Do the Math:Debit Card Users Beware

As consumers everywhere tighten their belts due to the looming economic recession and the credit crunch banks have found another way to prey on already strapped, unsuspecting consumers.  Banks all over the country are imposing higher checking fees and almost criminal overdraft fees on account holders.

According to a report released in USA Today, banks are using tactics such as transaction sorting or high-to-low clearing in order to cause consumers to overdraft their accounts resulting in numerous overdraft fees.

Here’s how it works: If you have several small transactions ($8.59, $4.76, $2.39, $21.62, etc.) and then a larger transaction ($97.22), in that order, your bank chooses to pay the larger transaction first resulting in overdraft fees on each of the smaller transactions that would have cleared had the bank not sorted your transactions.  With overdraft fees as high as $33.00 at some institutions, this can cause some consumers to spiral deeper into financial ruin.  In our scenario above it would cost the account holder $132 in overdraft fees! That’s right, your bank can manipulate the order checks and/or debits in order to maximize on overdraft fees.

Large banks are more likely to process items in high-to-low order, the Federal Deposit Insurance Corp. found in a February survey, and about half of overdrafts occur at ATMs or via debit card transactions, which tend to be for smaller amounts.

Reportedly, the banks with the highest fees seem to be the ones that benefited the most from the recent government bailouts.  In June, Bank of America raised its monthly fee on certain checking accounts and impose a fee on accounts that remain overdrawn. SunTrust , meanwhile, is starting to charge customers a higher fee when they overdraw multiple times. Wachovia, now a part of Wells Fargo, has made it more expensive for some customers to transfer funds to cover overdrafts. And Citigroup (C) has raised foreign-transaction fees on debit cards.

Of course, banks say that consumers should balance their accounts and overdraft fees are in place to discourageme account holders from overextending their accounts.  Banks claim that their research shows consumers want them to clear those larger items for them because they are usually mortgages or rents.  However, most consumer advocates believe that banks want consumers to overdraft and make it easy to do so by approving the transactions for which consumers do not have the money in their accounts to cover.

In recent years, banks have also begun automatically covering consumers’ overdrafts — even if they didn’t sign up for a service — and then charging them a fee for doing so. This automatic coverage, which banks sometimes refer to as “courtesy overdraft,” has come under fire from lawmakers, regulators, advocates and even attorneys.

News outlets reported that in March of this year Bank of America (BAC) agreed to pay $35 million to settle a class-action lawsuit related to overdraft fees. The lawsuit alleged that BofA authorized transactions that led to overdraft fees and posted transactions in an order that increased such fees. BofA, in settling the lawsuit, denied the claims and said that its policies fully comply with federal law. The bank declined further comment on the lawsuit.

Some institutions have even been accused of holding deposits until after all transactions for the day have cleared, even though the deposit was made prior to any transactions.  This causes a major problem for consumers that rely on online banking and checking their account balances by phone, which is encouraged by their banks.  The balance(s) reflected are not always accurate or easy for consumers to understand.

Let us not become discouraged but rather be more informed consumers and stewards.  Remember Philippians 4:19!

Avoid Overdraft Fees with these Tips

• Balance checking accounts the old fashioned way  (This is a tough one for most of us)
• Use overdraft protection linked to a savings account to avoid fees (this must be specifically requested)
• Find out if the balances reflected online are accurate, real-time, balances including pending items
• Opt-out of courtesy overdraft by asking your bank to set the debit overdraw amount to zero (this will cause items you can’t cover to be rejected)
• Switch to a community bank or credit union

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