Mon 17 Aug 2009
Who’s to blame for overdraft charges?
Posted by lizweston under Banking, Q&A with Liz
[3] Comments
Dear Liz: I did not like your answer to the person who was hit by overdraft charges. You blamed the lower-income banking customer for the bank’s policy of using the larger overdraft to create her subsequent multiple overdrafts and thus take more money from her.
It’s the bank’s anti-customer policy that is in error here, not the person living paycheck to paycheck. Your answer should have started out by telling the customer to find a new bank, rather than essentially defend the bank’s policy. Your final 4 words in that answer — “take your business elsewhere” — just doesn’t give the rest of your answer credibility. I am disappointed enough to write you.
Answer: There’s no question banks aren’t being consumer friendly when they deliberately process the largest transactions first to increase the chances that subsequent transactions will bounce and generate more fees.
There’s also no question that low-income folks and seniors on fixed incomes pay a disproportionate share of these fees.
But the person living paycheck to paycheck isn’t a powerless victim. She can sign up for true overdraft protection instead of “courtesy overdraft” or “bounce protection,” and set up a balance-monitoring system that alerts her when her funds are low. (Most banks offer email or text alerts, or she can simply call in to check her balance frequently.)
Most importantly, she can take steps to change the way she handles money so that she’s no longer living paycheck to paycheck and instead has a cushion in the bank. If she doesn’t understand how to do that, there are a wealth of Web sites and blogs written by people who once lived paycheck-to-paycheck and have since figured out a better way. Two good blogs to start with are The Simple Dollar and Get Rich Slowly.
Dear Liz: This is in response to the column about outrageous bank overdraft fees. The customer who got stiffed should have gone into the bank in person and “pitched a fit.” A similar thing happened to my daughter when she went away to college. I went into the branch to complain and was pretty riled up with my voice escalating in outrage. They took care of the fees very quickly and set up a better overdraft system for her as you said to do. They did not want a shrieking woman in front of the other customers.
Answer: That bank was smart to take care of a mama bear defending her cub. Unfortunately, most banks that inflict “bounce protection” on their unwitting customers are used to hearing, and dismissing, protests over the outrageous fees that result.
I find that the best way to avoid overdraft fees is to not overdraw your account. Yes. Banks are evil, but we can’t blame them 100% for our financial messes. We must exercise a certain level of personal responsibility.
Liz – I’m glad you’re unwavering in your position that we aren’t “powerless victims.”
As someone who has worked in customer service for a major bank for a number of years, I would like to clear up misconceptions that both you and your readers have about overdraft fees. First of all, banks do NOT process the largest transactions first in order to make an account go negative so they can charge more overdraft fees. This is highly illegal, and violates government regulations. Here’s how it works… if multiple checks come in on an account at the same time, they are paid in numeric order–which is the order in which the customer wrote them. Debit card and ATM transactions are deducted on the spot in real time. When using a debit card as a charge card, it can take up to five business days for the bank to receive the reconciliation from the merchant. When these charges present for payment, they are paid in the date and time order they are submitted by the merchant, not by the amount of the charge.
The basic problem is that customers try to play the “float.” They write checks or make transactions before they have the funds to cover the items. When that happens, the bank will pay the item, and charge a fee for the service. What it boils down to is irresponsibility on the part of the customer. In my experience, 99% of the customers I speak with keep no written record of the transactions made with their debit cards, keep no track of when automatic payments were due to be deducted, and believed that if they saw $200 in their account when checking online, that it meant they had $200 to spend, when in fact there were outstanding checks and transactions on their way in to debit against those funds. So they spend what they “think” they have, and then get caught short, and get charged fees.
Your suggestion that customers should get “true overdraft protection” is not an educated one. What you’re talking about is a personal line of credit that will transfer funds into an account to cover a shortage. Most customers can’t qualify for this type of coverage because it is a loan, and requires a credit check.
I have lived paycheck to paycheck my entire adult working life, and have NEVER bounced a check. Even when I didn’t have more than five cents in my checking account. How? I didn’t write checks when the funds weren’t there. EVEN if I KNEW there was a deposit coming in a couple of days, I NEVER WROTE A CHECK FOR WHICH THERE WEREN’T FUNDS IN THE ACCOUNT.
It’s not only responsible, it’s the law. It’s illegal to write a check when there are no funds in your account at that very moment to cover it. Also, please note: DON’T POST DATE CHECKS thinking the bank won’t cash them, because they will. The bank is not obligated to not pay an item because of the date written on it. A post-dated check is an agreement between the person who wrote the check and the person receiving it. If the person receiving decides they want to cash the check before the date written on it, the bank will let them. If there aren’t funds in the account when the check arrives for payment, it will be returned, and the customer will be charged. Oddly, people make up their own rules for how they think their bank should work, and don’t take time to find out how a bank really operates. Banks have never NOT paid a check because it was post-dated, unless they did so where a human intervened and made the decision to do so.
So the REAL solution is to keep a written record of EVERY transaction on your account. You go to 7-11 and buy a slurpy with your debit card? WRITE IT DOWN IN YOUR CHECKBOOK. You authorize a transaction for your car payment that comes out once a month? DEDUCT IT NOW, so you know the money is accounted for. It boils down to simple math. Addition and subtraction. People just aren’t doing it, and they blame the banks for it when they get caught and incur a fee.
The most ACCURATE BALANCE of what’s in your checking account should be the daily total in your check register. NOT the receipt from the ATM, not the balance the bank gives you when you call, NOT the balance that shows online. If customers took this responsibility for themselves, they would NEVER again have an overdraft fee.
Please, do not continue to perpetuate the myth that banks manipulate customer’s transactions to maximize fees. It’s not true. The customers are doing it to themselves.
Also, to the woman who wrote and said the best way to get fees reversed is to “pitch a fit” in the bank. Sorry, that doesn’t work. Bank managers are empowered to close a customer’s account if they cause a scene in the bank, or are verbally or physically abusive to bank staff or other customers. Believe me, having a customer yell because they’ve been charged an overdraft fee is nothing new, and customer service personnel are trained to let people vent, and then let them know there’s nothing that will be done if it’s not a bank error. If the customer’s keep yelling and arguing with the bank, the bank will simply close the account. Believe me, the bank has enough responsible customers that it doesn’t need to put up with the childish behavior of those who can’t add and subtract.
Finally, the bank is not the enemy. You can have a wonderful business relationship with your bank if you take time to READ the rules that govern the account (yes, that 200 page booklet of small print), and if you play by the rules. It’s pretty simple. Most banks are exactly the same. There are millions of customers who NEVER bounce checks. There must be a reason why.
I get my information from the banks themselves. Many major banks say they process transactions from largest to smallest, not by check number or in the order the transactions come in. They say they do it to make sure that “major” checks, such as for rent or mortgage payments, have a better likelihood of clearing. The fact that it generates more fees is just a byproduct. So they say.
There is nothing illegal or against federal regulations about processing transactions this way. Consumer Federation of America and Consumer Action have considerable research on the practice, if you’d like to check out their Web sites.
As for true overdraft, over half of American adults have FICO scores over 700, which is typically good enough to qualify for a line of credit.