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Usually the more a customer pays, the more service or product is purchased. Not so with opportunistic banks who psych out clients with computerized fee traps.
As the mortgage crisis heightens and bank profits tumble, bank attempts to get non-service based fees have increased to nearly fraudulent proportions and the Federal Reserve is questioning these practices.
Banks Charge from When the Slip Is Signed
Now an overdraft fee can be charged before the transaction overdraws the account. This is a current practice of Bank of America, TD Banknorth and SunTrust.
Here’s how it works: Someone stops at the mall on the way home, sees that Penney’s has a two-for-one bargain on tee shirts and buys four, paying with a debit card. Thinking that may overdraw the account, the customer swings by the bank and makes a $100.00 deposit.
These three banks—and others—have computer programs that noticed insufficient funds when the purchase was signed for. That’s an automatic overdraft. Once upon a banking time, customers didn't get charged unless they were short when the signature debit transaction cleared a few days later.
Largest Purchase Debited First
Banks also manipulate customer funds by the order in which they process debits and credits. The bank computer looks at the day's transactions and sees the client made purchases totaling $99.00. A $100.00 deposit was made. The balance before these transactions was $75.00.
Watch these numbers: Spending power appears to be $175.00. Six purchases were made. The biggest is $76.00. There were five totaling $23.00.
First, all debits are charged before the credit (deposit) is processed. The $76.00 is first charged against the account, putting it in overdraft. The other five purchases wouldn’t have put it into overdraft so were processed last; each carries an overdraft charge.
There was enough money to pay the five purchases under $75.00 and the deposit (processed last) covered everything. Yet, there were six overdraft charges totaling $180.00. Uh-oh, the $100.00 deposit doesn’t cover them and now it’s overload mode. A $99.00 trip to WalMart is a $279.00 nightmare..
JPMorgan Chase is among banks that change the order of purchases so large debts get paid first, increasing the likelihood of incurring fees on smaller purchases.
The Federal Reserve has proposed giving customers the right to demand that banks deny transactions that overdraw their account. The Fed is also looking at banks processing transactions from high-to-low dollar amounts.
Online Account Balances Not Accurate
A disturbing revelation is that online account balances often aren't accurate. With electronic transfers, ATMs, check cards, holds on accounts from hotel and rental car reservations, etc., banking is more complicated than banks expect customers to understand. Banks also sit on check deposits while the computer orders overdraft fees. The message? Don’t trust an online balance. It’s a moving target for your “financial partner”.
In 2007, banks collected a record $45.6 billion in overdraft fees, up 50% from 2001.
If the supermarket charged extra money when you didn’t buy more groceries you would be furious. The one-armed bandit used to be the casino slot machine. Now it is the bank!
SOURCES: Center for Responsible Lending; Center for Consumer Financial Services, Rochester Institute of Technology; Moebs Services, a Lake Bluff, IL consulting firm (selected by Federal Reserve and Congress to provide data for the Annual Report on Retail Services and Fees); Federal Reserve Proposal (Federal Register, Vol. 73, No. 97, Monday, May 19, 2008, Proposed Rules)
The copyright of the article Banks Use Overdraft Fees to Fleece Customers in Consumer Education is owned by Rosemary E. Bachelor. Permission to republish Banks Use Overdraft Fees to Fleece Customers in print or online must be granted by the author in writing.
Comments
Aug 15, 2008 7:15 PM
Guest :
Everything may not be as it appears. I work at a bank, and some folks seem
to think that the bank is a free loan company, blatantly spending money
they do not have, and expecting the bank to pick up the tab. Per the
grocery store scenario, try going to the grocery store and walking out
without paying. That won't happen. It happens every day at the bank.
Thousands of accounts get "force-closed" with the customers owing
banks hundreds of dollars.
Regarding the "sitting on
deposited checks," unfortunately many deposited checks are not worth
the paper they are written on. When a check is not good, yes...the bank
loses...but so does the unwary customer who has naievely cashed a bad
check, and spent the money. Banks make funds available for use by the
customer prior to the actual transfer having been made from the bank the
check was written on to the bank. This is required by law. The bank I work
for makes funds available in one to two business days, although the law
does allow a 5 day hold.
