Comments on: Banks Rethink Overdraft Fees

By: Edward Shaw

Edward Shaw — Thu, 10 Feb 2011 17:53:02 +0000

I have an account with regions bank. And this is a good example of the shelacking the consumer is facing.
I was recently overdrawn in my bank by $8.95. What regions bank and all others have begun to do is keep all check card transactions in “pending” status for four to five days. This seems unimportant till the account goes into negative territory allowing them to run all pending items regardless of age generating huge overdraft fees.
(Ex) In my case I had an available balance of $229 after deducting all my “pending” transactions. Two checks then were processed that night, one for $198 and the other for $40. This should have generated an overdraft fee of $35 for either of those checks. What happened is that they cleared those checks and ran all pending items causing seven overdrafts to occur generating $245 in overdraft fees all originating from an original $9 shortfall of funds.
When you use a “debit/check) card that is endorsed by VISA/MASERCARD there are rules regarding batching transactions and I’m sure that they are keeping all transactions in “pending” status which they claim is normal, it is not and has only just begun this last year. When you use your debit card it is just that “DEBITED” from your account and if the funds are not there the transaction is denied. How then can they as much as five days later say that it is an overdraft?????
I have many accounts with Regions and fully expect them to reverse these fees. The big picture is that the average consumer struggling financially in these times has no understanding of these practices and gets hit the hardest. A small financial indiscretion turns into a large one with these practices. The law or at least the spirit of the law is being broken and respectfully ask that you look into this matter at your earliest convenience.

By: tom sibley

tom sibley — Sat, 26 Dec 2009 23:48:08 +0000

wells fargo will only charge 4 fees a day? not so. they got me for 7 $35 fees one day last week (after moving the purchaces around for max fees.) even though i had a direct deposit clearing the next day!

By: Nancy Tossell

Nancy Tossell — Fri, 04 Dec 2009 00:14:56 +0000

It continues to amaze me in an electronic world how some transactions can “float” while others hit immediately. In years past, I remember joking with people about how fast money comes out of one’s account and how slow it goes in. In the current state of finances, and with the over draft fees in place, it is criminal at how the public is being ripped off by our financial institutions and it’s all legal. For those of us who have been fortunate to always have a balance in our checking accounts, we don’t feel this impact and it can be argued that everyone should always keep enough money in the bank to cover anything they spend. However, with lost jobs, reduced hours, and unexpected expenses, it is much more difficult to keep a cushion and it’s terrible at how putative our systen has become.

By: Peter

Peter — Fri, 23 Oct 2009 16:13:44 +0000

The proposed and drafted legislation sounds good, but it put a huge and cumbersome bit of responsibility on the customer. No doubt customers that overspend should have to pay some penalty, this is obvious and just. The problem is that banks are not scared one bit over these proposed rules because they do not affect them financially. The real problem is the practice of “largest to smallest” check cashing, and rules imposed by congress throughout the 1990’s.
The first of these rules was something left over from the Clinton era called “Know your customer”. These regulations basically put the burden of proof over the legitimacy of funds and accounts onto the banks themselves, but had an insidious tone of watching the customer’s accounts and their spending/depositing habits. This lead to a boon for the banks insomuch that now through Federal mandate, they kept track of what you were doing and thus could now see when funds cleared regularly and when deposits were made. This set a template for them to be able to “rig” your account for over drafting. The problem was legitimizing it so that YOU took the burden of responsibility. This came again in 2003 and 2005 with the electronic dept regulations and bankruptcy reform laws respectively that now established the concept of electronic check clearing.

Now the banks could clear a check and charge it to your account in as little as 1 day from a written check verses the multiple days of “floating a check” or charge. This in addition to the ability by banks to hold deposits for 5 business days allowed them a huge “come and get it” of overdraft collection on the customer and make it 100% legitimate.

Because banking rules are essentially state run, laws governing banks vary from one state to another. This is problematic for the customer, but a cash cow for the banks. Almost all states allow a practice of “Largest to smallest” given that no rules are written prohibiting the practice. What is “largest to smallest?”

In times past, a bank cleared deposits and debts as they came into the bank. Thus, if you wrote out checks from number 250 to 255 and they came in to your bank in that order, regardless of the amount of the check, they were charged to your account in the order the bank got them. The concept of Largest to smallest however allows banks to hold checks for a given amount of time and they can re-arrange the order they are cashed from the largest check to the smallest. If you look at your account online, they typically show an amount followed by the words “in process”. Meaning the bank has the information but has not yet cleared the account. Here is where it gets tricky. If for the sake of argument your careful for the entire pay period and don’t overdraft, you should be fine. But lets say that you come out of your house or apartment one Wednesday morning and find your windshield broken. You have to have a new windshield and you know it will cost $300, but you only have $189 left in your bank account until that Friday. So you decide you can take the chance and write a check for the $300 hoping it will float until Friday. The problem is that the company you write the check to deposits the check into their account (different bank from yours) and because of the electronic nature of the check cashing, it hits your bank that afternoon because the check does not have to arrive physically at the bank. Like a debit card or credit card purchase, it is now at your bank that afternoon. However, you borrow money to cover the check and you deposit the money 10 minutes before the check hits your account. Unless you deposit it at the counter inside the bank, the money can now be held for 5 business days. That translates to the following Wednesday; or literally a full week later. Now because you have three purchases of $11 of coffee and beagle for you and some friends, a paper, magazine and a package of tomatoes you purchased all separately, those do not add up to $300. But they are all separate purchases. You bought them all in the last few days, and should be at the bank by now right? Well yes, but the bank can now hold those and charge them to your account AFTER moving up the check you wrote out for the $300.

Thus, instead of one over draft charge of $30 for the $300 check, you are now charged 5 $30 charges for the smaller stuff. Putting you in the hole for not only the amount of purchase, but for $150 in overdraft charges.

This is the insidious nature of the banks today. And they readily admit to as much because there are no consequences for what they are doing.

The first step is to end this practice of largest to smallest; the second step is to allow for same day deposits for checks and cash.

There are many other things that need to be done including mandatory K-12 financial literacy in schools.

But such issues can be addressed later.