Consumer watchdog launches overdraft inquiry

[babylonsister]

Consumer watchdog launches overdraft inquiry

By Ylan Q. Mui, Wednesday, February 22, 12:10 AM


The Consumer Financial Protection Bureau is expected to launch an inquiry Wednesday into banks’ overdraft practices, which have been in regulatory crosshairs in recent years.

The bureau said it will look into whether banks are reordering customers’ debit-card charges to maximize overdraft fees. Reordering transactions can double or triple penalties, and the practice has been the target of several class-action lawsuits against the nation’s biggest banks.

The CFPB’s inquiry also will focus on bank overdraft policies, how they market the plans, and their impact on low-income and young consumers. The agency will solicit feedback from the public.

“Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it,” CFPB Director Richard Cordray said in a statement. “We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees.”

more...

http://www.washingtonpost.com/business/economy/consumer-watchdog-launches-overdraft-inquiry/2012/02/21/gIQAwaKSSR_story.html?wpisrc=nl_wonk

[Brickbat]

1. What, there's a question on whether banks do this?

Here, I'll save the bureau some time and effort: Yes. Yes, banks clear drafts in order to maximize overdraft fees.

[ProSense]

2. NYT article:

Consumer Inquiry Focuses on Bank Overdraft Fees

By EDWARD WYATT

WASHINGTON — The Consumer Financial Protection Bureau is beginning an inquiry into how banks levy overdraft fees they charge customers who bounce checks or withdraw more than they have in their accounts using debit cards or automated teller machines, the head of the agency said Tuesday.

Richard Cordray, the director of the bureau, said the inquiry would focus on whether some banks misled consumers in 2010 when they put in place new Federal Reserve regulations for overdraft protection. The agency will try to determine whether banks routinely reorder customer transactions to maximize potential overdrafts, and will seek data on the effect of overdraft fees on young and low-income bank customers.

Coming a little more than a year and a half after the Federal Reserve issued a new set of regulations governing overdraft rules for banks that issue A.T.M. and debit cards, the renewed scrutiny is unlikely to please bankers, many of whom are already wary of the regulatory burden they say the consumer bureau is likely to impose on banks.

In a speech on Wednesday to bankers and consumer advocates at the Roosevelt House Public Policy Institute at Hunter College in Manhattan, Mr. Cordray plans to announce that the consumer bureau will request data from banks about practices and from consumers about their experiences with overdraft fees and protection.

- more -

http://www.nytimes.com/2012/02/22/business/bank-overdraft-fees-to-be-scrutinized-by-consumer-bureau.html?_r=1

[babylonsister]

3. 'unlikely to please bankers'...that's a shame. nt

[Matariki]

8. Yep. No wonder appointing a head to that agency was so vigorously resisted by the Repubs

[FarCenter]

4. Banks should always return overdrawn checks so the payee can press fraud charges.

Writing a check against insufficient funds is often fraud.

The depositor should pursue the matter with the police and criminal courts.

http://www.ckfraud.org/faq.html#2

[denverbill]

6. Yes, because nobody ever accidentally overdraws their account.

Anyone who does should be criminally prosecuted.

Jesus what a moronic statement.

[FarCenter]

7. If there was no intent to overdraw, then it is not criminal fraud.

On the other hand, if the drawer of the check wrote it knowing there were insufficient funds, then it is criminal fraud.

[denverbill]

9. The article is about debit card transactions.

So in the first place, the bank knows exactly how much money you have when you make the transaction, so if they suspect fraud, why don't they just not approve the transaction? But that's beside the point.

Many people use their debit cards almost exclusively and don't carry cash. Say I have $100 in the bank. I buy coffee for $5, lunch for $10, gas for $10, and then spend $110 buying groceries, which the bank approves, all on my debit card. If they processed the transactions in the order they occurred, I'd get one overdraft, for the $110 I spent on groceries, as I had enough money in my account for all 3 of the other transactions. Instead, they process the $110 transaction first, and charge me overdraft fees on that and each of the other 3 transactions.

You think that's OK? Because that's exactly what the banks are doing and it completely screws over people who generally can least afford it.

[FarCenter]

10. Transactions aren't processed when they are made.

Banks collect all the transactions for the day and then post them against the checking accounts in an overnight run that closes the book of business for the day and updates all the account totals.

https://www.firstcitizens.com/meet-first-citizens/customer-service/faqs/posting-order-changes/
is a good description of one bank's posting order. Banks post in different orders. I've heard claims that banks were told by customers that they want the largest transactions posted first, since presumably the largest transactions are the most important and they do not want large checks returned. This was carried over as the posting order for debit card transactions.

Note that PIN debit and signature debit card transactions may be processed differently.

The solution is to keep your check register updated with all transaction and to not spend money you don't have.

Only FedWire is real-time good funds.

[denverbill]

11. Sorry but I don't buy it.

"banks were told by customers that they want the largest transactions posted first"

If you've 'heard' that claim I suspect it was on the National Banking Association website or someplace like it. Who on earth would possibly want as many overdraft fees or bounced checks as possible? It reminds me of the banks talking about when they changed from refusing to allow debit cards to overdraft to allowing the overdrafts. "Oh, customers didn't want the embarrassment of having their cards refused." Yes, sure, I'd rather pay $50 in overdraft charges than suffer the embarrassment of pulling out my credit card instead of my debit card.

I haven't kept a check register in 15 years. I monitor my balance online. I can't remember the last time I overdrew my account, probably because I almost always keep at least $1000 in there. I didn't have that luxury when I was in my 20's and 30's, and neither do tens of millions of other Americans who are struggling to pay their bills every month.

The solution is for taxpayers to demand that the federally-insured banks don't treat their poorest clients like their own personal punching bags, maximizing their profits by charging ridiculously high overdraft fees and cash advance fees. It's fine to penalize overdrafts, but maximizing the penalty at the customer's expense is a lousy thing to do. I'm glad the CFPB is finally there to speak up for consumers and protect them from this crap.

[denverbill]

5. Three cheers to the CFPB for this. Back when I was broke the banks screwed me royally on this.

I know that's exactly what they do. They process the big check/draft first, so instead of getting one overdraft charge you get multiple charges. As usual, this impacts the people who are least able to pay.