Banking industry data used to calculate the cost of bouncing a cheque
The cost of employing a bank clerk to bounce a cheque may be less than £2 each time a customer goes overdrawn.
As the Office of Fair Trading (OFT) gears up for a full scale investigation into the cost of banking, this crucial issue will be at the centre of its deliberations.
The BBC has been shown one way of making this calculation, derived from an internal Yorkshire Bank study.
These details have led one MP with an interest in the matter to describe as "extortionate" the charges some banks levy on customers who break their overdraft limits - which can be £25 or more.
The labour cost of bouncing a cheque was discovered by a study carried out when a former Yorkshire Bank employee - who wishes to stay anonymous - was asked to analyse some of the bank's internal processes.
Using standard banking industry timings - broken down into fractions of a second for more than 200 separate actions - the staff member worked out the time and cost of bouncing a cheque.
This is a routine task carried out by lower paid staff in the branch and the head office.
"I was given a list of those timings and was told they were industry standard timings," the former employee said.
"It was my job to break down each individual process and work out how long it took."
Using a spread sheet, they calculated how long it took a clerk to:
- look at the daily report of overdrawn accounts
- decide an account needed to be referred to head office
- check the account transactions
- manually change the account to reflect the bounced cheque
- put the information into a computer
- generate a standard letter
- and send that letter out in the post.
This work would involve one person at the branch and another at head office, taking them no more than 10 minutes altogether.
"Based on the system I used, I worked out that the administration of bouncing a cheque was definitely no more than £2," the former staff member said.
"The timings of the workload were well known throughout management, I took my findings to my operations manager and then they went up the line."
In fact the findings were discussed each week by senior management at the bank.
"But it's not rocket science to know how long it takes for someone to do a certain amount of work," the former employee pointed out.
In 2004, one of the first people to successfully challenge her bank's overdraft charges and win a refund was Laura Saunders from Goldsithney in Cornwall.
Andrew George MP accuses the banks of extortion
The Yorkshire Bank repaid her £922 when she threatened to sue it in the county court.
After hearing the evidence from the former Yorkshire Bank employee, Ms Saunders' MP, Andrew George - the Lib Dem MP for West Cornwall and the Isles of Scilly - said he was not particularly surprised.
"I think that banks are in fact extorting money from the most vulnerable people in society," he said.
"It is inevitable that those on the lowest incomes who have the greatest difficulty maintaining their accounts in credit will be the most vulnerable to these charges."
Of course, other costs are involved in bouncing a cheque.
Banks will have obvious overheads such as buildings, heating, lighting, stamps, stationery, telephones, computers and so on.
When the OFT forced banks to cut their credit card default charges to no more than £12 last year, it acknowledged these sorts of costs could fairly be taken into account and be passed, at least in part, to the customer.
A Yorkshire Bank spokesman denied that the analysis provided by its former employee was valid.
"We believe the figures are misleading," he said.
"They account for just one individual's role in the process for dealing with account defaults.
"For example, these costs would be higher if a senior manager was involved as well," he said
When threatened with legal action, the Yorkshire Bank, like others, has submitted a defence on paper, typically claiming that the charges are a genuine estimate of the financial damage caused by having to chase up the unauthorised overdraft.
But is it credible to believe that other non-staff overheads would add £20 or more to the charges being levied each time a cheque is bounced?
The issue has not yet been thrashed out as the banks always withdraw before the hearing, often settling out of court.
The Consumer Action Group, which has been leading the campaign against high bank account charges, says the issue may soon be scrutinised by the courts anyway.
"A number of people who have previously claimed against the Yorkshire Bank have now written to the courts, pointing out this discrepancy, asking the court for their comments," said Marc Gander of the CAG.
"I would hope that a judge would ask the Yorkshire bank to come to court and explain themselves," he said.