Road To Overdraft Hell Paved With Floats

The short answer to the questions raised in “National City Bank Loves Inexplicable Overdraft Fees” is simple. If you’re a broke-ass, don’t fuck with float.

We got into gobs of trouble in college ourselves by “keeping track of it in our heads.” Nu-uh. Doesn’t work. We didn’t beat the overdraft genie until we started keeping a spreadsheet with debits and credits and making a hard rule to never make a transaction unless our money was definitely in the bank.

The long answer, provided by an inside man at a financial institution, after the jump.

“As the IT Manager of a financial institution (but not the one in question), I would like to comment on your story. I know it is a bit long, but I tried to bang out something that made sense. Here’s the skinny…

Checking accounts have TWO balances. “Ledger Balance” is what we all think of as “Balance” and it is how much money you have in your account. This is the balance that is being shown in the online banking system screen shot you have in your story. There is, however, another balance that this particular institution does not do a good job of showing to the consumer in that screenshot. It is the “Available Balance” and there can be a world of difference between the two. Please allow me to explain.

There are typically two reasons that Ledger and Available will differ. The first is deposit holds. When you deposit checks into a checking account, your bank can place holds on those funds subject to a quasi-law called Regulation CC.

Reg CC specifies how long a bank can hold a check depending on the location of the institution that backs the check. For “local” banks, funds must be made available on the second business day following the day of deposit. This is known as a “2 day hold” and is the quickest an institution must make funds available most of the time. There are all kinds of exceptions and exclusions, but they are spelled out in the link above.

The second reason that your available balance might be substantially less than your ledger balance is called a “Debit Hold”. These holds are not regulated in the same way as deposit holds and can work a few different ways, but to understand these holds you first must understand how debit transactions work.

When you go into the 7-11 and swipe your card at the gas pump, they put an “Debit Authorization” on your card. The merchant can request either a “Hard Hold” or a “Soft Hold” authorization based on the configuration of their terminal and their agreement with their merchant provider. If they request a “Soft Hold” on your account and you have the money, that hold is issued but it does NOT affect your available balance. On the other hand, if a “Hard Hold” is requested, your Available balance is decreased by the amount of the authorization. Now once you are finished pumping gas, the merchant processes a Debit Completion which references the Debit Authorization. This completion has the actual amount you will be charged and will remove the hold (either hard or soft) that was placed when the authorization was issued. You may be asking yourself how much that authorization hold will be. It is whatever the merchant wants it to be. It could be one dollar or a hundred dollars.

If you think all that is confusing, you haven’t even gotten started yet. Try checking into a hotel. They often make a Hard Authorization for a large amount of money that puts a hard hold on your account that they never even use! Many times these Hard Holds will hang out on your account for WEEKS!

Most people don’t ever notice that this process happens every time you swipe your debit card as a signature-based transaction. Those holds appear and disappear without incident. The banks just post the transactions, and they are not always right. On the other hand, that online banking screen is NOT the whole story here either. In most cases where the consumer is not at fault, it comes down to bad practices at the merchants not bad practices at the banks.

The thing that would fix this problem for a lot of folks is simply more information. We need online banking systems that show the consumer how their available balance is being affected by holds. We need to show who has placed those holds and why. I suspect that if such a system were in place that the institution in question, this issue would never have made it to Consumerist. It would have been open and shit and the guilty party would be obvious.”