Predatory Payment Processing Has Largely Stopped, But Remains Legal

Under pressure from regulators and lawyers, nearly all banks have stopped the predatory practice of reordering debit-card purchases to gouge customers for overdraft fees. But there is no law that prevents banks from starting up again, according to one consumer advocate that's been studying this method.

Earlier this month, Bank of America was ordered to pay $410 million in compensation to consumers for engaging, for 10 years, in transaction reordering -- essentially processing higher-dollar purchases first, causing a cardholder to run through account funds faster and get hit with more overdraft fees.

Pew Charitable Trusts released an interactive graphic (below) this week that illustrates precisely how the reordering works. In the graphic, drawn from the case of Gutierrez vs. Wells Fargo, a consumer was charged $88 in fees because the bank processed the highest dollar value transactions first. If the charges had been processed in chronological order, the overdraft fee would have amounted to only $22.

The Bank of America suit is just one of several pending against banks, including related litigation against Wells Fargo and Citibank. The Federal Deposit Insurance Corporation issued guidance in November 2010 asking banks to "not process transactions in a manner designed to maximize the cost to consumers."

Banks have defended the practice by saying it's a way of clearing the biggest payments first for consumers. And despite the cries of consumer advocates, like Pew, and the numerous lawsuits, some banks were still engaging in the practice in early November when the Bank of America settlement was announced.

Further, there's no law in place to prevent banks from starting the practice again. "They may phase it out today but bring it back tomorrow," said Susan Weinstock, director of the Safe Checking in the Electronic Age project at Pew Charitable Trusts.

Pew is calling for new regulatory measures by the Consumer Financial Protection Agency to explicitly prohibit the practice of reordering debit-card transactions, as well as other ways banks conduct activity -- such as using long, complicated disclosure statements -- in order to maximize their own profits.

Even as banks have backed off high-to-low ordering of transactions, consumers are still on track to pay more than $16 billion in overdraft fees this year.

Comments

[Maya2148]

10:00 PM on 12/13/2011

Chase is still doing it.They are even going back and re-changing the transaction clear dates and recalculating all of my past daily account balances. If you are telling me that a transaction already posted and cleared on a certain day, you should not be allowed to go back in and change those dates again and delete cleared debit transactions only to repost them again after my account approaches the zero mark then claim that all of the transactions were "pending" when my online account activity page did not say "pending" but rather displayed my account balance after each of the cleared debits along with the date the funds were debited. I check my online account activity page and call the automated phone at least once a day and I can say with 101% certainty that this is happening. I withdrew $40 and became perplexed when the ATM said I only had.65 cents left.That's when I went back and saw several charges that had already been posted and cleared magically disappear, that my $100 deposit had been magically and retroactively inserted as being in my account two days earlier, that the completed transaction dates for several recent transactions change, and all of my balances for the past 5 days had all been recalculated to make it look like I emptied my account in a 3 day period. I called all the stores I purchased from and they confirmed this. It's obvious there's a built-in computerized trigger.

[Ed Baker]

04:05 PM on 11/23/2011

The best way to keep a bank from charging you an overdraft fee is.......

DON'T OVERDRAW YOUR ACCOUNT.

[Tom95134]

01:20 PM on 11/23/2011

The fact is that banks have made enough money on overdraft fees for decades. Even when the majority of payments were made by check the bank made enough money on overdraft fees to operate the check processing system and could have even provided customers with free checks.

Overdraft fees are "bonus money" to the banks since they very seldom lose any real money in the process.

[Ed Baker]

04:02 PM on 11/23/2011

Are you sure they don't lose money? Would you volunteer to cover their losses in exchange for them lowering or eliminating the overdraft fees?

Put your money where you mouth is?

Would you pick up the tab for all the staff time OD customers take up - usually one salary per branch..... Perhaps you could pay that bill for them, and they could eliminate the fee?

In our part of the country we have something called "camp rule." When all the men are out at hunting camp, no one wants to be the cook. So, normally lots are drawn for the cook position. The camp rule is anyone who complains about the food or the way the cook is doing his job is automatically made the new cook.

Get your apron on. :)

[djstormx1981]

10:00 PM on 03/25/2012

You don't seem to be understanding this article. Yes, people shouldn't be overdrafting their accounts, but very often it's an oversight, a mistake. What banks had and have been doing is reordering the drafts from the time they actually posted so that the consumer "overdrafts" sooner, and the banks can charge more overdraft fees, further lining their greedy little pockets.

[BBackSoon]

01:02 PM on 11/23/2011

So they have quit this until the public quits looking, again?

[kinogod]

06:46 AM on 11/23/2011

Criminal greed and predatory shame. Since folks that get hit with this are those living on the margin without a float balance, this amounts to stealing from the poor, a practice championed by banks as honest accounting and honest profit making. Occupy continues. Bring em down by transferring your cash to credit unions.

[GloriaY]

01:10 AM on 11/23/2011

One way to stop this practice is to opt out of overdraft protection, write checks instead of using automatic withdrawal, and make the time to walk your payments in to any branch of your bank. This way you control your account and not the bank.