The "Nigerian Scam," which
is one of countless scams where folks are told they won a lottery, or sold
their car or diamond ring or such, are sent bogus "cashier's
checks" seemingly written on major financial institutions. The folks
are told, "Deposit this check, and when it clears (assumption that
customer will think "becomes available" is "cleared")
then send a portion to another party." In the end the victims include
the bank and the customer. Holds are legal and prudent. They protect the
customer and the bank.
As far as the accuracy of online bank
account information, the time lapse between when the customer makes a
purchase and the time it hits their account is determined by the merchant.
"Check Card" purchases can take several days to be submitted for
payment, while pin-based purchases post immediately. Recourse holds are
placed on accounts if a customer purchases a high risk item like jewelry or
liquor...common purchases of credit card theft and fraud, or when they cash
as check at the ban.
Regarding largest purchases posted first.
Typically a customer would prefer that their mortgage, car or insurance
payment would be paid rather than returned. Often that would be the case if
the smaller items posted first. More importantly...if you don't have the
money don't spend it and you will have no fears about fees.
People incur fees because they spend money before they have it. They fail
to keep records of their spending.
Aug 19, 2008 9:34 AM
Guest :
does anyone know of any mass action suits that are or may be resulting from
these practices?
Aug 20, 2008 6:38 PM
Laura Harrison McBride :
Thank you! We have overdraft coverage, so we don't get socked with
fees--directly. However, the overdraft is linked to our home equity credit
line, so, in effect, we are getting socked although at a somewhat lower
rate. It didn't used to be so: I could buy $202 worth of goods before three
p.m., transfer the funds from our larger account before 9 p.m. online, and
all was fine. About six months ago, that changed, and they are now dumping
funds from overdraft into our account when, apparently, anything pings the
accounts. It is very annoying, and I totally hate the rapacious banks over
it. But then I remember that we now live in the era of No Millionaire Left
Behind, and I can just year hopelessly for a time when every American was
not a serf in training.
Aug 20, 2008 6:43 PM
Guest :
I agree the banks are ripping consumers off, but why can't people live
within their means?
Aug 21, 2008 1:43 PM
Guest :
Banks are crooks.
Insurance companies are crooks.
Politicians are crooks.
All work together to steal value from
the unwary.
Those are the facts.
Oct 3, 2008 11:49 PM
Guest :
In regards to the so called Online Account Balances. These accounts are
placed for good reason, to get unsuspecting or unorganized peoples money,
plain and simple. They say they do this as a courtesy to their clients but
in fact it is a simple way to scam the masses thru a fraudulent misleading
accounting trap! If it is not 100% accurate why even have it? To scam you
that’s why. Allow me to explain:
1. People that keep poor records,
have a great deal of debit charges or who just aren’t very educated, trust
the banks online accounting system, why you say, because it comes from the
bank that’s why.
2. These same people usually do not understand
banking policies or how they hold monies after a debit purchase or don’t
realize the merchant or banks will hold monies in different amounts than
the original purchase price, giving you a false sense of having more money
in your account than expected. Example just the other day I filled up my
gas tank, costing $44.00 on debit, 2 days after the charge the banks online
accounting was showing a $1 charge and showing me a larger than expected
available balance therefore creating an allusion that that charge was paid
in full and I had more money to spend. Now if I was one of these many
unsuspecting people I would have spent more money than I had and then would
have incurred a overdraft charge, all because it showed that that merchant
was paid. (this was a bit extreme in the amount but they mainly do it in
small unsuspecting amounts creating a wealth of charges of what looks to be
paid but were not paid in full therefore creating an allusion of more money
in your account then you really have )
Now I would like to make a
point that most people that go over their balances go over it by a few
pennies to a few 100 and usually not purposely and the banks are making
billions off of this, case and point, banks made an astounding 45.6 Billion
in 2007 yes that’s Billion, this is just in overdraft fees alone and is up
50% from 2001. Hmm I think that maybe this online accounting stuff is
working for them, don’t you. Don’t trust these thieves and for the ones
that work at banks and are blogging about how the banks are justified to
charge you these outrageous fees that they help create, you need to look in
the mirror and say I AM A THIEF and then tell your friends and family how
you STEAL from your fellow brothers and sisters.
