The Pew Charitable Trusts released an interactive tool today to show how banks work to hit consumers with more overdraft fees than normal. Even in the wake of class action lawsuits over the practice, many banks continue.
The Pew Trust, following up on research conducted in the fall of 2010, released an interactive graphic today called “Transaction Infraction” that demonstrates how your bank might be manipulating the order in which they process your debit transactions in order to raise the number of times they can charge overdraft fees. As banks become more concerned about keeping their business models profitable in the wake of the Durbin Amendment, it’s worth examining other ways that your bank might try to raise revenue off of your account through other fees.
Toggle between the two debit transaction records below to see the problem:
This was pulled from Gutierrez v. Wells Fargo Bank, a 2007 lawsuit against the bank for this very practice: debiting customers’ accounts in non-chronological order, instead processing transactions from high to low in order to increase the number of overdraft fees that customers incur should they overdraft their account.
Ms. Gutierrez, you see, should have only bounced that last $65 check, but because the bank let that clear along with her other larger transactions. And then, they processed the many smaller transactions that she made afterwards, and they were able to hit her with four overdraft fees instead of one.
It might be hard to conceive of a plausible explanation that banks might have come up with to defend this practice. And indeed, banks haven’t done that well for themselves. Ardie Hollifield from The Pew Center, who spoke with MyBankTracker about the report, said that banks make the dubious claim that they are do customers a favor with this practice; larger purchases are more important than smaller ones, typically, and banks are merely helping more important purchases clear first because most customers prioritize them, too — the overdrafts are a side effect of this helpful policy, in this thinking.
This is difficult to believe, said Hollifield, because banks invest in special software just to make this ordering a reality. Do banks make complex systems upgrades based around other perceived customer preferences — ones that they have no stated financial interest in?
Starting early this year, a few big banks stopped this practice for most debit transactions — specifically Chase, Citibank, HSBC, and Wells Fargo. Wells Fargo was ordered to do so by the decision in the Gutierrez case, and others updated their policies around the same time.
But many other banks continue the practice, and for those who have not opted out of overdraft protection, it poses a serious financial risk to the banking system’s most vulnerable customers.
Pew is calling for the newly minted Consumer Financial Protection Bureau to stop this non-chronological ordering of debits and credits. They are also asking for a one-0page fee and term disclosure form for checking accounts, much like banks issue for credit cards — and similar to the one that Senator Durbin proposed recently.