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The overdraft fee shuffle

By Marcie Geffner · Bankrate.com
Thursday, August 19, 2010
Posted: 10 am ET

It's a policy banks love and bank customers hate: That is, the big banks' universal practice of jumping the largest checks, debit-card transactions and ATM withdrawals to the front of the processing queue, even if other smaller transactions occurred earlier in time.

Banks say this reshuffling ensures that customers' largest, and thus presumably most important, payments, such as rent checks, get first priority.

That may be true, but it's also the case that this reshuffling generates more overdraft fees on customers' accounts. If smaller transactions are processed first and an account is depleted, only one larger transaction would generate a fee. But if the one large transaction depletes the funds, overdraft fees of $20, $25 or $35 are multiplied by all the smaller transactions processed later. That way, the fees can total $100 or more.

A federal judge recently hit one large bank with an order to refund $200 million of overdraft fees to customers. The bank intends to appeal the ruling.

Banks may be excused for their greedy policies as they are, after all, in business to make money. And yet, customers likewise may be excused for their strenuous objections.

Because the real problem isn't the policy, but rather that customers aren't given fair, proper, reasonable and understandable disclosures of how the reshuffling works, so they can protect themselves from the negative consequences.

If customers received such disclosures, they'd be able to manage their accounts to avoid these fees. But because the disclosures are buried in pages of small-print legalize, customers are at a great disadvantage. Of course, fair disclosures would defeat the banks' purposes, a fact that seems to give the lie to their argument about customers' own priorities being the rationale for these policies.

All of which suggests two questions: Wouldn't customers rather prioritize their own transactions instead of having the bank paternalistically do it for them? And if that's the case, what reason -- other than the bountiful fees -- would the banks have not to give their customers that control?

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7 Comments
Marcie Geffner
September 07, 2010 at 9:43 pm

While everyone's situation is different, Diana's point is a good one: That many people can "vote with their money" as to where they want to do business. That's a good reminder, even though the switching costs of changing to a different bank or credit union can be a hassle. Thanks, everyone, for your great comments.

Diana
September 01, 2010 at 1:34 pm

I had deposit my check via cash machine. I had plenty of money in my account. I received three overdrafts in amount of $37.00 each. I spoke to the bank manager she explained that $100.00 is given right away and rest was pending for the next business day. She said if their isn't enough money in cash reserve to cover the checks then the charges would be added. I had made a large payment and had a large deposit and was cleared. It was the large payment they said came in later. Bull! it was online instantaneously EFT. Even today looking at the order of things, no negative balance was showing. The bank manager said she would take them off of my account, so far that is not the case. I have a simple plan in these hard time with greedy companies. My plan is to go to a credit union and close my account I have had since before it became Key Bank. I have been with that bank for over 25 years. I have done this with many business, Verizon,Direct TV, and down to a Dr. office. After reading the news where the CEO increase pay and business lays off 8,000 to be that is wrong. I stand to not do business with anyone that greedy. Since I am on my soap box, and any business where a worker should be is replaced by a machine, I will take a line where a person is working.

Jack
August 30, 2010 at 2:30 pm

You shuoldn't spend money that you don't have. If an emergency comes up you should have savings or at the very least a credit card to pay for a car battery.

I think there is a VERY small portion of people who can't do the above. I have seen homeless people with cell phones...

Annie
August 29, 2010 at 4:32 am

The thing is though that same bank can help a person if they do not have the funds to make it to pay day by paying for the items and then they do not have to pay the returned check fee. They would only have to pay the bank fee. This would halt you being taken off of the bad guy list not ever being able to use your bank card there again. What if your car battery died and you could not borrow the money from anyone? You need your car to get to work and lost wages are worse than that fee. What if you had no sick days left if they are paid? In some rural areas there is little or no bus service. There are too many people in jail that we are all paying for things like this. This fee saves money in the long run. Some people are frugal but in this economy they are not making the wages of yesterday. Life is not always fair so, this is helpful. It costs us more in taxes to put these people in prison for this. That fee is much less.

Jack
August 27, 2010 at 2:11 pm

Most states have rules over reshuffling already.

Mustbee
August 24, 2010 at 10:30 pm

Indeed, we as consumers are not helpless in the face of this situation. The Bank will give a fee in accordance with their policy, which is most harmful to consumers.

asle
August 24, 2010 at 5:28 am

This is very genuine thing described in a article about the bank about overdraft fee and all things.