Question
Banks charge fees for bounced checksthat is, checks that exceed the balance in the account. It has been estimated that processing bounced checks costs
Banks charge fees for "bounced checksthat is, checks that exceed the balance in the account. It has been estimated that processing bounced checks costs a bank roughly $4.50 per check. Thus, the profit margin on bounced checks is very high. Recognizing this, some banks have started to process checks from largest to smallest. By doing this, they maximize the number of checks that bounce if a customer overdraws an account. For example, NationsBank (now Bank of America) projected a $22 million increase in fee revenue as a result of processing largest checks first. In response to criticism, banks have responded that their customers prefer to have large checks processed first, because those tend to be the most important. At the other extreme, some banks will cover their customers' bounced checks, effectively extending them an interest-free loan while their account is overdrawn. (a) Carl Roen had a balance of $1,650 in his checking account at First National Bank on a day when the bank received the following five checks for processing against his account. Check Number Check Amount Number Amount 3150 $90 3165 $700 3162 530 3166 1,660 3169 330
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