Methods of Handling Interest Charges on Collections The jobber's bank may be willing to absorb the clerical ex pense incurred by it on account of the collection but be unwilling to bear the loss of interest on the funds from time of receipt of check till time of receipt of remittance. This interest element may be handled in four ways: i. The jobber's hank may discount the check for the time it takes, on the average, to collect items on such drawee, in much the same manner as it would discount a time note, and credit the jobber's account only with the proceeds.
2. The jobber's bank may credit the check immediately at par but defer its availability for withdrawal by check as many days as it takes on the average to collect items on such drawee.
3. The jobber's bank may accept the item wholly as a collec tion item and credit the account with the proceeds only when, as, and if collected.
4. The jobber's bank may be willing to bear the interest cost if it can immediately credit the despatched item at par to its reserve account with its central reserve correspondent, as it might have to carry this reserve in any event without getting interest upon it. If it is getting interest on its reserve balance and competition among the banks in the reserve center is very intense, the jobber's bank may be able to procure a contract to the effect that the central reserve bank will credit its account with collections as of the date of despatch rather than of receipt. Such contract would indeed be unusual, but would simply mean that the interest element was to be absorbed by the central reserve city bank in stead of by the jobber's bank.
Banks do not like to discount checks according to the first method described above, for the reason that such a method oc casions an immense amount of clerical work and retards business unduly. The deduction of discount when a check is cashed is not only troublesome to calculate and account, but also tends to offend customers or prospective customers. The second method, that of deferring the availability of items, was adopted by the Boston Country Clearing House and by the federal reserve collection system. Schedules of the number of days for which availability is deferred for items on the various places of the country are published, and are revised with every improvement or deterioration in the mail service. This method has the virtue of
being calculable in advance and of not being affected by variations in the interest rates. The third method is quite common in the case of purely collection items as distinguished from transits or cash items. The fourth method explains some of the anomalous phases of the collection system in use before the federal reserve system was devised.
Allocation of Exchange Charges The justifiableness of the extra clerical expense upon the drawee bank of having to make remittance for a check presented by mail or express has been questioned. The items are presumably pay able over its counter, and not at some distant place. One of two things should be understood when the customer opens his account there: (i) that if he uses checks in making distant payments, his account should be charged with the extra clerical cost; or (2) that the bank, knowing that the customer would use checks to make distant payments, undertakes to bear this extra cost as one of the services for the account. The two are equivalent in fact, but the latter is the more convenient. There is no warrant for deducting this charge from the remittance.
The drawee bank has no justification for charging and deduct ing interest on the amount of funds remitted, for the item is pay able upon demand and the bank simply meets its obligation whether it pays over the counter or by mail.
Unless there is a specific understanding between the bank and customer when the account is started, that the bank is to provide for the payment in certain distant places of checks drawn on it by the customer, the bank's implied obligation is to pay only over its counter and it cannot be expected to remit funds to distant places free of charge. If the customer, therefore, draws checks and sends them to distant places and some collecting bank asks that the drawee remit payment, the drawee has good warrant to ask pay for the service. The drawee bank may charge the postage, regis try stamp, expressage, and insurance on the currency shipment directly to the customer's account, or it may deduct these charges from the face of the check and remit the proceeds. If the alterna tive is taken, the jobber will realize so much the less for his goods sold to the local retailer, and he will recoup by asking higher prices for his goods.