Overdrafts indicate carelessness or miscalculation on the part of the drawer; and if allowed, they indicate slipshod banking. The courts have repeatedly declared the practice of permitting overdrafts a violation of legitimate banking; the United States Supreme Court has held it a misapplication of the bank's funds and a connivance at their withdrawal, without security, in favor of certain privileged persons, and therefore whenever overdrawing is permitted by the cashier it is at his own peril and upon the responsibility of himself and his sureties. The bankers are op posed to the practice, and but for competition would have long since stopped it.
The Comptroller of the Currency has urged in recent years the desirability of reducing the overdrafts of national banks. In this campaign he has been very successful. The ratio of overdrafts to loans of national banks increased from about 1885 to 1902; since 1902 the ratio has declined until it reached about .2 per cent in 1915. State banking departments have also waged a war on overdrafts with quite similar success.
Prevalence of and Remedies for Overdrafts The prevalence of overdrafts varies inversely with the thoroughness of bank supervision and directly with the degree of competition among the banks. The states reporting most overdrafts are Iowa, Mississippi, Texas, Illinois, Missouri, Nebraska, Georgia, and New York. Iowa leads all other states. With the exception of New York these states are agricultural and their population is largely rural. The overdrawing is done to the same extent by both farmers and business men. The rural dis tribution of the population brings the customer and the banker into intimate personal relations, and in these circumstances it is more difficult for him to refuse to allow the overdraft. More
over, in a large bank the officers who may allow overdrafts are more remote and difficult to approach than in a small bank. When competition between the banks is very keen, the bank is reluctant to refuse to allow an overdraft lest it alienate a customer to a competitor. It may also offer a prospective customer the privilege of overdrawing as an inducement to get the account. The number of banks in a state is some index of the degree of com petition prevailing there; the rank of the states in number of banks is Iowa, Missouri, Illinois, Texas, Pennsylvania, etc.; these are also among the ranking states in the amount of over drafts reported.
The remedies for overdrawing appear to be the raising of the plane of bank competition, the education of the population as to the objectionable character of overdrafts, legislation imposing penalties upon bank officers for allowing unsecured overdrafts, reduction of the number of banks by consolidations and branch banking, etc.
In most cases probably the drawer does not overdraw his account intentionally. The states are enacting "bad check" laws to penalize the issue of bad checks. In Ohio, for instance, any person who, with intent to defraud, makes and delivers a check on a bank and who at the time has insufficient funds in that bank to cover the check, is guilty of a felony and punishable by fine and imprisonment. As against the maker, the making of a check, the payment of which is refused by the drawee, is deemed prima facie evidence of intent to defraud and a knowledge of insufficient funds in the bank. The burden of proof is thus placed upon the drawer.