Wells Fargo just got a huge slap on the wrist for a bank fee gouging practice, called transaction sorting. Transaction sorting consists of maximizing overdraft fees by processing debits in an order favorable to the bank. It can turn a $5 cup of coffee into a $35 cup of coffee. Each overdraft cost the consumer $35.
This is a fraction of the $1.8 billion in overdraft fees that the bank collected in California from 2005 to 2007, according to the court. Naturally, Wells Fargo was “disappointed” by the ruling.
Unfortunately, the practice of transaction sorting was not specifically outlawed by the new financial reform legislation, but it will limit aggressive overdraft fee collection. Immediately following news of the ruling against them, Wells Fargo revealed this week that new rules on overdraft protection will wipe out hundreds of millions of dollars in such revenue this year.
The San Francisco-based banking giant projected it would take a $530 million hit in fee income during the second half of 2010, with the lion’s share of that the result of the new overdraft-fee limits, according documents filed this week with the U.S. Securities and Exchange Commission. Poor them.
Under the new financial reforms, consumers can opt out of overdraft “protection” by calling their bank and choosing to deny any debit when there aren’t enough funds in the account to cover the transaction. In addition, the legislation would require that the fees banks charge businesses for processing debit card transactions be “reasonable and proportional to the cost incurred in processing the transaction”. The Federal Reserve will be required in coming months to issue new rules on the fees.
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If it’s a $5 cup of coffee and a $35 overdraft, then it would be a $40 cup of coffee.
I stand corrected.
I complained about this issue to Wells Fargo when I was their customer. They explained they did it — cleared large checks before small ones, i.e., sorted — because their customers wanted to make sure a mortgage payment cleared before a check for a tank of gas. I pointed out to them that their logic only applied if they returned the checks as NSF rather than paid the check. I also told them I didn’t want them to provide this “serivice” for me. They replied they must treat all transactions and all customers the same. I’m no longer a Wells Fargo customer.
The same sort of transaction sorting practices are occurring at Chase. I was just a victim of this today as a matter of fact. I had two transactions that the funds were available for that were pending for three days. Then, literally one minute before my direct deposit hit, they posted a third transaction to overdraft my account (which never showed as pending) and then debited the transactions that had been pending for three days creating three overdraft fees of $32 each. Conveniently, company policy only allows them to refund two of the overdraft fees. In essence they milked $32 out of us for sorting the transactions to their benefit.
My 26 year old son is no longer a WFB customer either. He deposited his paycheck 20 minutes too late at the ATM. During that day he had made 10 transactions that totaled $46. He was Fined $390 for overdrafts (about 12 months ago). He went to the bank to beg for relief and got none. The told him not to let the door hit him in the a$$ on the way out. I’m glad the new laws prohibit this.