Bing Blog

Help! We're being sucked into the overdraft!

Checkbook

Those who wonder why the President took a hectoring tone last night with the guys on Wall Street who run the banks that run the banks that manipulate the markets that shape the economy need look no further, I think, than the story sent in by Laura Cosino in Cincinnati, Ohio. It's an inspiring tale -- if you're an accountant. It demonstrates just how creative and innovative that profession can be, particularly when its practitioners work for a big institution that makes its own rules. Laura writes:

"I actually let my bank know how much I appreciate Over-draft protection! I got a letter in the mail stating that I was $374 over-drawn and they would like me to do something immediately. I was confused by this because I didn’t remember making any purchases. It turned out that I had overdrafted my account by $1.36 through a subtraction error I had made in my checkbook. I called the bank to tell them there was a mistake! I had only overdrafted one time, but yet they had charged me 7 overdraft fees. I told them that I had gone through my check register multiple times and no matter how I did it, I was only short on one transaction. They informed me that they don’t do their accounting the same way as I do, they don’t deduct the transaction the same day that it is made. The bank likes to put everything in “pending” deduct it from my balance, then pick the largest transactions and let them clear first (they thought larger transactions may be more important-paying a credit card bill) and after they do that…they leave all of your other small transactions for the end. They then pay those transactions, and charge you a fee for every single one. I was totally confused by this, I don’t remember my high school accounting class teaching to balance your check book this way. Needless to say, they don’t refund any charges no matter the reason…and according to the rep on the phone, there is no one higher at Fifth Third Bank than him."

Too bad, Laura! You're out of luck. We all are, actually, if the audience at that fund-raiser gets its secret druthers. They might have paid $30,000 to attend their public flogging, but I would venture to say that not one person in that room is willing to submit to the lesson that was articulated. And when Finance is allowed to implement its own ideas of regulation and control we can all look forward to being caught in the overdraft.

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I don't know, Bing! There are stories like this everywhere, but somehow I still don't feel one bit personally threatened. The practice of keeping my account positive, no matter what order you do the transactions, just seems too darn simple!

This I do know, though. Laura did not have 7 transactions all sufficiently less than $1.36, that any ordering of them could have caused the situation she described. Her story hangs together not the least . . .

For those that are effected by this malady,,,the solution is to set up your own overdraft account,,it's called a cookie jar,,,you can borrow from it but you must pay back to it the same time as a regular bank with all the same penalties,,,you could end up learning new math skills,personal restraint and get a real view of how money is made and lost..

Bing,

I had the same thing happen to me. Luckily it was only 2 items. I went into the bank and spoke with the bank manager and got 1 fee waived. Then I went and joined a credit union and closed that account.
My favorite investment quote: Bank at a credit union and invest in a bank.

Then there is the real reason for the 'public flogging'.

It was a great show for the Little People.

The bankers wouldn't pay $30,000 per seat if they thought Obama would really change anything about their business model. He's had almost a year already, and hasn't bailed out the Little People.

Obama would not ask $30,000 per seat if he had any intentions of ticking off his 'guests'.

It was a great show for the Little People.

Laura can find pleasure in knowing that people who live that close to zero are the bank's favorite customers.

I can see the need for regulation regarding credit card practices. I've taken to paying all my credit card balances off weekly to defeat the bank's practice of moving the billing cycle due date around and other trickery to gain "late" fee revenue.

The overdraft situation is completely different. Your checking account is not a line of credit. Don't write checks you can't cover. Problem solved.

The only "overdraft" scenario that needs to be regulated already is. Banks are already required to process payroll deposits within specified deadlines.

Laura's story doesn't hold up, in my book. She'd need a lot of very small transactions < $1, or repeatedly falling just below $0 for that to occur. I'm doubtful.

I got my first checking account when I was 15, back when that was allowed. My father had me write my first check out to myself, for $50, and had me deduct that from my balance. That way, even if I was down to "$0", and had that $50 there. Bouncing checks was not a matter of "overdraft", it was a matter of not handing anyone a "rubber check" *ever*. A person's signature on that check was their "word."

