Bank of America’s Overdraft Policy Optimized for Maximum Penalty?

Reader Steve J writes:

A long time BofA account holder who enjoys living dangerously with his balance, I’ve had my pocket picked to the tune of $300-400 with this artful setup. It’s rather simple. If you have multiple transactions in a same day they process the largest dollar amount first. This means that if you overdraw your account on a day where you have a particularly large transactions, you end up paying the maximum overdraft fee allowed by math. A numerical example to illustrate:

Sucker A has $300 in his BofA account on the day in question. Sucker A pays a $250 car payment, $100 for groceries, $50 for gas and $25 for assorted adult DVDs. BofA will process the transactions in descending order of size. First $250 is withdrawn leaving Sucker A with a balance of $50. BofA then process the $100 transaction leaving Sucker A with a balance of -$50 and incurring an overdraft fee of $30. BofA then process the $50 transaction leaving Sucker A with a balance of -$100, incurring yet another fee. The $25 ill advised purchase is then processed, leaving sucker A with a balance of -$125 and incurring another fee. That 3/25 special on bootleg asian porno ends up costing hapless Sucker A $55.

More math—but explained by a person who writes checks for porn—after the jump.

I’ve explained to BofA that the order they process things in in all cases must lead to the mathematical maximum of overdraft fees paid by the account holder. I’ve explained this to them over the phone, in e-mail and even via a spreadsheet. Their response is, that’s the language in your account, tough nuts. The other, and more insulting response is that they do this for your own good. You wouldn’t want your car payment to bounce would you? To be honest BofA, I could give a shit, I just don’t want to pay you $90 of overdraft fees when I could have just as easily paid you $30. My car company already knows I’m a deadbeat, what’s one more bounced check. Plus, as I have overdraft, it’s not going to bounce anyway.

Let’s run the scenario the other direction, to process the transactions from the same day in ascending order of amount and see how much sucker A pays in fees. $25 for porn, Balance is now $275. No overdraft. $50 for Gas. Balance $225, again no overdraft. $100 for groceries, balance $125, yet again no overdraft. $250 for car Sucker A cannot really afford. Balance -$125 and an overdraft fee. One fee of $30 versus 3 fees of $30, all based on how they arbitrarily decide to process things.

I’m aware that it’s in my contract, I’m aware that I shouldn’t bounce checks. I just think that other consumers should be aware that when playing overdraft roulette, BofA puts 4 in the cylinder instead of 1.

Comments

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  1. DeeJayQueue says:

    Wachovia does the same thing. My biggest complaint is that if the transactions can show up in my account as quickly as i make them, then why can’t their system keep up with me and shut off my card after i’ve spent all my money, even if it’s the same day? If I’m sucker A, and pay my car pmt, then try to go buy groceries, the card should decline. But since they like taking $30 at a clip from me(actually wachovia sneaks it so they charge $60… $30 as an overdraft fee, and $30 as a “We paid it anyway” fee), they’ll never do that. It’s how they afford those fancy pens and lollipops at the branches that they charge you to go into.

  2. Kevin Meyers says:

    I hear ya, dude. It happened to me TWICE when MBNA mysteriously continued to deduct a monthly payment for a credit card account that had been paid off and closed for two months.

    If you’ve done this overdraft thing enough with BofA, they kick up the overdraft charge to $34. So I’ve done the math, and I’ve paid BofA about $170 this year because MBNA screwed up. The worst part is, because of small print in my MBNA contract (“we will continue to deduct your monthly payment until you tell us otherwise, even if you pay off your balance and close your account” or something to that effect), I have to eat the loss.

  3. airship says:

    Most banks do this as a matter of course, for just the reason stated here – it maximizes their penalty charges. Many banks do a similar thing by processing the day’s deposits AFTER they have processed all of the checks. Yep, if you make a deposit first thing in the morning, then have 20 checks come through for $10 apiece, the $200 deposit is credited at the end of the day and you don’t come out even. You get 20 overdraft charges of $25 each and you end up $300 in the hole. If you hear a bank talking about its ‘customer service’, feel free to laugh uproariously. It’s all about the MONEY, stupid! That’s why it’s called a BANK!

