Saturday, October 17, 2009

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.

2 comments:

J.B. Priestley,  12:24  

"Admass is my name for the whole system of an increasing productivity, plus inflation, plus a rising standard of living, plus high-pressure advertising and salesmanship, plus mass communications, plus cultural democracy and the creation of the mass mind, the mass man."

Anonymous,  16:03  

The banks are harging these fees to provide false prophets now that mark to market is suspended and they can't charge similar fees for credit cards. Bank tellers blythely defend such charges. Bank tellers should be subject to racketeering charges just like nazi prison guards who were just taking orders. THen they would have the guts to speak up. These banks should finally be euthanized and bring us all peace.

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