Just saw this story on my local CBS2 news last night, which was originally reported by CBS13 in Sacramento. It seems that one insidious banking practice has been to process transactions NOT by the order in which the transaction occurs, but by largest to smallest, thereby making it easier for someone to become overdrawn. And then, each additional transaction results in an overdraft fee.
An example below the fold.
So here's how the banks are doing it. Let's say these are the payments a person makes (this is the example in the CBS story).
Date Description Debit Fee Balance
10/1 Smoothies $ 5.00 $185.00
10/2 Gas Station $ 29.00 $156.00
10/3 Coffee Cafe $ 8.00 $148.00
10/4 Electronics $ 90.00 $ 58.00
10/5 Supermarket $105.00 $35 -$ 47.00
So the person overdraws on the last day, and should be charged one $35 overdraft fee, right? But here's what the bank does instead, by processing the largest transaction first.
Date Description Debit Fee Balance
10/5 Supermarket $105.00 $85.00
10/4 Electronics $ 90.00 $35 -$ 5.00
10/2 Gas Station $ 29.00 $35 -$39.00
10/1 Smoothies $ 5.00 $35 -$44.00
10/3 Coffee Cafe $ 8.00 $35 -$52.00
Oh look! They get to charge you four overdraft fees now!
And that's exactly what they're doing to their customers.
Living week to week and unemployed, Jeff Ledford admits he spent $10 more than he had earlier this year. He calls Bank of America's decision to slap him with five overdraft fees totaling $175 for that ten dollar oversight, "predatory practices."
Make no mistake, the banks are making... well, bank on this practice.
Call Kurtis has received complaints about all major banks, which are undoubtedly profiting big off these overdraft fees. This year alone, research firm Moebs Services estimates they'll reportedly make $36.7 billion.
When CBS asked a banker, what was the response? Empathy? Of course not.
Rod Brown with the California Bankers Association says it's normal practice for banks to process charges from the largest to smallest. He's quick to point out, there's no law that says they can't. When Kurtis asked him if he could see how the public would think the banking industry is manipulating charges to make the most profit, he said, "No I can't."
"Consumer research indicates that those larger transactions are of greater importance to the consumer," Brown said. "It might be a car payment. It might be a mortgage payment."
But Maurer doesn't buy it. "I think it's a ridiculous argument because it's up to me what are my most important transactions, not up to you," she argued.
I asked Brown, "Shouldn't I, as a consumer, be able to determine which payments are most important first?"
Brown replied, "As a consumer what you can control is the fact you either have money in your account or you don't."
So there it is. That's how these bankers think. They do it because they can. They're giving us the finger and daring us to do something about it. The Federal Reserve seems to have actually heard the people's anger on this one, and have made a rule to stop certain overdraft charges on ATMs. However, the rule won't take effect until July 2010. In the meantime, once CBS13 brought this to the attention of Rep. Doris Matsui (D-CA), she co-sponsored H.R. 3904, which would make this practice illegal. But with the CBC blocking financial regulation reform in the House Financial Services Committee, it's unclear if H.R. 3904 will become law anytime soon.
After CBS got involved, it seems Bank of America reversed its position on overdraft fees for the two individuals in the story. But for all those other Americans who were hit with excessive overdraft fees because the banks processed the largest transactions first, instead of chronologically, and whose story wasn't told on the TV news, they're still shit out of luck, it seems.