I hope this helps
you realize that these services they provide are nothing but complicated
traps to take your unsuspecting butts money!!!
Tony D.
Oct 3, 2008 11:51 PM
Guest :
In regards to the so called Online Account Balances. These accounts are
placed for good reason, to get unsuspecting or unorganized peoples money,
plain and simple. They say they do this as a courtesy to their clients but
in fact it is a simple way to scam the masses thru a fraudulent misleading
accounting trap! If it is not 100% accurate why even have it? To scam you
that’s why. Allow me to explain:
1. People that keep poor records,
have a great deal of debit charges or who just aren’t very educated, trust
the banks online accounting system, why you say, because it comes from the
bank that’s why.
2. These same people usually do not understand
banking policies or how they hold monies after a debit purchase or don’t
realize the merchant or banks will hold monies in different amounts than
the original purchase price, giving you a false sense of having more money
in your account than expected. Example just the other day I filled up my
gas tank, costing $44.00 on debit, 2 days after the charge the banks online
accounting was showing a $1 charge and showing me a larger than expected
available balance therefore creating an allusion that that charge was paid
in full and I had more money to spend. Now if I was one of these many
unsuspecting people I would have spent more money than I had and then would
have incurred a overdraft charge, all because it showed that that merchant
was paid. (this was a bit extreme in the amount but they mainly do it in
small unsuspecting amounts creating a wealth of charges of what looks to be
paid but were not paid in full therefore creating an allusion of more money
in your account then you really have )
Now I would like to make a
point that most people that go over their balances go over it by a few
pennies to a few 100 and usually not purposely and the banks are making
billions off of this, case and point, banks made an astounding 45.6 Billion
in 2007 yes that’s Billion, this is just in overdraft fees alone and is up
50% from 2001. Hmm I think that maybe this online accounting stuff is
working for them, don’t you. Don’t trust these thieves and for the ones
that work at banks and are blogging about how the banks are justified to
charge you these outrageous fees that they help create, you need to look in
the mirror and say I AM A THIEF and then tell your friends and family how
you STEAL from your fellow brothers and sisters.
I hope this helps
you realize that these services they provide are nothing but complicated
traps to take your unsuspecting butts money!!!
Tony D.
Nov 5, 2008 9:36 PM
Guest :
Directed to the "Guest" that posted on August 15th. Thanks you
for such a clear waste of time telling us the policies of a bank that we
all have known since we were in pre school. Wow how surprising a bank
employee justify the wrong doings of a bank.
You obviously only read
the title of the article in question. This article is not to fight the fact
that banks have policies to protect the merchants nor customers, it is an
article on how the banks pick and choose how they use their policies (1)
mis-inform the customer purposely and (2) Arrange their accounting to raise
the likely hood of someone getting an overdraft fee.
Yes there are
criminals and irresponsible people in the world. The article if you would
have read or understood it explained how banks are adjusting their
accounting to their advantage. In the past banks were very predictable and
if you cannot agree with that then you are hiding what the banks are.
Everything from deposits to transactions were uniform. There were rules to
follow. I have never been so confused with my account as I have been within
the last year. I do everything the same as I did however now. Deposits I
make that use to clear in one business day might possibly clear in 3 days.
Same check, same account, same everything. However in the case of it taking
3 days it just so happens some purchases I made off of that deposit went
through SAME DAY and forced a few overdrafts. Only these 3 purchases out
of 20 went through in one business day. How convenient !!!! The next week,
when my account is full of funds everything is back to normal my check has
been deposited within 24 hours and all transactions take 2-3 days to clear.
To me this is fraud and not working to support the people that loan them
money to make them rich. I have felt the change, friends have felt the
change, multiple websites and forums are talking about the same exact
scenarios and you think it is the simple fact that everyone has become more
irresponsible and less intelligent. You are blind, too trusting of your
employers or a part of the problem. Either way hop on to a 1000's of
websites and people saying the exact same thing and go write a story on how
all of them are wrong and banks are soooooooooo responsible. Oh by the way
tell your boss's boss....thanks for the help in the great economy in
America and enjoy his smokin good trip to the Bahamas. Ive spoken to clerks
just like you and when I bring up these points they say oh well thats the
way the balls rolls.
