  • Your bank is evil, and purposefully processes your $600 check first. In this case you are guaranteed to have two bounced checks.
  • Your bank cares about its soul and purposefully processes the $600 check last. In this case you are guaranteed to get only one bounced check.

Assuming the worst — your bank is evil — what is the answer to the problem? Do you think you will be fined $50? If so, you are wrong. The company to whom you wrote the check will fine you too. Supposing that the company has the same $25 fine as the bank, can we say that you will be fined $100? Nope, this is not correct either. You are forgetting that companies will reprocess your bounced checks two days later and the checks will bounce again. You will be fined twice for each check by two different entities. Thus, you can face $200 in fines.

My next question is: what do you think is a fair fine in my arithmetic problem above?

Banks and companies have never heard of double jeopardy and do not think that it is unconstitutional to fine you twice for the same mistake. No doubt, the second reprocessing of your checks is done “for your convenience”. “For your convenience” they assume that the bouncing was due to a computer glitch, so they should reprocess your check immediately after it has bounced. “For your convenience” no-one will disturb you to notify you that your checks are bouncing. I also believe that if your fine depends on the random order of processing of checks, the banks should be graceful and shouldn’t pick the more profitable order for themselves. I do think that charging you more than $50 in my example is against the law and is not fair.

The law should protect us against entities that rob us “for our convenience.”

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3 Comments

  1. Mike SP:

    If you give this problem to Barack Obama and John McCain, what would happen?

    Obama would dodge the question and preach about the state of economic affairs.
    John McCain would explode.

  2. Tanya Khovanova:

    I like the idea Alexey suggested:

    What happens if you have $220 in your account? Then if they process the $600 first, and deduct the fee from your account, you won’t have enough money for either of the $200s, and they will all bounce.

  3. Osvaldo Filbert:

    John McCain is also a very good politician. he did not win because the people are not satisfied on the Republicans.`-:

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