Banks’ accounting boosts overdraft fees
A consumer research group is calling out banks for continuing to employ what it says is a deceptive accounting practice that can greatly increase the number of overdraft fees a customer may be charged.
The Pew Charitable Trusts in a report issued this week said that bank customers are still getting socked with additional overdraft fees, despite the passage of recent federal financial reforms and a slew of class-action lawsuits targeting some of the nation’s biggest lenders.
Critics say banks can manipulate the order in which they tally customer debits and withdrawals, effectively causing the account holder to trip the overdraft-protection fee multiple times.
Instead of processing transactions from checks, debit cards and ATMs in the chronological order in which they occurred, many banks reorder them from highest to lowest. Banks also post withdrawals before deposits. According to Pew’s research, this reduces the funds in the account more quickly, and maximizes the number of overdraft penalties customers will be charged.
“The burden here should not be on the consumer, if the bank is reordering transactions in this way,” said Ardie Hollifield, a project manager at Pew. “This necessarily will create more overdraft charges. It’s inherently unfair.”
With retail’s Black Friday and Cyber Monday right around the corner, the group warned holiday shoppers to be careful.
“The question first is, ‘Does my bank do this?’ ” Ms. Hollifield said. “It’s an issue of keeping very, very clear and close track of your transactions.”
Banks have gotten in trouble for these practices, but no policy has explicitly made the practice illegal.
Financial giant Wells Fargo last year lost a case in California where it was ordered to change its practice in the state and refund $203 million to customers.
Bank of America this month also agreed to pay a $410 million settlement in a related case.
Some banks have stopped this practice. Wells Fargo, Citibank, JPMorgan Chase and HSBC have all announced they will no longer alter the transaction order in a bid to maximize fees. While an October 2010 study found that virtually all banks once engaged in the practice, a more recent look found many have now dropped the practice.
Yet many banks still reorder transactions, and even those who have stopped say they reserve the right to revive the policy if conditions warrant.
“They always have the ability to go back again and start reordering,” Ms. Hollifield pointed out. “They leave themselves that ability. So, for us, that’s concerning.”
The group has asked the Consumer Finance Protection Bureau, created under President Obama’s 2010 financial regulatory overhaul law, to issue a policy to curb this practice.
“We’ve certainly drawn this to their attention,” Ms. Hollifield said, adding there’s no timeline for approval.
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