  4. Rick020200 says:

    Credit card companies are evil. There is no other way to put it. This is an excellent article detailing why, eventhough you know these things will happen to you, you let them happen anyway: http://law.bepress.com/cgi/viewcontent.cgi?article=1013&co
    The only way to tell them you won’t take it any more is to get rid of them, one by one. Telling BofA about their policy is like telling McDonalds you don’t like their hamburgers. They won’t change unless enough people refuse to make use of their services.

  5. HINKShopper says:

    With the regulatory changes that recently passed through Congress (eliminating the ‘float’ in electronic banking) I’m surprised that sorting transactions by the banks hasn’t raised more questions. Given what has been described there seems little room for doubt that the transaction data are intentionally sorted by value rather than chronologically.

    Individual retail customers are considered “low return” to institutions such as BofA. Their 10-day hold policy on out-of-state checks has always irked me, even when I know the funds have been withdrawn from the other account and are clearly available for the bank’s use.

  6. aggrevated says:

    So, I was doing a search to find a bank that won’t rape you for every last penny you have in overdraft fees. I am currently a B of A customer and to make a long story short, I just closed on a house (not from B of A), but got screwed. Cleared out my checking and savings. So today, first time is YEARS I have a negative account balance. This morning, it was negative $60 something dollars. I have a few bills that are automatically deducted each month and usually shows up FIRST thing in the morning if I check my balance. I just saw one of those auto debits show up in the afternoon!!!! They pushed it through because I already have a negative balance!! I now have a negative $112 balance and no purchases have been made today! The only things that show up periodically are purchases through the day. NEVER auto deductions. After reading this, I looked and sure enough….they pushed it through today. It would have been posted tomorrow morning, but I might get a deposit in by then and they won’t get a fee! I have always like the convience of B of A being a frequent mover, but I am appauled. Anyone have a good bank they can recommend? It’s a shame that I just ordered checks.

  7. hateboa25 says:

    You can fight and fight with these guys but they send you the same response everytime. Its sad that this is actually happening in this country, its like they are a bunch of rip off artist. They are too big to fight…but I’m trying. I even put in a complaint with the BBB, it helped some but BOA keeps doing it and the BBB didn’t want to hear anymore about it..

  8. RoyceZodiac says:

    BOA and the other banks all have the same policy and I’m not buying the “can’t set the $500 limit to $0″ party line. So far this year it’s cost me over $800 to bank with them. I switched to INGDirect who don’t charge a $35 transaction fee, they do charge 9% interest on on any overdraft amount. The only way to make banks listen is by voting with your cash and banking elsewhere.

    • MimiDawhoa says:

      @RoyceZodiac: That was a smart choice. An unintentional incident which wasn’t my fault this March caused me nearly $600 in BofA $35 overdraft fees. After paying them, they refunded ONE to me and said they could never ever refund a fee again if I accepted. I’ve been a customer of ING Direct (ingdirect.com) for 4 years, and have switched almost all of my checking account activites to their check-free “electric orange” account. No fees at all are charged for things like overdrafts, and they charge a small interest rate instead for the amount of your overdraft, which is always substantially less than a huge fee (sometimes it’s only pennies you’ll pay for this), and in most cases you’ll have upwards of a month to deposit the funds into your account to cover it. It’s the best bet for anyone looking to avoid these ridiculous fees (plus you earn interest on any positive balance in your account as well) !

  9. Anonymous says:

    Bank of America shouldn’t be entitled to any stimulus money. They already have their own bailout…it called overdraft fees! “We the People” need to take back our power and stop being victims. Inundate the White House with letters and emails demanding that the president do something about B of A. What they do to the American people is true terrorism!

  10. William Giltner says:

    The is a checking acct. available from Probity Financial Services that carries not NSF charge.

    Check it out at [probityfinancialservices.com]