Consumerist: Overdraft fees

BoA EECB Gets $525 In Overdrafts Refunded

Ben Popken — Thu, 29 Oct 2009 17:32:57 EDT

Bank of America charged Kelsey 15 overdraft fees totaling $525. Which was weird, because Kelsey had overdraft protection on the account. A BoA customer service rep would to refund $140 as a "courtesy" but that's not very courteous when you're still out $385. That's when Kelsey decided to whip out the ol' EECB and kick some ass:

From: Kelsey
Date: Mon, Oct 19, 2009 at 3:05 PM
Subject: Two important consumer issues
To: colleen.haggerty@bankofamerica.com, britney.w.sheehan@bankofamerica.com, nicole.nastacie@bankofamerica.com, joe.price@bankofamerica.com, keith.banks@bankofamerica.com, michael.jones@bankofamerica.com, brian.t.moynihan@bankofamerica.com, steele.alphin@bankofamerica.com, maryellen.baker@bankofamerica.com

Good afternoon,

My name is Kelsey. I have been a loyal B of A customer for years. I'm enrolled in Keep the Change, have two credit cards with BofA, and have my first savings account (I've been with BofA since college) and a checking account. I have recommended BofA to my boyfriend and my roommate, both of whom have switched and also enjoy keep the change and the Add it Up program. The online banking setup is superb, and your ATMs are everywhere...hard not to like BofA. However, in the past few weeks, there have been a few instances making me question my relationship with the bank:

/snip/

Recently, I left town for my grandfather's 90th birthday. My rent check cleared a few days before, but apparently the first purchase I made once I was in Connecticut overdrafted my account. Mea culpa. I was out of town and not checking my account balance, but was still, as mentioned before, under the impression that I was covered by overdraft protection. Apparently this was not the case. I got paid in the interim so the paycheck corrected the overdraft. I log in to find that there is a significant amount of money missing. I look at the statement. Eleven overdraft fees; one for each time I used my debit card while I was out of town or once I got back and needed to buy groceries. That's a total of $385. I was told on the phone that I could be refunded $140 as a courtesy, but since I believed I was enrolled in overdraft protection I don't really see how that is a courtesy.

I told the customer service woman I spoke with (who to her credit was very nice despite my tears/frustration) that I thought I was enrolled in overdraft protection. She told me several things: First, that if I were enrolled, it would say that on my statement. How do I look for something on my statement that I have never seen on another one of my statements and don't know to look for? Second, she told me that since I had overdrawn recently, and didn't say anything about overdraft protection at the time, she really couldn't believe my claim that I requested it when I opened the account. I'm sorry, but this seems ridiculous to me. One fee is easy for me to overlook, slap myself on the wrist and move on...11 is off-the-charts and warranted an immediate call to customer service. I have no recourse here: it's my word against your computer system, which "has no notation" that I requested overdraft protection. How am I supposed to prove that, when the person I asked to set me up with it undoubtedly doesn't even work at that branch anymore? Basically, what she is telling me is that because someone messed up on B of A's end four years ago, I am out $245.

I'm a reasonable person, and I can admit a mistake, but 11 fees is something I cannot afford. With the $245 that has still been deducted, I could pay off half of my Komen Visa balance (a card I gladly and PURPOSEFULLY opened with B of A), but these two events have me contemplating moving my money elsewhere. I may not have millions in the bank, but I think that my loyalty, especially during some of these more trying times, should count for something.

Best,

Kelsey

Two hours later, Kelsey got a call from someone who said she would investigate the checking account complaint. Two days later, all the overdrafts fees were refunded.

"Although at the time I believed it was 11 overdraft fees total, it was actually 15, totaling $525 of my hard-earned money...The woman from the executive office thanked me for reaching out, and being polite and proactive, and told me that by looking at my accounts she could tell this was a one-time thing and that I am a responsible banking customer," writes Kelsey.

"I never expected that response, especially from BofA, but plus one to Consumerist for teaching us all that a level head and a fair request can help the consumer come out on top."

Bank Of America Uses Temporary Hold To Trigger Overdraft Fee?