Many years ago I worked for a bank that was about to launch a free checking account. I could not understand how we would make money in this product. That was until I heard that the profit would come from those who bounced checks regularly and paid the fees for overdraft. As it turns out this group of people have jobs, can pay the fees, but simply cannot help themselves from over spending. They are honest people who just had to have a latte or a small purchase (non-essential) that they just couldn't wait for their pay check to catch up.
Today it seems that the banks have found a way to rapidly increase these fees and compound them.
Is it the bank's fault that you cannot add or subtract? Nope.In fact they are counting on it.
It really gets back to personal responsibility rather than the evil bank. The bank saved your behind by honoring your checks.
It is really hard to over spend when you pay in cash.

Wall Street bankers are money managers, traders & investment bankers.

They do not issue consumer checking accounts. Retail banks offer checking accounts. Creating new regulations on overdraft fees will not impact their revenue stream. It might actual increase their income.

Tighter regulations would negatively affect retail bank revenue. So we should see their stocks take which could drive more short term trading. Shareholders would push the retail banks to replace their lost revenue stream. So the i-banker would promote various M&A activities or new financial products as quick fixes to the lost revenue...

The Federal Reserve has drafted a new set of rules to protect credit card holders from unfair practices by card companies. Unfortunately these don’t go into effect until 2010 and in the meanwhile, card companies are moving fast to make changes to boost their profits from fees and late payments.

Next time you get an updated customer agreement to read and sign from your card company, watch out for any changes that are meant to circumvent the new rules set to take effect next year.

For more go to:
http://www.themoneyladder.com/index.php?option=com_content&view=section&...

Smart Money Advice For Smart young People

Please people - bank with a credit union! A corporate banks' first goal is to create profit (by taking your money).

If she is the sort of person who actually balances her checking account, the bank should be making more of an effort to keep her. Banks want you to think they are the ones to make the rules. That attitude changes when you explain that the bank plays by your rules, or else they don't get to play with your money at all.

Beware the Undertoad.

John Irving

Chad is quite correct about credit union behavior. I've dealt with the same credit union for over 30 years...and never had a bit of friction. Many of the same people that ran the outfit 30 years ago are still there. The total greed component simply is not there; profit stays here, and doesn't wing off to some scheming corporate sh*tbag of a banker back east.

To paraphrase Mark Twain; "suppose I was a banker. Then suppose I was a sh*tbag...but I repeat myself".

I went to my bank to pay the entire balance on my credit card with them nad cancel that card. The bank called their credit card operations and the total was exactly $317.46, which I paid with cash-exactly. Even made sure I got a receipt "paid in full" I went back to Africa. Three months later, I went to my bank for another matter and they said what about your past due credit card balance of $78.26? Turns out I was charged 8 cents interest on my paid off balance for the one day it took THE BANK for "waiting time" to make sure the cash payment cleared. Each month I had been charged $25 late fee plus interest for the 8 cents. The bank relented after I said I want my my checking closed now and please that will be $211,981 in cash now as well it is a demand deposit and I demand Cash NOW.

It really gets back to personal responsibility rather than the evil bank. The bank saved your behind by honoring your checks.
It is really hard to over spend when you pay in cash.

Posted By Pete Thousand Oaks CA

Pete,, I think I was trying to say/write that,,but you say/write it much better than I could have..

This would be part of the reason I don't use a commercial bank. I used to have an account with Bank of Boston after it purchased my previous bank. I would be overdraft multiple times a year. I moved my banking to a local credit union and have not had an overdraft situation in the ten years that I've been with them. Funny that when you're not paying fees up the wazzu you have more money in your account.

Again, that's what happens when you live beyond your means,,,,darn! if a $1.36 error translates into overdraft, you are definitely living beyond your means,,!!! Solution: do not live beyond your means, be honest with yourself and your finances, you dont need that extra pair of shoes, or pants, or shirts, buy generic brands, keep your car for 10 years, brew your own coffee,,, why is that so hard?????