Feb 9, 2009 1:07 AM
Guest :
Banks who get accused of manipulating transactions in order to fleece
customers try to use the "consumer responsibility" defense for
their actions. Like it or not the bank is invoved.
Most banks
use batch processing of checks and should simply order batched items
according to check number. Customers write checks in the order in which
they have chosen and deemed important. The bank has no business interfering
with consumer choices, in this case re-ordering checks in order to generate
more overdrafts and therefore profits.
The "computerized
traps" result from the use of sophisticated transaction processing
software, what the bank calls "transactional information systems"
and "transaction management." These automated procedures use
delayed updates, virtual databases, concurrent counters, etc., similar to
programs used for tracking inventory, scheduling, and reservations. These
features "sniff out" the timing and amount opportunities. The
innacurate balance information could be avoided but rather is a result of
delayed updates which give the bank's program time to re-order transactions
using the virtual databases until the most profitable or
"optimal" combination is found. Using concurrent counters of
credits (deposits) and debits this can even lead to an overdraft before it
actually occurs.
Feb 9, 2009 1:08 AM
Guest :
Banks who get accused of manipulating transactions in order to fleece
customers try to use the "consumer responsibility" defense for
their actions. Like it or not the bank is invoved.
Most banks
use batch processing of checks and should simply order batched items
according to check number. Customers write checks in the order in which
they have chosen and deemed important. The bank has no business interfering
with consumer choices, in this case re-ordering checks in order to generate
more overdrafts and therefore profits.
The "computerized
traps" result from the use of sophisticated transaction processing
software, what the bank calls "transactional information systems"
and "transaction management." These automated procedures use
delayed updates, virtual databases, concurrent counters, etc., similar to
programs used for tracking inventory, scheduling, and reservations. These
features "sniff out" the timing and amount opportunities. The
innacurate balance information could be avoided but rather is a result of
delayed updates which give the bank's program time to re-order transactions
using the virtual databases until the most profitable or
"optimal" combination is found. Using concurrent counters of
credits (deposits) and debits this can even lead to an overdraft before it
actually occurs.
Mar 26, 2009 8:01 PM
Guest :
i work at boa, and I hate them I do think they are evil and hope this
regulation passes. I doubt the lobbyist would let that happen. Were
talking billions of dollars the bank would loose. . One thing I dont
understand tho, is online balance not being accurate is completly false.
They are accurate. It is a calcualator actually that takes what is in your
account, minus what is pending wala! you get an available balance. If
something is not pending or holding for a different ammount that is in no
way the banks fault. Thats the truth. But aside from that Burn em down!
Jun 22, 2009 11:17 AM
Guest :
Banks are slowly becoming the thief, I agree. My bank routinely sits on
checks or credit transactions sometimes for weeks after the transaction has
been approved and the money given to the vendor. I am furious! If I trust
my bank, I lose $100s of dollars in overdraft charges every other month. It
has come to the point that I refuse to use my debit/credit, and only use
cash unless its for a specific bill I can track. Right now I am sitting on
a check that was confirmed over two weeks ago by my creditor (made them
check the date it was cashed even) but the bank will not post it! It is
ridiculous! When I make a transaction I expect in good faith that my
balance recorded is as close to accurate as possible. Maybe it appears to
the bank that their account holders are being irresponsible when in reality
the bank computers are programed to make as much money as possible! Don't
blame us for your greed!
WAMU is my bank (becoming Chase) I am
very unhappy with them.
Jul 4, 2009 9:41 AM
Guest :
Online accounts are accurate? Right... This just happened. I bought $18
in gas at a Holiday and it took 4 days to clear (no signature). Well, I
got an overdraft because the lady at the bank told me I had $32 in my
account that day. Sure enough, I spent $22 dollars and BAM that other $18
debit shows up. -$8
That's not the shady part. I saw this online and
kicked myself for getting another stupid otherdraft and the next day that
debit vanished again showing I still had +$8 again... It stayed that way
for 2 more days until I made a $60 deposit. Then they reposted it with the
overdraft fee (seeing as I had deposited enough not to immediately
overdraft again). I know it was showing a positive balance so I would keep
using my card (when I was then really $37 in the hole including
overdraft)so I could be hit with more fees (allowing my card to work when
I'm really in the red). How do transactions convienently all seem to go
through on the same day? And some post and dissappear until a deposit is
made? This is electionic and everthing should be instant, I don't care
what BS excuses the banks make up for why there's a delay, the $65 Billion
speaks for itself.