Chris Walters — Mon, 26 Oct 2009 16:03:03 EDT

Bank of America got so fee crazy last week that it applied a $10 overdraft fee to Christopher's account even though it wasn't overdrafted. I went back and forth with Christopher to try to figure out what BoA could have done to trigger this, but as you can see from the screen cap below, he only had two debits on the day of the event.

Christopher mentioned that there had been a $4.50 debit that had never posted, so I asked him to elaborate:

The 4.50 never posted and would have been dated before on 10/21 depending on if it had been a legitimate charge. The charge was there on the 21st but cleared without posting (temporary hold due to a broken credit machine). It was dated on the 21st.

So if that charge was not a real charge—it doesn't even show up on the 10/22 section of transactions, as you can see above, and it didn't seem to impact the balance—how again did BoA justify the overdraft?

Christopher says Bank of America won't actually investigate the issue and give him a real answer. Instead, they're just keeping him in a "web support" loop that's growing smaller and smaller:

I also find it highly difficult to continue a thread with them as it is limited to 10,000 characters but each time includes the previous message(s) in an un-editable quote in that 10,000 character limit. So after three messages that is full, and I must start a new thread, which then gets the same chain letters, in order.

Update: Several commenters made good suggestions below. To help Christopher and future readers, I'm highlighting some of them here:

lankysob says this is how BoA's Overdraft Protection works:

When BoA approved the Overdraft Protection (which was tied to my BoA Amex card I set up long ago as backup to save me from paying the stupid $35 O/D fees per transaction), it moved $100 from my Amex to my checking account and considered everything cool. When I called to complain and ask why would an account that has more than $0.00 in it ever need Overdraft Protection, I was told that BoA "goes ahead and determines a dollar amount ABOVE $0.00 based on the credit/debit history of the last few credit/debits applied to your checking account, and then uses that number as it's '0 Point' as to when to kick Overdraft Protection into effect for you." I was, understandably, outraged by this and asked "Ok, well where is this magic number you've chosen for me so I know to treat that as my $0.00 amount?" "We can't/aren't able to give you that information because it's not an exact number that stays the same."

Both Hobart007 and MedicallyNeedy suggest that you go into a local branch and speak to the branch manager in person. If it's a first time issue or you can convince the manager it's BoA's mistake, he or she might waive it.

And trillium points out a helpful feature on the BoA website:

A little known of (I know I didn't know about it ) feature on the B of A website is on the left hand side titled "Available Balance History". Unlike the default view this shows the order of which charges have hit as well as holds on the account.

(Photo: P/\UL)

How The Banking Industry Wants You To Think About Overdraft Fees

Chris Walters — Wed, 07 Oct 2009 11:30:07 EDT

Earlier today, a public relations person sent in the following suggested "follow up" story about the explosion in overdraft fees. She was quite friendly and complimentary and made it clear she just wants to help educate consumers about banking fees. The only problem is, the entire story is a jumble of propaganda designed to spread FUD about any attempt to change current overdraft policies. We figured it might be fun to see how the banking industry wants you to think.

Here's their submission, along with some of our own reactions:

Checking Account Fees Will Soon Replace Overdraft Fees

From the very beginning, they attempt to reframe the issue as a scary story of unintended consequences: "If you force us to change our business model, it's gonna cost ya!" The headline is a threat, warning consumers that current "optional" overdraft fees will be replaced by mandatory fees.

B of A, Chase and Wells all announced changes to their overdraft polices. While this is great publicity, how will banks make up the lost income from overdrafts?

This is like asking how a hospital can make up lost income after it's been forced to stop selling the organs of the homeless population. If your current business model relies on exploiting certain groups—and overdraft fees come primarily from the poor and the young—then maybe you need to rethink your business model.

Or who knows, maybe they really want you to answer because they don't have any idea how to make legitimate profits.

Have you ever wondered how the bank can afford to give you a free checking account? If you think they make all their money off of the interest of your account balance, think again. The average bank's margin is less than 4%. If you were to keep $1,000 in your checking account on average that would mean the bank would make $40 per year off of your money. The average bank branch has about 1,300 checking accounts, so amongst all the checking accounts they would make $52,000. That doesn't pay for two branch tellers, let alone all the overhead of operating a bank branch. So where does the money come from?

