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CITY OF COLTON AGENDA REPORT FOR THE CITY COUNTIL MEETING OF OCTOBER 3, 2006 TO: Honorable Mayor and City Council Members FROM: Dilu de Alwis, Finance Director r SUBJECT: Returned Check Fee Increase DATE: September 21, 2006 BACKGROUND The Finance Department has seen an increase in the amount and frequency of returned checks in the past four months. Currently, the fee associated with returned checks is $15, which was adopted by City Council Resolution R-2-88 passed on January 5, 1988. This fee has not been increased commensurate with internal costs associated with the processing of returned checks. The City has the authority to impose fees, charges and rates under the police power granted by Article XI, Section 7 of the California Constitution and under the provisions of Government Code section 66016. In addition to providing authority to impose fees, State law also requires that fees imposed by the City may not exceed the estimated reasonable cost of providing the service for which a fee is charged. Along with this restriction on fee amounts, Section 66016 of the Government Code requires the City to hold a public hearing prior to adopting fees and make available to the public the data indicating the amount of estimated costs required to provide the service for which a fee is being charged. DISCUSSION/ANALYSIS In a recent survey of over 80 California cities regarding their returned check fees, the City's fee is substantially lower than that of 83 percent of the respondents. Of the remaining cities whose fee is at or below Colton's current fee, over 30 percent are considering increasing their fee to cover bank charges and staff costs associated with processing returned checks. California Civil Code section 1719 (a) (1) states: "Notwithstanding any penal sanctions that may apply, any person who passes a check on insufficient funds shall be liable to the payee for the amount of the check and a service charge payable to the payee for an amount not to exceed twenty-five dollars ($25) for the first check passed on insufficient funds and an amount not to exceed thirty- five dollars ($35) for each subsequent check to that payee passed on insufficient funds." After an internal analysis, conducted by the Finance Department, addressing the procedures and staff involved with the processing, notifying and resolving of returned check issues, it was determined that the total Citywide cost for each returned check is $26.69. The figure accounts for staff time, cost of materials and bank charges related to each returned check. Although