Spending, spending, spending,,,, spending more that what you make is definitely NOT the American way of life,,,the American way of life is working hard, be financially conservative, saving money for rainy days (there will always be days like those!!), teach our kids about the above. Spending, spending, spending is un-American,,,,look at the life led by past generations, generations who really built this mighty country,,,I do not see today's stupidity, irresponsibility and recklessness,,and for that I blame the stupid, good-for-nothing, generation of the 60's, those boomers that, thank good, are going away, finally!!!.. and not fast enough!!! Thanks for the damage, now please get out of the way so we can repair what you did!!!!

Bing, for the life of me I can't understand how you would think that a depositor's indifference to writing a bad check is the bank's fault. If Laura wants to live close to the financial edge by keeping an extremely low balance in her account, then that's not the bank's problem.

I admit that the accounting scheme that allows the bank to pick when to deduct an amount is a nasty little surprise, but that should be fixable pretty easily. Financial irresponsibility, on the other hand, is a harder habit to break for some.

I've got to weigh in on the side of the consumer. Most of the comments to your blog seem to say that if you make a mistake in math or timing the banks are morally justified in taking you to the cleaners.

I have been a careful user of my checking accounts for nearly half a century. I used to balance my checking accounts once a month -- now I do it almost once a week (thanks to online bank statements!)

Not so long ago I had a loan officer tell me he showed my credit report around the office -- it was the highest score he had ever seen!

Still, life happens, and in the past year I've had to work close to the edge. A couple of times I lost the horse-race between a paycheck deposit clearing and a credit card payment due-date, and I got slapped with hundreds of dollars in overdraft charges.

Fortunately I've been able to call my bank and get the charges reversed, most of the time. But I know lots of folks who are just not that savvy or on top of things, and would have ended up paying huge overdraft charges.

Nobody is out there trying to make a killing by overdrawing their checking account! Almost always it's honest people who made a simple screwup.

The banks are certainly not out hundreds of dollars covering an overdraft that happened because a paycheck hasn't cleared yet. (Especially when that check clears in milliseconds, but the bank doesn't credit if for days!) The actual cost of an overdraft might be a few bucks, tops. Those huge fees are simply robbing someone who has stumbled.

Does the Federal Government have the right to regulate overdraft fees? Tell me, do you as a consumer, get to negotiate them with your bank? If the banks can dictate the rules to you, your government -- WE THE PEOPLE -- has the right to say "not so fast".

I will offer one word of advice -- cut up your debit cards. It is all to easy to lose track of your checking account balance if you are using a debit card.

I love how many people are willing to just attack the woman for the overdraft. I remember a time when I always had, at bare minimum, $1,000 cushion in my checking account. Any lower and I started to panic. And then I got laid off. And then I spent months on unemployment as I hunted through an ever shrinking job market. And my cushion was gone. See, 'cause when you're on unemployment your income drops, but your bills don't. And I've never lived above my means- many have been known to taunt me for my supposed cheapness.So, suddenly, how my bank processes my payments vs when my check comes in is very important to me. As it is to a lot of people. Including this woman who made a single math mistake that should have caused a $2 overdraft and ended up costing her $374. How does that not seem excessive to all you smug people?

Well, pardon me for being smug, Jim; but when I was unemployed, my bills certainly did drop. That's because I STOPPED SPENDING. Now, if you don't want to stop spending when you don't have any money, that's your problem.

one problem, credit unions have moved to this new "stategy" for posting transactions too. money=greed

Guess I should've been more clear. When I mention bills, I'm talking about rent, utilities, food, car payment, student loans. Stuff you can't just decide to stop paying when times get tough. If these things didn't pose a problem for you when you were unemployed, you are fortunate- not somehow blessed with better sense than other people, which is why I choose not to pardon you for being smug.