Frankly, we don't understand how banks and credit unions existed before the current overdraft fee boom began in the first part of this decade. Clearly they never managed to make any sort of profit before they stumbled across the current scheme.

According to our analysis of FDIC data, the banking industry brought in a whopping $29 billion last year in overdraft fees. What will replace the income lost from the recent changes announced by the big banks? After all, the industry required huge bailouts last year, so it isn't as if there is excess income lying around.

What floored us about this line of reasoning is they seem to be saying that because current banking business models are flawed, they must be sustained; if it's broke don't fix it, we guess.

The most likely source to replace that income is for banks to begin charging for services that were once free. Possible examples include charging for bill pay services, checks, debit cards or certain types of debit card transactions. They will also likely begin requiring minimum balances on certain products.

Translation: If you force banks to treat their customers fairly, you will be treated unfairly. Your investments will be siphoned off by a creaky old bank that can't afford to pay its electricity bill now that abusive overdraft practices have been reined in. You will hurt the bank, and the bank will hurt you in return.

But here's an idea: some banks will innovate and find ways to offer services for low prices, or for free, in order to maintain a competitive edge. Other banks will find ways to bundle services so that profitable customers won't have to pay fees.

And of course customers who screw up will still pay overdraft fees; so far as we know, nobody is calling for the practice to be banned outright.

Finally, we may again see the day when most people pay a monthly fee for their checking account. Thirty years ago the average American consumer paid a monthly fee for their checking account – it may be 1980 all over again.

The current "free checking" system works well for 3/4's of the population – after all, they don't pay any overdraft fees. In reducing the fees paid by the other quarter of the population, the majority will likely have to take up the slack.

Here the PR agency goes straight for the appeal to selfishness: "If we can't keep charging overdraft fees the way we currently do, then you will have to pay for freeloaders."

In reality, it's the exact opposite. Those "freeloaders" have been forced to foot the bill for your free banking services for a while now. And if in the future you accidentally (with the bank's help by reordering transactions on your account) trigger an overdraft avalanche, then congratulations. You'll be paying for those so-called free services as well. It's like winning a really frakked-up lottery.

If you don't feel like you should be "punished" by others who feed the overdraft revenue machine, then the answer is simple: you should bank where all fees to manage your account are charged directly to you.

Overdraft Fees Up 35% In Past Two Years

Chris Walters — Tue, 06 Oct 2009 12:34:05 EDT

As a nation, we pay more each year in overdraft fees than we do for books, cereal, or fresh vegetables, says the Center for Responsible Lending (CRL)—and considering how outrageously expensive cereal is, they must be talking about a huge sum. They are: "Banks and credit unions collected nearly $24 billion in overdraft fees last year, an increase of 35 percent from just two years earlier."

As CRL's new report (pdf) shows, in less than a decade overdraft fees have become the second largest profit center for financial institutions, almost equalling revenue from service fees. Last month, the New York Times noted that some banks and credit unions may not survive if the practice is reined in.

Here's a summary of what CRL found in their study of overdraft fees:

Finding 1: Over 50 million Americans overdrew their checking account at least once over a 12-month period, with 27 million accountholders incurring five or more overdraft or non-sufficient funds (NSF) fees.

Finding 2: Banks and credit unions collected nearly $24 billion in overdraft fees in 2008.

Finding 3: Overdraft fee income for banks and credit unions rose 35 percent from 2006 to 2008.

How did this become so profitable to banks and credit unions? CRL says there are several factors. Financial institutions have continued to increase their fees for overdrafts, and have figured out ways to apply more fees to each account (for instance, by reordering the sequence in which debits are applied, or by not setting an upper limit on the number of overdraft fees per incident). And consumers have walked right into their trap by using debit cards and ATM machines with increasing frequency and for smaller amounts, which is how a bank or credit union prefers to catch customers.

It's hard not to read the study without realizing just how abusive—and insanely profitable—overdraft fees are for financial institutions.

