Purposely Reordering Customer Charges to Maximize Overdraft Fees

45% of the nation’s banks and credit unions collect more in overdraft services than they make in profits. This year alone, banks are expected to bring in $27 billion from overdraft fees alone. They allow customers to continually make purchases on their debit cards, once their checking account is overdrawn, which then automatically sets off a cascade of fees, at up to $39 a pop, sometimes for purchases less than $5, continuously. When the customer calls to complain that they've been charged over $300 in fees, they tell the customer that they are doing him or her a favor by not embarrassing them. That's what Wachovia told me when I went into the branch to complain.

Apparently, I'm not the only one.

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.

Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.

Banks market it as overdraft protection, and the fees it generates have become an important source of income for the banking industry at a time of big losses in other operations. This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.

In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.

But because consumers use debit cards far more often than credit cards, a cascade of fees can be set off quickly, often for people who are least able to afford it. Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.