Jul 8, 2009 3:32 PM
Guest :
When I had opened a Bank of America checking account they told me that ALL
transactions will be posted online first as "pending" then would
be posted the date they had been "swiped" or up to three days
after.They told me that this is the most up-to-date and replaces you having
to do the work of keeping track of your account.
They lied!!
Their was one posting, mind you I know I should have keep the funds in
their for it(Im not stupid), that didnt even show pending or post to my
account until midnight when it had in fact gone through without a
"pending" status or anything that would prompt me to deposit
funds into the account causing 12 overdrafts of transactions that had been
a total value of less than that one transaction.For us small fries it is a
day to day struggle to make ends meet so we spend and go online to balance
our account, deposit funds as needed.Why do they lie and use these loop
holes to rob people that rely on their fair and "honest" banking?
These are not banks, these are thieves.
Jul 17, 2009 8:44 AM
Guest :
I currently deal with M&T Bank. And just like the others listed in this
article, they too are nothing but thieves. My fiance and I both bust our
tails 50-60 hours a week trying to keep a roof over our head and food on
our table, just to see it sucked away by means of bogus fees. In the past
year, we have lost over $1500.00 to these bloodsuckers. Example: Just
today, I argued with them over a $37.00 overdraft fee for a $12.00 meal
with my son at McDonald's. I made the purchase on 7/13. I had $72.00 in the
account. The meal brings it down to $60.00 (this is the info I am looking
at right now on my account summary). The next transaction is my paycheck
direct deposit. The very next charge is the overdraft. When I called to
question the fee, this is what I was told: There were 3 other transactions
reserving money in the account, totaling $62.00 (Two on 7/15 and 1 on
7/16). Even though these transactions occurred 2 and 3 days after the
McDonald's charge, they reserved the funds 1st (remember, before the
McDonald's charge I had $72.00). Therefore, when McDonald's tried to
reserve the $12.00, there was only $10.00 left to reserve, placing that
transaction as insufficient. The thing that makes it worse, is that out of
the 3 transactions totaling $62.00, only 2 have cleared. The largest of the
3, $30.00, still hasn't cleared!! I track my account online several times a
day as we struggle daily to make ends meet. And, at no time whatsoever was
my account in a negative balance! They just concoct ridiculous ways of
hitting you with a fee. Of course, when I asked to have the fee reversed, I
was told that due to the overdraft history of the account, they weren't
able to reverse it. Shocking huh??
Oct 19, 2009 9:06 AM
Guest :
To the so called "bank worker" aka the person in denial that they
are part of a massive scam of hard-working Americans.
What the
bank tells you is not true. You sound like a recording from the Bank of
America customer service rep training manual. The higher ups sit in board
meetings discussing ways to appear to be helping their customers while
maximizing profits to the stockholders delight. They purposely delay
providing information to the online banking to deceive people into thinking
they are managing their money correctly.
Lesson?... don't trust
anybody who is out to make a profit, no matter how genuine they seem. Open
your eyes bank workers of the world. YOU are the problem.
And
by the way, to everyone who says "Why can't people live within their
means?"...
Is it too much to ask for decent business
practices that aren't over-zealous toward massive ($35+) fees? That same
logic is that of the people who vote for minimum mandatory crime sentencing
using the excuse, "Well can't people just obey the law?"
Just wait until you get hit with $300 in fees when you over drafted by
less than $10. Oh ya poor banks, sorry you had to cover those costs for 6
hours before I made the deposit.
Hopefully, all you
unsympathetic people like the bank worker will get attacked by someone on
the street and as you defend yourself find your way into a 72 month minimum
mandatory assault sentence.
Maybe then you'll see things
differently.
16 Comments
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Aug 15, 2008