"Overdraft Explosion" (pdf) [Center for Responsible Lending]
(Photo: crazyBobcat)

Wells Fargo Also Pledges To Reduce Overdraft Fees

Chris Walters — Wed, 23 Sep 2009 20:47:27 EDT

Chase and Bank of America aren't the only ones suddenly growing pseudo-human faces and reducing their money-sucking overdraft policies. Today Wells Fargo squirted out a press release that says they "will eliminate overdraft fees for customers when they overdraw their accounts by $5 or less and will charge no more than four overdraft fees per day."

Customers will also be able to opt out of the "protection" altogether and have their transactions declined at the register if there's no money in their account.

They haven't stated when this will go into effect, however, so we'd like to see a race between Congress and the banks on who can get rid of the fees first. Go!

"Wells Fargo Announces Changes to Overdraft Practices" [Business Wire via Yahoo! Finance] (Thanks to Rob!)
(Photo: TheTruthAbout...)

BofA, Chase To Limit Overdraft Fees

Phil Villarreal — Wed, 23 Sep 2009 09:51:47 EDT

Sometimes lawmakers can cause reform just by threatening legislation. That seems to be the case with Sen. Chris Dodd making Bank of America and Chase flinch by proposing legislation that would force banks to get customers' permission to charge them overdraft fees.

Starting Oct. 19, BofA will no longer charge fees if the overdraft puts the account less than $10 in the red, and will lower the maximum number of charges it levies per day from 10 to four. And next year Chase will let customers opt out of overdraft "protection," will let customers slide if their account is less than $5 in the red, and will lower its maximum amount of daily charges from six to three.

The Washington Post interviewed Dodd, who isn't satsified:

"Bank of America is taking a step in the right direction, but we need legislation to protect every American with a bank account from these unfair fees," Dodd said. "We wouldn't need legislation if the industry acted responsibly in the first place."

Even if Dodd's proposed bill gets stuck in the Washington muck, he can rest assured that he's already sparked some positive changes.

Bank of America, J.P. Morgan Chase to Further Limit Overdraft Fees
[Washington Post]
(Photo: donbuciak)

Bank Piles On Overdraft Fees Due To Merchant Error, Doesn't Seem Too Keen On Refunding Them

Chris Walters — Thu, 10 Sep 2009 16:43:17 EDT

Here's a story from a reader about a bad bank practice that we hear about too frequently—a bank cascades hundreds of dollars worth of overdraft fees on an error that's beyond the customer's control, but then is unresponsive or uncooperative on refunding those fees.

D writes,

Someone close to me just lost $250 out of her savings because a store charged her debit card 10 times for the same transaction. When, days later, they reversed all but one of the charges, the overdraft fees for those 9 charges went away as well, but not the overdrafts for all the other purchases made during that period.

When she contacted her bank, they said it was the store's responsibility and to contact them for reimbursement. When she finally got a hold of them, they said she needed to fill out a form and send it to them with an unaltered (eg, intact account #s etc) bank statement. Oh and that form would get mailed out to her sometime in the next month.

Is this normal? Is there someone else we should be talking to? I haven't mentioned the names of the companies because this didn't happen to me personally, and I am just seeking advice, so if your advice is "have her email you with more details", that's fine.

This is one of those situations where we think your friend needs to push now and push hard to get the bank and/or the company to fix this problem. The thing is, she didn't create this problem, so the onus shouldn't be on her to try to get it fixed. We think she should launch EECBs at both the bank and the merchant who screwed up, and very clearly make her request that these added penalties get refunded to her account immediately.

She may also want to contact politicians who are sympathetic to the cause of reducing the free-for-all overdraft environment banks currently enjoy—this is exactly the kind of example that illustrates how far banks have gone with exploiting this "service" for profit.

Banks Cling To Overdraft Fees Because They Need Them To Survive

Chris Walters — Thu, 10 Sep 2009 15:36:48 EDT

Banks now make more on debit card overdraft fees than credit card penalties—they'll rake in about $27 billion in 2009 alone, according to the New York Times. They obviously have zero incentive to curb the practice. In fact, one economist told the paper that "45 percent of the nation's banks and credit unions collect more from overdraft services than they make in profits."