Jim, they are indeed quite smug. There's a very big difference between a reasonable profit and taking advantage of people in a rapacious and predatory manner. The responses of some bloggers reveal a lot about their character.

It appears there's two camps in the blog...those that ascribe to the axiom to 'never give a sucker and even break'...and those that believe such an attitude is unconscionable.

The older I get I find that our real worth in life relates in how we can be of service to each other....not in how efficiently we can fleece the next fellow. It's served me pretty well...I don't have a house in the Hampton's, a Lear Jet, a string of ex-wives and ex-children, but I'm comfortable, and I can look my coworkers in the eye without a sense of guilt.

As Wil Rogers said, "We are all ignorant, just about different things". I wonder how the 'fiscal superman' would feel about their physicians, attorneys, children's teachers, (and everybody they depend upon to help them navigate life) subscribing to the same totally self serving mantra as P.T. Barnum's taking advantage of their very real ignorance in each of those disciplines to feather their own nests? Of course they scream like little girls (and indeed they do when they find one of those professionals behaving in such an 'unprofessional' manner).

Perhaps that's one of the attractions of a business life; where else would one be a scoundrel and be celebrated by one's peers?

My belief is that being professional goes well beyond personal interest. The business community often describes itself as 'professional' but I'll be damned if I can discern any real code of conduct beyond the zeal for money.

They do, however, wear nice suits, shoes, and LOOK professional. And for most business people that's enough to prove their worth to society. The whole thing is wearing a bit thin with the rest of us....so don't be suprised to see some rather severe regulatory over-reactions for the years of abuse you've perpetrated. Like all tragedies, even the good suffer with the bad. You're TOUGH businessman (and businesswomen) so suck it up, and take your beating like adults.

Warning, smugness follows. When I was unemployed for eight long months, my mortgage payments dropped because I had been paying down the mortgage with extra payments, and that stopped. My utility payments dropped because I kept the heat just high enough to keep the pipes from freezing and got used to wearing sweaters, gloves and hat around the house. My food expenses went down because a $.99 head of lettuce makes a lot of salad, and soup can be had for about $.50 per can. My car payment? Why have a car payment? I buy used and cheap, for cash. Student loans? I moonlighted for three years to pay those off early, so they were no longer a problem. I never wrote a bad check.

People with even a little bit of financial sense make plans, and then adapt from those plans, for when times are tough. They don't go around bouncing checks.

I don't think that corporate rapaciousness is a wonderful thing, but I also find nothing admirable or even pitiable about people who lack the basic morality to not spend more than they have. Instead of whining about being a victim of big, bad business, why can't people just decide to be fiscally responsible instead of being a victim? I find the pervasive victim psychology of the typical American every bit as unconscionable as the rapacious and predatory psychology of the banks.

WARNING, extreme smugness follows.

I'm well past normal retirement age, though I have access to substantial pensions (both deferred and benefit defined), but continue to work. I owe all of my success and continued well-being to nobody but myself. Through decades of organizational crises I found myself successively propelled ever upward, and the chaff (so to speak) let go.

Since my training, experience and skills have been so valuable I've truthfully never once been unemployed in my very long working life (finding oneself unemployed is obviously due to a combination of poor character traits such as laziness, unworthiness, general shiftlessness, lack of initiative, poor dental hygiene, and excessive reliance on government handouts).

Plainly, to go without adequate heat, food, housing, education, or transportation is well deserved and a product of one's personal shortcomings. Steve, I applaud your willingness to 'man-up' and accept your due. While not evidence of success, you at least avoid the sniveling and whining we both find so very distasteful.

