Cheap checks can cost you

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If you buy your bank checks directly from a discount printer instead of purchasing them through your bank, you’d better hope they don’t rip or tear during processing. If they do, you might be charged a fee.

Some banks are charging $2 or $3 per rejected check, and at least one bank is smacking customers with a $5 fee.

The fees seem to apply only to mail-order checks or checks printed by individuals, even though checks ordered directly from banks are also sometimes rejected during processing and many mail-order checks come from the same companies that print checks for banks. 

By just about everyone’s estimation, the number of checks rejected for quality reasons is quite small, maybe 1 percent of the more than 40 billion checks processed annually. That includes checks that were stapled, folded too many times or mangled in some fashion. But more specifically, the problem that banks are complaining about centers on the paper and toner quality of some checks purchased directly from online or mail-order companies — or checks that are printed at home.

Rejected checks
“There are standards in check printing, and if you get checks without the proper standards the paper can tear during processing,” says John Hall, spokesman for American Bankers Association. “It’s not uncommon to find banks charging a fee. While most mail-order checks are good, there are outliers that cause problems for the entire checking system.”

Hartford Savings Bank in Hartford, Wis., charges $3 for each rejected check. Bob Klockow, the bank’s operations manager, says they’ve noticed problems for the past 10 years.

“It’s not a really big problem, but it got to the point where there were enough that we decided to address it with a fee. We get charged by the processor for each item that has to be individually processed.”

While some institutions may impose a fee the first time a customer’s check is rejected, Hartford Savings tries to work with the customer.

“We look to see if it’s a chronic problem with that customer. We’ll ask where the checks are made, and if it’s a second party we’ll warn them that it’s causing a problem and will cost $3 per check if we can’t read them,” says Klockow.

Generally, it appears to be smaller institutions that are instituting fees. Most of the larger banks contacted say that if they encounter the problem they repair and process the checks. And at least one institution, Minneapolis-based US Bank, has rescinded its $2 fee in favor of working directly with a customer when there’s a check-quality issue.

$5 charges
One bank, Fulton Savings Bank in Fulton, N.Y., charges a punishing $5 for every check rejected for quality issues.

“We don’t seem to have too many problems,” says Michael Pollock, bank president and CEO. “We like people to use the checks we have. We encourage people to use our checks.”

Fiserv, based in Brookfield, Wis., is one of the nation’s biggest check processors, sorting through some 4 billion checks, annually, at more than 50 processing locations. Chuck Doherty, vice president, says poor check quality is a small problem but a growing one, due in large part to the proliferation of mail-order check companies.

“Magnetic ink, which is used to print the routing number, the account number and the check number on the bottom of the check, can flake off the cheaper checks from some mail-order services or checks that people might buy to print their own,” Doherty says. “We have high-speed sorters that process 1,800 checks per minute. The necessary amount of ink might not be on the check, or if the paper isn’t strong enough, the check might not process correctly and it can jam the machine.”

Banks don’t assess rejected check fees on checks purchased through them — even though those checks sometimes get rejected, too. Just about anyone who has received a canceled check has noticed that occasionally a check comes back with a piece of tape along the bottom re-creating the coding that represents the routing, account and check numbers. That check was rejected for some reason, then repaired and processed. 

That has some in the mail-order industry wondering if the quality issue is a red herring.

Banks often get their checks from the biggest check printers, such as Deluxe, Clarke American and Harland, and these companies often sell checks through mail-order subsidiaries directly to consumers.

“Deluxe is the parent of Checks Unlimited. Clarke American is the parent company of Checks in the Mail and Clarke prints checks for Bank of America,” says Wade Delk, executive director of Check Payment Systems Association, or CPSA, a trade association.

“CPSA members follow the guidelines set by the American National Standards Institute, and CPSA members represent about 97 percent to 98 percent of all checks printed on the consumer side. (Consumers) are being told one thing when it may not be accurate. The quality issues are not there.”

‘Banks are losing profits’
John Browning, president and CEO of check printer Custom Direct LLC, says it boils down to profit.

“Each time we see a financial institution taking this type of action to prevent rejects — charging the customer for the cost of the reject — the customer ends up paying the price when there are as many rejects caused by checks printed by their own suppliers, but they don’t charge customers for those. Banks don’t want customers to buy from mail-order companies because they lose profit on it. Banks aren’t allowed to require customers to buy from them because of anti-tying laws.

“We’ve challenged a large financial institution on this — on anti-tying and to prove that every one of those rejects was caused by the document. A customer sent us some of their checks that had been rejected, and those checks exceeded all the bank’s specifications. The key reason you’re seeing this is because banks are losing profits. If we didn’t exist you’d be paying $50 for your checks.”

Meeting standards
Hall, of American Bankers Association, calls the profit motive allegation ridiculous.

“Banks want people to buy checks that are of the appropriate standard to run through their machines correctly. If they buy them from their own bank then they’re assured of the appropriate standard. But at the same time banks are happy to accept checks from other locations.”

If you’d like to make sure that the mail-order checks you’re considering meet industry standards, check for the company’s name on the CPSA
Web site.

If you print your own checks, be sure to buy high quality paper and use magnetic toner to print the routing number, account number and check number.

“Some software vendors say you don’t need magnetic toner, just print it in the right font,” says Ted Umhoefer, senior vice president of product management at Fiserv. “But that’s a significant issue and the cause of rejects. The reader-sorters read the font and get a pretty good read rate, but they also rely on the magnetic characteristic of toner, and that significantly increases the read rate.”

Here are some tips from the American Bankers Association to keep in mind when selecting check-printing software.

Tips to keep in mind when selecting check-printing software:
Beware of any check-printing software that says you don’t need magnetic ink.
Consult your bank before making any change to your check design.
Ask your bank for its check-printing requirements.
Check the references of any desktop publishing company you deal with.
Ask your bank for recommendations of software companies, paper check stock and magnetic ink toner.
Use the American national check standards developed by

Are you familiar with the various notations on your check? Do you know what information needs to be on your checks when you order them or print your own? Take a look at ”
Anatomy of a check.”