Some experts warn that a sharp reduction in overdraft fees could put weakened financial institutions out of business.

Michael Moebs, an economist who advises banks and credit unions, said Ms. Maloney's legislation would effectively kill overdraft services, causing an estimated 1,000 banks and 2,000 credit unions to fold within two years. That is because 45 percent of the nation's banks and credit unions collect more from overdraft services than they make in profits, he said.

"Will they be able to replace it with another fee?" Mr. Moebs said. "Not immediately and not soon enough."

The funny thing about overdraft fees is that since they're not covered by the Truth in Lending Act, banks don't have to disclose their true cost to customers, or ask permission to sign them up:

According to the F.D.I.C. study, a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent. By contrast, penalty interest rates on credit cards generally run about 30 percent.

"People would be shocked at how brutally high those fees are relative to the costs of a credit card," said Edmund Mierzwinski, the consumer program director for the United States Public Interest Research Group.

People may also be shocked by how strongly the banking industry will fight back against any overdraft legislation, the article implies, because many financial institutions will be fighting for their ability to remain in business.

"Overspending on Debit Cards Is a Boon for Banks" [New York Times] (Thanks to Steve!)
(Photo: Ciaran McGuiggan)

10% Of Consumers Pay 90% Of The Overdraft Fees

Meg Marco — Mon, 10 Aug 2009 14:47:01 EDT

Banks are set to make a record $38.5 billion in overdraft fees, says a new report in the Financial Times, and the bulk of the money is coming from those who can least afford to lose it.

From the Financial Times:

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.

Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. "Overdraft fees are there for a reason, we take on a lot of risk," a senior banker said. "It's a service to our customers, they want us to pay their overdrafts."

We're not so sure about that last part. Sure, we're probably biased by the fact that we read heartbreaking emails for a living, but we've never had someone write us saying, "Oh thank god Bank of America paid my overdraft and charged me a $35 fee! What would I have done without them?!"

Banks make $38bn from overdraft fees [Financial Times via Raw Story] (Thanks, Annitra)!
(Photo:stuartpilbrow)

Chase Barrages Customer With Overdraft Fees

Phil Villarreal — Tue, 28 Jul 2009 09:30:32 EDT

Just about everyone's been smacked with an overdraft fee before, but Michael writes us about his partner who is drowning in a flood of such exploitative charges.

His tale:

I am really hoping Consumerist can help me with this. I know this isn't a rare or shocking issue, but Chase is really hurting my partner's new business with a massive amount of overdraft fees. My partner, Frank, used his personal card to buy computer equipment for his business (after his bank canceled most of his business credit lines). He forgot this card deducted right out of his checking account, a mistake he admits. The bank proceeded to charge $34 for each of 18 charges, including a 45 cent parking meter charge and several charges in a row for $5 drinks at a bar.

Frank has spoken with about half a dozen different people in person and over the phone with little result (they overturned the 45 cent charge). Chase is claiming these charges are from Wamu, but then claim there is no one from Wamu left with the authority to overturn these charges.

My partner has really been struggling to start his business (Chiropractic office). He has more than $250,000 of debt from medical school and has had so many deals fall through for credit to start his business because of the economy (his credit is flawless), but is one of the hardest workers I know. I pray Consumerist can help bring attention to Chase's abuse of a loyal customer and possibly help remedy this injustice.

If Consumerist had the power to answer prayers, it would most certainly charge for the service, or at least suggest a hefty donation for its tip jar. But what we can do is post your tale and inspire a lot of commenters to curse Chase's name and join in with their own horror stories about that bank and others. So off we go!

(Photo: epicharmus)

EECB Results In $525 Bank Of America Overdraft Fee Refund

Laura Northrup — Mon, 29 Jun 2009 17:30:15 EDT

Corey admits that he messed up. He was the one who didn't keep as close track of his transactions as he should have, and overdrafted his account. It was Bank of America's policies, however, that resulted in his being hit with fifteen overdraft fees at $35 each, for a total of $525 over the course of a weekend. Corey knew that he was in the wrong, but thought that these fees were unfair, and also more than he could afford. So what did he do? He used what he's learned from reading Consumerist to make his case to the people in charge.

