Trying to deposit a bad check may cost you more

The cost will rise to $6.84 per check, up from $5.71 in 2014, the largest increase in five years. istockphoto

Trying to deposit a bad check, even innocently, is going to cost you 20 percent more at many of the state’s banks and credit unions, starting this week.

The Massachusetts Division of Banks has raised the penalty that state-chartered financial institutions can charge when a customer cashes a check written to them by someone else and that account has insufficient funds. The maximum cost will rise to $6.84 per check, up from $5.71 in 2014, the largest increase in five years.

Massachusetts is the only state that caps this fee, said David Cotney, the state’s banking commissioner. But, he added, “Nothing says the bank can’t waive the fees or charge less.”

The cap doesn’t apply to large national banks, such as Bank of America, which are regulated by federal agencies.

Fewer consumers may be using checks, but banks said that it still costs them money if they receive a check that bounces. Banks usually have to go into a customer’s account and in some cases manually deduct the amount cashed, said Jon Skarin, a senior vice president at the Massachusetts Bankers Association. They also have to notify their customers about the bounced check.

The cost to the bank depends on its size and whether it has the technology to do more of this work automatically. For some banks, it can cost as little as $1.21 per check and take two minutes, according to bank regulators. But for others, it’s a laborious process that extends more than an hour and costs nearly $23 for each bad check.

On average, credit unions lose money on these transactions, said Paul Gentile, president of the Cooperative Credit Union Association, the trade association for credit unions. They spend an average $8.95 to process these checks, he said.

State regulators base the price cap on a survey of banks that they examined over a three-year period. The writer of the bad check also gets hit with a penalty from his own bank, usually an overdraft fee that costs $28, on average.

Overdraft fees can be moneymakers for banks. In the first quarter of the year, banks nationally collected $2.5 billion in fees from customers who bounced checks or took out more cash from ATMs than they had in an account, according to data fro SNL Financial, a Virginia research firm.