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Banks cooking books to collect more debit card fees

by Broderick Perkins

(12/9/2011) ERATE Exclusive - Consumers - occupiers all - take note of another reason to dump your bank and focus your protests: some financial institutions manipulate your debit card transactions so they can squeeze you for maximum overdraft fees.

Akin to book cooking, some financial institutions re-order your transactions so they aren't subtracted from your account in the order you made them and that can cost you big-time, according to research from the Center for Responsible Lending (CRL)

CRL applauds Bank of America and Citibank for ending high-cost fee-based overdrafts for debit card transactions. They will only let over drawing transactions go through if you have debt card transactions linked a back-up checking account, savings account or line of credit to cover overdrafts and prevent overdraft charges.

Unfortunately, many banks and even some credit unions still automatically approve debit card transactions and if you overdraw they will charge a fee that averages $30 for each transaction made while you are overdrawn, even if you are overdrawn by a very small amount.

Making matters worse, some banks reorder your purchases so that overdrafts are triggered sooner than the order of your transactions would actually warrant.

Federal rules force banks to notify debit card holders of their right to opt-in to request overdraft fee "protection." Debit cards are typically attached to checking or other liquid accounts and are used instead of checks to make purchases and ATM withdrawals.

If the cardholder opts-in for protection and overdraws the account he or she will be charged an over draft fee.

If the cardholder does not opt-in for overdraft protection and attempts a transaction exceeding their debit card account balance, the financial institution must deny the transaction without charge.

The cardholder also as the option to back up their debt card account with another account. In this case if the cardholder overdraws the debit card account, funds will be drawn from the backup account.

Denying charges against an account with insufficient funds was how banks conducted business decades ago, until they discovered cash cow overdraft fees and began making what amounted to unsolicited loans that can cost more than payday loans.

After the federal opt-in rules sought to give consumers protection against the exorbitant fees, banks resorted to heavy marketing and scare tactics to keep consumers hooked. They also, temporally tried to charge usage fees, but consumer black lash ended that rip-off.

Consumers have the same power over overdraft fees triggered when banks reorder your purchases. Find a debit-card bank that doesn't jack you up. Join protests working to stop the practice.

Here's why, according to CRL.

If you've opted-in for overdraft protection and start the day with $90 in your checking account and buy a $5 cup of coffee, $30 worth of gasoline and a $100 pair of shoes, in that order, you won't trigger the average $34 overdraft fee until you buy the shoes.

If, at the end of the day, the bank cooks the books and reorders your purchases, subtracting the $100 first, that immediately triggers an overdraft fee, but it gets worse. Each subsequent purchase further overdraws your account and could also trigger additional overdraft fees.

You could end the day racking up $102 in overdraft fees.

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