I wanted to share a phenomenal success story I just recently had with Bank of America and those pesky overdraft fees.

To start with I want to acknowledge that I was 100% in the wrong in this case, but the variables were blown to mammoth proportions. I just recently moved into a new apartment and had written the check to my landlord on the 30th of May or so. I thought that he had cashed the check and I still had quite a bit of money left over which was great because I had a great many essentials I had to buy for my new/first apartment. Cleaning supplies, shower curtain, rental van etc. Unbeknown to me at the time my new landlord cashed the check on Friday and I was shopping for said essentials at various stores.

The weekend went off without a hitch moving wise and I was happy in my new place. I go to check my account on Monday to find that I was about 300 dollars overdrawn, mostly smaller transactions and that there were more on the way. Needless to say I was a bit distraught and the small purchases I had made started to rack up all incurring 35 dollars a pop.

So I decided to call Bank of America to see what my options were and possibly contest a few. Long story short, they were unwilling to do anything.

The next day I decided that I was going to go in to a branch and close my account to prevent my direct deposit from going in so I could avoid having to pay the total amount outright and be better able to pay my mid monthly bills. It was a no go, I couldn't close an account that was in the red and once again they were unwilling/unable to help me in any way.

More transactions went from pending to over drafted. All told I ended up with 15 overdraft fees amounting to $525 in fees alone. A hefty sum to be sure.

Being an avid reader of the Consumerist for a couple years or so, I remembered the notion of an executive email carpet bomb (recent article as well). So I set about crafting the email explaining the situation, stating that I have no problems with overdraft fees on large purchases but 37 dollars for a coffee from Dunkin Donuts was a bit much to swallow.

A bit nervous I hit send and began the waiting game, to no avail. Today while at work I received a call from an unknown number, figuring that it was a credit collector hearkening my financial downward spiral I ignored it. They left a message though and curiousity got the best of me. A pleasant man named George from the office of the CEO had left a message notifying me the fees were to be removed and he left a number for me to call. I immediately called after that and spoke to him for about 5 minutes telling me about the notification systems they have available to me and a little bit of light lecturing.

I just checked my account and the fees were indeed returned. Needless to say a large weight has been lifted off of my shoulders.

See what a polite, well-crafted letter can do?

Go here to learn how to craft and launch your very own Executive E-mail Carpet Bomb.

(Photo: jamisonjudd)

Threat Of Small Claims Court Gets Wells Fargo Overdrafts Refunded

Ben Popken — Mon, 30 Mar 2009 09:38:28 EDT

After he got some overdraft fees that he felt were unfair, Karney Hatch decided to put the banking system on trial, and make a documentary about it.

He opened a new Wells Fargo card, put only a dollar in it, then bought several $1 items at the local mall, running up over $100 in overdraft fees. Naturally, Wells Fargo refused to refund any of his overdraft fees. So, he took them to small claims court. Rather than pay the cost of sending someone to defend the case, Wells Fargo refunded his overdrafts and even paid the about $47 it cost him to file.

Says Ralph Nader in the documentary, "If a million consumers filed a million small claims court actions a year against the banks, the banks would either try to abolish the small claims court or improve their performance."

Taking a company to small claims is not that hard, we've written several posts that tell you how to do it.

How To Beat The Bank [Current] (Thanks to Kane!)

Man Pays $38 For Cup Of Coffee

Ben Popken — Fri, 27 Mar 2009 16:13:43 EDT

Clifford Phillips paid $38 for a cup of coffee. Was it farmed on the moon? Nope, it was overdraft fees. [MSNBC] (Photo: Groovnick)

Stop Hungry Hungry Hippo Banks From Gobbling Your Bucks

Ben Popken — Wed, 25 Mar 2009 12:14:47 EDT

Oh noes! The Hungry Hungry Hippo Banks are trying to gobble up your happy money fish! You only have 5 days left to get them to stop by writing the Fed and saying NO to banks default stuffing you into an overdraft fee programs. Send an email to regs.comments@federalreserve.gov with "Docket No. R-1343" in the subject line. Or you can use this online form.

