Reply #32: Opinion article to newspaper about bank overdraft charges

[DemReadingDU]

This is an opinion article written to Clarksdale, Mississippi newspaper, about assessing customers extra fees through overdraft charges. Basically, a person is charged multiple overdraft fees because the bank held smaller earlier transactions and processed the largest amount first, even though it was the last transaction. This resulted in multiple overdraft charges, instead of one charge. Of course, not all banks do this, but the big banks do. Here is an article about a lawsuit against the big banks.

7/27/09 Wachovia, BofA, Citibank Sued Over 'Bad-Faith' Overdraft Fees
http://www.law.com/jsp/article.jsp?id=1202432536214

Here is the opinion article in the Clarksdale newspaper.
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Beware the overdraft
15/08/2009
Karl Denninger

You would have to be living under a rock to not know that the banks have received hundreds of billions of taxpayer largesse in the form of direct handouts and various “loan programs,” administered by either our government or The Federal Reserve.

You might not, however, be quite as aware of how banks have quietly set up their processing systems to rip you off at every opportunity.
At the center of this is the “overdraft.” Let’s examine how this used to work.

First, banks all close their “book day” around 2:00 PM. Some sooner, some a bit later, but all have a cut-off for “today” that is not their closing hour of (typically) 5:00 PM. Anything that comes in supposedly gets posted to your account that day.

Prior to these (quietly made) changes if you had $1,000 in your account and wrote a $950 check for rent, a $200 check for the electric bill, a $50 check at the grocery store, a $20 check at the local hairdresser and a $25 check at the cleaners you’d get nailed with a single “overdraft” charge for the $950 check; the others would go through.

It used to be that if you went to the ATM and tried to withdraw $200 but didn’t have it, you’d get a “transaction declined” message and no money. I know: when I was in college I occasionally would try to take out money I didn’t have, only to be told “NO!”

A few years ago the banks started intentionally re-ordering your transactions in order from largest to smallest. That results in the $950 check being paid and the rest overdrawing your account, generating four separate $30 overdraft fees instead of one.

Worse, if you have a deposit for $1,000 the same day, making your account “good” (or so you think) the bank will process the debits (that is, your checks) before your deposits, resulting in overdraft charges even though the money is in fact there!

If you have electronic banking you can actually see this happen – you can go make a couple of $20 purchases with your debit card, log into your bank account, see the $20 charges posted and then later in the day the transactions will be “re-ordered” so as to process the larger items that show up later first.

Insult is added to injury with your debit card. These transactions are electronic: The bank knows if the debit is good (or not) before it processes it. That is, when you’re standing in line at Starbucks if you don’t have sufficient money in your account the bank knows before it “approves” that transaction – but they’ll approve it anyway, turning your $5 latte into a $40 one without any warning to you at all.

Even ATM machines will do this – they’ll “give” you money you don’t have, and most banks will not warn you that you’re about to incur an overdraft fine that averages $30 per offense.
Finally, if you buy gasoline or stay in a hotel the merchant will place a “hold” on your account for more than the final purchase amount as a “guarantee” that your account is good. This is typically $100 at a gas station and can be as much as $100 over your expected bill per night in a hotel. When the transaction is finalized these “holds” are supposed to be removed, but usually are not – they instead expire a couple of days later. Needless to say the “hold” counts against your balance and can easily result in “overdraft” fees that are in fact false – there was more than enough money in the account to clear the transaction but the “hold” caused you get fined – in this case for something you didn’t do.

The effective interest rate on such “overdraft fees” is thousands of percent a year. The banks justify this on “convenience,” in point of fact, however, I’ve yet to find anyone who thinks its “convenient” to pay $40 for a latte or $50 for a movie ticket – all undisclosed at the time of purchase.

This practice resulted in thirty eight billion dollars in profits for banks last year - all of it unearned and a result of nothing other than pure robbery of the people. As a final insult many banks will not allow you to “opt out” of these “automatic” overdraft services (that is, decline transactions you can’t fund instead of paying them and fining you) and none will get rid of the “re-ordering” they do internally.

Our so-called “regulators,” including The Fed and Congress, have refused to address these abuses. Even in the so-called “consumer protections” that The Fed and Congress put in place recently with regards to credit cards, these abusive practices were entirely ignored. Their impact tends to fall on the less-wealthy who live paycheck-to-paycheck and the proliferation of debit cards has just made the situation worse.

I have but one question for the banksters, Federal Reserve and Congress: if you’re going to hold people up, especially those who are of limited means to protest and fight back, don’t you think you should use a gun?

http://www.blues-star.com/

P.S. This newspaper charges $20 subscription to read articles, but if interested you can find reader comments about this opinion letter mentioned in this financial forum, if you have access.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=107425