Banks Should Stop Inflating Overdraft Charges by Sorting Charges By Amounts By LOWEST First
By
Staten Island, NY Posted: 10/9/2014 1:00:00 AM
What's worse than getting a $35 overdraft fee for a $5 debit card purchase?
Realizing they intentionally rigged their system to make it happen.
Banks are wonderful institutions. They are also a business trying to increase profits. I'm an Entrepreneur, so I'm not against that. What bothers me is that they don't play fair, because they intentionally process your transactions by sorting the highest charges first, to increase the number of overdraft fees..
What's the difference between sorting charges Lowest First vs Highest First?
Two words. BIG DIFFERENCE.
Consider the following premise.
1. Your checking account has $85 when you start your day.
2. You purchase 3 low priced items totalling $42, then charge a $100 item.
Based on the sequence of transactions, the first three transactions were within the account balance, but the 4th transaction was clearly an overdraft. However, banks clear checks at the close of the day, and they don't clear them in the order they were submitted. Most banks sort them first. That's how they increase the number of overdraft fees.
Sorting Highest Charges First
By sorting highest charges first, the highest transaction pushes the account into a negative value sooner, which not only generates a penalty for that transaction, but all the 3 smaller ones that follow it. The bottom line ALL FOUR transactions generate a fee.
Sorting Lowest Charges First
If banks sorted the lowest charges first, the smaller transactions clear within the balance and only the final transaction triggers a fee.
How do they get away with that?
The truth is, most people don't even know about this, so there isn't enough pressure on banks to be more honest. That's why I'm making this my Idea Of The Day. If enough people talk about it, perhaps we can pressure the banks and bank regulators to change the system.
The majority of banks still do this, but some don't. Check with your bank. Consider changing banks if they are still sorting highest first. That's the best way to send a message.
In my opinion, every bank should go out of it's way to protect and grow their customers money, even if that means losing out on easy money by changing the way they sort charges. In the long run, as people realize there are other banks that don't re-order their transactions high to low, they will lose customers.
Even if they don't sort low to high, but simply processes charges in the order they were submitted, that would at least be fair. What bothers me is when a bank intentionally sorts them specifically to beef up their fees.
It's even easier for banks to milk their customers. I've seen banks drain even more penalties by processing pending deposits after posting charges, so an account actually hits a negative balance (generating fees), simply because the pending deposits were done last. Aren't banks swell?
Looking for more information? Looking for a bank that's NOT sorting highest first? Check out these links.
The Consumerist: Bank America Stops Overdraft Friendly Practice of Re-Ordering From High to Low
Forbes: Yes. Banks are reordering your transactions and charging overdraft fees
CBS News: Nearly half of banks still reorder checks boosting overdraft fees
NY Times: Customers Can Lose When Banks Shuffle Payments
Time Magazine: The Real Lesson Behind Excessive Overdraft Fees
Joe Crescenzi, Founder
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