Dear Dr. Don,
OK, I just read your answer to Carol about the bank overdraft fees. I agree that the banks have the right to detour customers from spending money they don't have. But the money in the account is MINE, and it is not in my best interest to clear checks from greatest to least.
Under the current system, I could overdraft my account by $7 and have it cost me up to $100 in fees. I've actually been charged $34 in fees for a $1.50 overdraft. If the bank cleared items from smallest to largest, instead of paying $100 in fees, I might get to keep my $100. Don't I have the right to make the most of my money that is in the bank?
I say the money I have in my account should be used to pay the greatest number of items possible. It is only, and I mean only, the banks profiting on someone's mistake. Yes, I might have made a mistake, but it takes no more time or man hours to clear items lowest to highest. There should be a federal regulation on that!
-- Roiled Rhonda
I wrote my reply, "Are banks' overdraft fees unfair?" to Concerned Carol back in August 2006, but my point of view hasn't changed. The best way to make sure you aren't paying overdraft fees is to avoid overdrafting your account.
If you're managing money so closely that you overspend your account, you need to break the cycle of living paycheck to paycheck and start building a cushion in the account. Alternately, you should arrange with your bank for some form of overdraft protection, whether it's a savings account or credit agreement tied to the account.
Banks have argued that they put the bigger payments first because it's the bigger payments that are most likely to have credit implications if they aren't paid. Missing a mortgage payment, car payment or credit card payment can have repercussions on your credit score. Missed payments also can potentially impact the interest rate on your credit cards.
If it were put to a vote, I'd guess that most bank customers would prefer to have the order continue to be largest to smallest.
You have an obligation to have good funds in the account to cover the payment when it is presented to the bank, whether it's $1.50 or $1,500. Kvetching about how the bank should do handsprings to save you these fees misses the point. With all due respect, I won't be signing your petition for a change in banking regulation.
I do think that technology has advanced enough that checking account customers should have a choice whether payments are presented lowest to highest or highest to lowest, then you could select your preference and live with the result. Meanwhile, the Federal Reserve Board publication "Protecting Yourself from Overdraft and Bounced- Check Fees" is recommended reading.
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