[election2012]

11:58 PM on 11/22/2011

"Bank of America was ordered to pay $410 million in compensation to consumers for engaging, for 10 years, in transaction reordering." Ouch. Try refunding all of those fees instead.

[coffeebeaner]

10:51 PM on 11/22/2011

The big banks have lost the fight. Their fees have placed them out of competition with the smaller community banks and credit unions.

[Olderandwiser55]

03:53 PM on 11/23/2011

I believe you're correct. For now, The Federal Reserve last year established rules barring lenders from automatically charging fees when consumers have insufficient funds for electronic or debit transactions. And the Consumer Protection Agency will make the needed rules. Banks etc will always try to break the rules but if it's clear to consumers-that's the real win.

[cadawa]

07:55 PM on 11/22/2011

Nationalize 'em. They cannot and should not be trusted.
As one of the 3 largest shareholders of the Federal Reserve, they helped manage for the both .com bubble and the housing bubble. In their latest foray, they profited both going up and coming down. They sucked taxpayer handouts and Lord only knows how much their friends at the Fed pushed out to them under the table. (the total tally is in the trillions. They used our money to buy the queen of liar's loans, Countrywide and Merrill Lynch. They are facing lawsuits up the wazoo. Now they are being warned by the 'regulators' that they may not be solvent ('become stronger') In addition to being fundamentally dishonest parasites, it appears they are incompetent.
This is not a business that should be tolerated on American soil.

[builderman55]

07:21 PM on 11/22/2011

Sons of bitches...

[excaderesdesire]

06:44 PM on 11/22/2011

Once I made ten small purchases for a total of $14 and I forgot that one of my checks was on hold. The bank paid them all and charged me $27 x $10 = $270 in overdraft fees in one day!!! And they were the ones putting a hold on my check. The funds cleared the next day to pay almost $300 in overdraft fees. This was B of A bank. I closed my account and told them what they could with it!

[bookreader451]

08:52 AM on 11/23/2011

I once had a 1500 cash deposit appear on Friday and disappear by Tuesday and they hit me with fees. The electronic tape from the branch didn't get to the central office ontime so it became my problem (If I hadn't saved the deposit slip I may have never recovered my money). We closed all three accounts that week and moved everything to our credit union.

[Sooperbohl]

05:50 PM on 11/23/2011

Wells did it to me . I bought a coke once the day before payday. 100 bucks in the bank. Payday the next day and then wham!!! 5 overdraft fees that afternoon. The large corporate banks are crooks. The people who defend them are pretty freakin blind!

[Diabloggical]

06:07 PM on 11/22/2011

Greed has run amok in our country and banks & financial services companies are leading the charge.

The US Supreme Court gave away the right of the states to protect their citizens through usury laws when it allowed national banks to charge everyone the highest rates that were permissible in the bank's home state - causing a mass movement of credit card issuers to states allowing high interest rates (see http://www.bankrate.com/brm/news/cc/20020320a.asp).

Believe me, the banks will only view this overdraft issue as a short term barrier to their ongoing rape of the public's wallets.

[Phed Up]

05:17 PM on 11/22/2011

Who hasn't heard of credit unions or local community banks?

[Ed Baker]

04:56 PM on 11/22/2011

The thought was that consumers would rather bounce that check to Starbucks rather than their rent or mortgage payment....

Personally, I thought it was a bad idea.

It's much easier for EVERYONE - bank staff included, if they post all transactions against the account at midnight, credits before debits.

[J S K]

08:55 AM on 11/23/2011

the thought was they could make addition revenue in overdraft fees, lol, you are one serious bank apologist.

[Ed Baker]

11:11 AM on 11/23/2011

Can a person even agree with you without getting a nasty insulting response?

Good bye.

[Bill Hamlet the Third]

04:54 PM on 11/22/2011

Want to get rid of overdraft fees forever, and without government intervention?

Stop overdrawing your account.

[oldcliche]

05:24 PM on 11/22/2011

As illustrated here, the order of transactions is very important. If they process your debits before you credits, you will overdraft even if you have "enough" money in the account.

"Earlier this month, Bank of America was ordered to pay $410 million in compensation to consumers for engaging, for 10 years, in transaction reordering -- essentially processing higher-dollar purchases first, causing a cardholder to run through account funds faster and get hit with more overdraft fees."

I had this happen two times with Regions bank account. I would make a deposit with the bank prior to a business trip, only to my card charges processed first. I was able to speak with the bank manager to get the charges reserved. The second time the event occurred, I stopped banking with them. It is simply bank policy to maximize the amount of funds they can tap your account for.

[Bill Hamlet the Third]

06:08 PM on 11/22/2011

It doesn't matter the order of transactions if you don t overdraw.

[Olderandwiser55]

03:58 PM on 11/23/2011

Exactly oldcliche-and banks charge fees which overdraw the account. A friend of mine banked with TCF who charged fees, my friend would pay them, close the account-the next day they reopened the acct to charge a fee-he had to call day after day. I can imagine the mess for someone who believed the acct was actually closed when it said closed. The fee was $20 a day. And their (new) fee caused the overdraft!

[Sooperbohl]

05:52 PM on 11/23/2011

Spoken like a true banker there!