Reply #3: Banks are using overdraft fees as a major source of income

[vorlund]

The article talks about how what was once a courtesy to good clients has been extended and is being used as a major source of income for banks. Many banks do not use a FIFO (first in, first out) system of accounting. Many of them will hold back large checks for as long as they can, hoping someone goes over by the slightest amount- or would if that large check were to go through at that time. If someone makes two small purchases, followed by a large purchase that puts them over, the bank will put the large transaction through first, then the two small purchases and charge two fees instead of one.

I used to just have a single checking account with an associated card that could run as debit or credit. If I were to go out to eat in the middle of the month (the card is going to be run as credit) the charges would go through immediately. If I were to do the same thing towards the end of the month, when I paid my rent and utilities, the charges would be listed as pending for up to a week and a half. Also if I had a lot of money in my account and wrote a large check, it would go through right away. If I didn't have a lot of money in the account then the check could take up to two weeks to finally process. When it DID process it would be taken out based on the date on the check, not on the date that they finally processed it.

However, if I was depositing a check in my account the bank would credit my account on the day that they verified that the funds were available from the other account, not on the day that I deposited the check. This makes it kind of difficult to know exactly what your 'available' balance is, unless you're checking your online accounts several times a day.

Sure- it's your responsibility to know how much money you have in your account, but with people using debit cards to pay for purchases instead of carrying cash it is becoming increasingly difficult for people to keep track of exactly how much money they have in their accounts at all times. This is especially true of people who don't have direct deposit and are barely scraping by as it is. The bank can rush debits and delay credits, manipulating the account so that an overdraft fee is charged when the account SHOULDN'T have registered as overdrawn in the first place.

Despite all that- if a bank can't turn a profit without relying on income from overdraft fees, which can be in the 3000% APR range, their business model isn't sound enough that they should exist as a business.