Nov 9, 2009 10:38 pm US/Pacific
Call Kurtis Investigates: Overdrawn by Overdrafts
Are Banks Manipulating The Order of Charges To Force Overdrafts?
SACRAMENTO (CBS13) ―
Living week to week and unemployed, Jeff Ledford admits he spent $10 more than he had earlier this year. He calls Bank of America's decision to slap him with five overdraft fees totaling $175 for that ten dollar oversight, "predatory practices."
"It's an unfair business practice. It's manipulation," Ledford said.
Law school student Abby Maurer of Sacramento says she's been hit with 19-overdraft fees since January, forcing her to pay $665 in penalties.
"It makes me so angry," she said. "I think it's immoral."
So what's going on? These customers claim Bank of America is taking several days worth of charges out of order, processing the largest transactions first. As a result, their accounts go in the red sooner, and they get stiffed with the most $35 penalties.
Ledford's $175 in fees mean he was forced to pay 1750% interest for overdrawing his account that $10. He calls it an insult. He and Maurer blame the banks for the bad economy and both are well aware taxpayers gave $45-billion in bailout money to their bank.
'They're covering their bad business decision on the backs of people who can least afford it which are people like me trying to better themselves, and other people in school, and other people struggling to get by," Maurer said.
Call Kurtis has received complaints about all major banks, which are undoubtedly profiting big off these overdraft fees. This year alone, research firm Moebs Services estimates they'll reportedly make $36.7 billion.
Rod Brown with the California Bankers Association says its normal practice for banks to process charges from the largest to smallest. He's quick to point out, there's no law that says they can't. When Kurtis asked him if he could see how the public would think the banking industry is manipulating charges to make the most profit, he said, "No I can't."
"Consumer research indicates that those larger transactions are of greater importance to the consumer," Brown said. "It might be a car payment. It might be a mortgage payment."
But Maurer doesn't buy it. "I think it's a ridiculous argument because it's up to me what are my most important transactions, not up to you," she argued.
I asked Brown, "Shouldn't I, as a consumer, be able to determine which payments are most important first?"
Brown replied, "As a consumer what you can control is the fact you either have money in your account or you don't."
"I think what's most important is truth and honesty," said Ledford.
We shared Ledford and Maurer's story with Congresswoman Doris Matsui, who says these practices are not acceptable. From Capitol Hill, she told me these excessive overdraft fees are outrageous.
"We had to save them from going off the cliff. But now, when we're pretty much steadied, I don't feel it's time for them to come back and make money this way," Congresswoman Matsui said.
After we brought our findings to the Congresswoman, she co-sponsored a bill that would make it illegal for banks to manipulate the order of transactions to rack up extra fees.
It would require them to get consent in writing before enrolling you in their overdraft protection program. It would force ATM's to warn you if you're about to overdraft and limit the number of overdraft fees to six a year. (
Link to text of H.R. 3904)
"This is not the time to be playing games with consumers at all," Congresswoman Matsui told Kurtis from Washington, DC.
Consumers are tired of the games.
"A snag like this, in times like these hurt. They hurt," Ledford said.
These practices are causing some to no longer believe in the banking system.
"I need to withdraw all my money, and keep it under my mattress," said Maurer.
Once we got involved, Bank of America reversed some of Ledford and Maurer's overdrafts. The bank maintains their practices are industry standard and it's clearly outlined in their policies.
BANK OF AMERICA STATEMENT
Bank of America's overdraft procedures are standard in the banking industry. We add deposits and then deduct transactions from a customer's checking account in order of largest dollar amount to smallest. This is done nightly. Banks do this because usually a customer's largest transactions are those most important to their lives - e.G. Mortgage or rent, car payments, insurance premiums or tuition - so those are paid out first, and any smaller charges left without funds to cover are then too paid but charged overdraft protection fees. Again, this process is not exclusive to Bank of America, but is the industry standard.
Customers also need to be mindful of previously authorized items prior to giving a merchant their check cards for additional purchases. In the end, this is about having the funds in your account to cover your purchases. These policies and procedures are provided in writing when customers first receive their check cards, and are readily available on our website. We also have a section just for fee education at http://factsaboutfees.bankofamerica.com/
Banks are authorized to process checks/post items in order that they deem most expedient. So banks may have differing standards or policies regarding the order in which it posts checks and other checking account transactions. According to CBA, many banks use the high-to-low method of check processing, where each day the largest transactions are processed first and the smallest last, since higher stakes are often involved with these transactions (i.E. Mortgage, rent payment, car payment, etc.). This is very common industry practice. Again, please remember that while items can be charged at the same time, they may not post within the same time period, as a number of variables prolong holds and posting times ranging from 24 hours to up to 10 days or more.
Bank of America announces changes to overdraft program
Wells Fargo announces changes to overdraft program
Chase announces change in policies
U.S. Bank announces change in policies
Chase recently changed their policies so they process charges chronologically.
Several banks are now voluntarily limiting the number of overdrafts you get in a year and asking if you want the protection, instead of automatically giving it to you.
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