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Today, each of the nation's 10 largest banks allows consumers to overdraw with checks, debit cards or at ATMs, a 2009 USA TODAY survey reveals. Large banks also reserve the right to process large transactions first, triggering more overdraft fees by emptying the account more quickly. Some even charge consumers before they overdraw by deducting a purchase when it's made, rather than when it clears, pushing the account into the red sooner.
...the Federal Reserve is examining the fairness of certain overdraft practices.
It's unclear whether those efforts will be enough to rein in overdrafts, now the single-largest driver of consumer fee income for banks. In 2009, banks are expected to reap a record $38.5 billion from overdraft fees, nearly twice the $20.5 billion they stand to collect from credit card penalties such as late and over-limit fees.
Banks say consumers can avoid overdrafts by keeping track of their money. Consumers contend, though, that banks' policies make it challenging to avoid fees.
Eric Halperin of the Center for Responsible Lending says regulators should examine bank overdraft rules because they "parallel" much-criticized card policies. Banks are raising fees and imposing similar policies on checking accounts and credit cards, such as charging more for multiple transgressions. The Federal Deposit Insurance Corp. says if banks cover a $20 purchase and charge a $27 fee, the loan has a 3,520% annual percentage rate (APR) if paid back in two weeks.
Senate Banking Committee Chairman Chris Dodd, D-Conn., said if the Fed doesn't curb overdraft abuses, he'll "pursue legislative action." Rep. Carolyn Maloney, D-N.Y., has sponsored legislation requiring banks to get consumers' permission to cover overdrafts, disclose APRs and pay transactions in a way that doesn't increase fees.
Banks are lobbying heavily against restrictions. Why? "Overdraft fees are the mother lode of (deposit) fees," says Michael Moebs of Moebs Services, an economic research firm. "If it weren't for overdraft fees, 45% of banks and credit unions wouldn't have made money in 2008."
I'd add that every one is doing it, credit unions and big banks - the big banks just make alot more money because, in my experience, some big banks target people most likely to overdraft (ie, lower-income folks.) As in "The 10% of checking accounts with the lowest balances generate about 40% of overdraft revenue, estimates Andrew Dresner, a partner at payment consulting firm Oliver Wyman."
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I also have a friend who is currently loudly yelling at both her bank and her creditors because the bank is, for some reason, bouncing her payments (both written checks and online payments) despite there being more than adequate funds. And her creditors aren't letting her know this until more than a month later, when she gets double-sized bills with a hefty non-payment fee attached.
Because I deal with this problem on an hourly basis, the problem with overdrafts isn't the bank. It's the customers who do not take the time to properly track their expenses and live within their means.
Posting items from highest to lowest is the most effective way of posting because generally the higher items are more important (i.e. rent, car payments, mortgages, etc.). We also post credit/deposit items first THEN debit items. However, those states that require posting in order of transaction amount usually incur MORE fees because the deposits are made after the transactions have been made.
The reality here is that customers are living beyond their means (still) and if they cannot do so, they should close their checking account, operate from a savings account and go cash only.
but i also know that the highest first policy benefits the bank more than the customer. Someone might be able to deal with a bounced rent payment or car payment easier than the 300 to 400 dollar fees that highest first policies generate. I am sure you have seen it where a more deliberate approach to posting order would have saved the customers money immediately. Allowing the customer to decide what is more important is probably the best-customer response (as mentioned in the article as a solution), but it would mean less fees and so I don't think we'll ever see it.
No one should be forced to get in the loop that many customers get into - where one bad judgement causes months of trying feverishly to catch up.
And as the article notes, Banks knew at the time that posting order was decided that a "side effect" would be an increase of fees. What does the report say? That banks make more money from overdraft fees than they do credit fees - it's better to be a bank that has customer's overdraw than it is to be a bank that issues credit.
In the end, it's the customer's responsibility, but institutions matter - they don't create situations, but they take advantage of the situations.
"Fraud alerts" as you may have found out has very little to do with your account. It's Identify Theft Protection and to do with your Social Security Number and Credit Bureau File.
Make sure that the bank files a Reg E claim for each of the offending charges. If they don't, they can get into serious regulatory trouble.
Good luck.
"The reality here is that customers are living beyond their means (still) and if they cannot do so, they should close their checking account, operate from a savings account and go cash only."
That is unrealistic and a complete asshat thing to say. In the State of California, in Los Angeles, Souther California Edison will not accept cash payments for bills and deposits. They also do not accept credit cards. They will only accept checks. To pay over the phone or online, you have to supply the number from a check to set up a payment account attached to your checking account. So, at least in the Greater Los Angeles area, not having a checking account is not an option.
Most of my friends use mainstream banks for thier savings and checking. Many of them belong to Bank of America. Whenver they would have to deposit a pay check, they would not be able to actually access that money for 2 weeks, until that check cleared. Which is hilarious, because the company they worked for, had a business account with Bank of America, and all of thier paychecks came from Bank of America. If any of my friends even spent one penny of that paycheck that was awaiting clearance, they would incur a "overdraft fee". The funny thing is, is that thier account numbers would show that the check had been deposited and would show the additional funds. So, I wonder if someone can explain why that bank did that?
"The notion that we are out to get the poor folk is a fallacy." Then why do banks charge overdraft fees at all? Why do they charge you more then what you over spent? Why delay making funds available from people's paycheck? You know what, you are right, it is a fallacy that banks are out to get the poor folk. Banks are actually out to get everyone.
I liked LaSalle's, mostly because i had to explain it every day, so eventually i learned it. It was consistent, it never changed, and then you can adjust your life to it. But i was lucky to be flexible.
I didnt have to live paycheck to paycheck; it was unlikely that a misspent charge here, a unknown one there, or a misunderstood price here could start the issue.
My problems is not the posting order really - it's the amount of fees and the chain reaction the cause. Because we do live in a debit-card society in that nearly everything needs a checking account or debit card, there are always a myriad of items processing through at any one time. You can spent $30 bucks a day on grocery, or on food. The grocery charge is one time, but the food (starbucks, mcDs, afternoon snack, magazine) are all individual charges.
it's not the amount of money you went over that creates the issue, it's the amount of items that clear afterward. So, even if you are spending within your means, there might be a time when an unexpected item (like a magazine subscription, or a payment that clears a day before you expected) comes through and draws you under, and then the myriad little things come right afterwards. It's very easy to find yourself $150 in fees there. And if you are a paycheck to paycheck consumer, that's not something you can just swallow. Because there are still more items out there, bills that you have automatic that you can't cancel and each one of them is going to get you another $30 more and now what do you do?