PREVIOUSLY: Tell The Feds You Want A Choice On Overdraft Fees

FDIC Criticizes Banks' Overdraft Fees

Ben Popken — Wed, 03 Dec 2008 21:04:15 EST

It took 18 months for the FDIC to figure out that banks' practice of clearing checks largest to smallest makes banks a lot of money.

Bankers defend it saying that people would rather their cable bill to bounce than their mortgage payment, but it just so happens that if you miscalculate your balance or a deposit didn't clear in time, it maximizes potential fees. Overdraft fees accounted for 74% of service fees banks earned in 2006, to the tune of $1.97 billion. The data was based on banks' responses to survey questions, so you can bet the numbers are actually higher.

FDIC: Bank overdraft fees hit young, low-income customers [USAToday] (Thanks to Snarkysnake!) (Photo: David Reber)

Watch Out For These 5 Overdraft Traps

Chris Walters — Wed, 20 Aug 2008 08:26:10 EDT

Banks need your money. They're not doing too well on their own, and you're not screwing up enough to generate the fees they need to make their shareholders happy. That's why they've set up sneaky ways to maximize your every mistake—or in some cases, ways to change the rules so that you make new mistakes where you didn't before—in order to penalize you. Here are five things SmartMoney says to watch out for.

1. Authorizing transactions via debit card even if it triggers an overdraft fee
"Debit card use triggers 46% of all overdrafts, according to the Center for Responsible Lending," writes SmartMoney. Keep an eye on your spending and never trust the bank to let you know if you've spent more than you have. As a "courtesy," they'll approve your transaction, then apply a fee.

SmartMoney suggests you ask your bank to set your debit overdraw amount to zero, so that any transaction that would be rejected in the real world will also be rejected by your bank.

2. Reordering transactions to maximize the number of them that can be considered overdrafts
"Banks justify the practice as a way to ensure the most important debits get processed first (say, so a mortgage payment doesn't bounce)." This is utter bullshit. Banks do this for one reason—to generate more revenue in overdraft fees from customers who screw up. Here's an example:

Say you start the day with $100 in your account. You buy a latte ($5), fill up on gas ($50), buy groceries ($35), swing by the drugstore ($8) and then the dry cleaner's ($25). Processed chronologically, only the last transaction triggers an overdraft. Reordered from high to low, however, three purchases do.

SmartMoney suggests two things to protect against this:

Keep an extra $100 or so as "buffer money" in your account, and never plan on using it.
Always make sure any deposits have shown up as available funds before you rely on them.

3. Extended overdraft fees
If you take too long to pay an overdraft fee, your bank may attach a second penalty fee. One suggestion is to attach a line of credit or savings account to automatically pay overdaft fees—but don't use the line of credit for anything other than overdraft protection.

4. High daily maximums
Many banks will allow you to generate multiple overdraft transactions in a single day—Chase, for exammple, sets no limit on the number of times they can charge you, and they increase the charges after the first transaction. SmartMoney suggests you negotiate these fees away by pointing out that the trouble stemmed from a single incident, and that the entire unpleasant affair is a rare occurrence for you. (It is rare, isn't it? Otherwise you're just giving money away to the bank.)

5. Taking a day or more to release funds on hold
This last one is triggered by merchants—hotels, gas stations—who place holds on your account before you complete the transaction. Banks, however, apparently have no technology available to release those holds in a timely manner, despite the fact that they're initially placed in mere seconds. If you conduct any business that generates holds on your funds, assume that money is spent until you can confirm it's been released again.

SmartMoney suggests you use a credit card to pay for things that trigger holds—"While it still counts against your available credit, it's more likely that account can withstand a tighter balance for the 24 hours or so it takes for the hold to clear."

Notice a trend here? Most of the suggestions SmartMoney makes to protect yourself amount to little more than socking more money away at the offending bank, or setting up more potential ways for something bad to happen in the form of unexpected fees. If your bank is practicing more than one or two of these bad habits, your best bet is to start looking for another bank or credit union, one that doesn't view you as its own personal ATM machine.

"5 Sneaky Overdraft Traps" [SmartMoney]
(Photo: Getty)