Wow- that is a lot of smug. (repeated use of the word is making me giggle at this point) Let's put aside the fact that you are some paragon of virtue for one moment- I've no doubt the pope will be calling to set up that canonization any time now- and return to the crux of my point, which I think got lost, even to me, at some point. The point was- you know very little about the actual, specific circumstances the woman in Bing's example is in. Maybe she is some bubbleheaded flake who has overspent herself into oblivion without regard to the future. Or maybe she is a model of frugality who happened to run into hard times. Or maybe she's just an average person who, again, forgot to carry a two when balancing her checkbook. None of that matters to the essential point in the post- which is that the banks charge excessive overdraft fees in a fairly arbitrary manner. You are free to argue that the bank's method of deducting charges from your account, and the amount they charge in overdraft fees after making these deductions, is just fine- even commendable. Or, like me, you can say they seem a bit excessive. Either is a legitimate argument. But you're not really arguing that at this point. Instead, you set up as judge of some person you don't even know. Sometimes people make legitimate mistakes. Sometimes, they make stupid decisions. And sometimes, hold on to your hat, large companies take advantage of their customers because they can. One of the reasons they can, by the way, is because people like you refuse to even consider the possibility the company might ever be wrong.

Jim, you distract him while I sneak up from the rear and give Mr. McSmuggles a huge superwedgie!

Can anyone tell me what the difference is between the banks convuluted explaination of their accounting system and our politicians explanation of how health care reform will save us all money.

Those of you who say it is the personal responsibility of the consumer. You are right, but you could say the same thing to those who used to go to a loanshark. They were given a loan and then charged unreasonable interest on those loans taking advantage of the most desparate and broke. These banks are no better and in many cases worse since they have a inocent front just waiting for that one mother who has to buy some food for her kids a few days short of pay day, that puts her negative, and then gets charged for all the charges that were still pending. She ends up with a $400 fee for charging $40 for groceries and now she is -$400 for the next cycle which will more then likely lead to more and more fees. It is a bad practice that should be illegal. To charge $40 for a $.01 over is a little high don't you think. A fee should be a percentage. Not a flat fee with more fees attached for every day overdrawn. Most of the time their account won't even reflect the negative balance until a week later and $500s in fees. During that time folks think they have money and charge more which leads to more fees. Some banks will go back in time and charge as much as they can. My complaint comes when I deposit Cash with my bank on Friday, they say it is available immediately, com Wednesday I find out it wasn't available till Tuesday and they have charged me hundreds in fees. They had my money on Friday, but I pay for fees on things bought up to three days after I deposited it. Rip Off.

Oh no Craig....most of the boneheads in here will say it's always your fault when a bank (or business of any type)treats you like a sap. Being the paragons of moral and financial rectitude that they are, they'd even argue that the bank is doing you a favor....'learnin' you a good lesson. In fact, everything that goes wrong, ala Dr. Dyer, or Dr. Phil, is your fault. You accepted being a victim; therefore it's your fault.

The same arguments were once extended to justify racism, genocide, land theft, child labor, domestic violence and a whole slew of other inequities that one group wanted to perpetrate at another group's expense. As always, the business community is always resistant to relinquish any of its so-called 'rights', regardless of how repugnant those rights may be.

We can, however, always count on business to be on the cutting edge of all greed related activities...so I guess we've got that going for us.

This is a dubious story. If one was truly balancing their check book (as taught in high school) one would have realized that a lot of items were pending. After all, checks take a few days to clear. During this time they are pending. Similarly, debit cards take some time to clear (because the merchant processes all of their debits at one time to save on a batch fee). During this time they are pending. If one starts balancing their checkbook by calling their bank and asking for the balance in the middle of the week and starts with this balance, there will be both checks and debit card transactions that have not cleared. High school teachers used to teach this skill. . . .

Laura I empathize with you. Just a few weeks ago I went to make a purchase at the store, and the cashier clerk made a mistake and added too many zeros. She gave me a receipt showing she refunded the amount back to my debit but when I check my bank statement on line, not only was the charge still there but it was also in pending status, in which the transaction amount had a hold on it and charge two other times and before the hold was taking off or I could get to the bank to show proof of the mistake I was charged several over-draft fees, for something that was not my fault. Even though I was credited back for the fees, I still felt like I was robbed and I had no control over my own money, and the mere thought of being charge a large sum for a small mistake is ridiculous and banks should not be able to take advantage of the less fortunate period.

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