How do banks work?

[Xerxys]

Sounds like a dumb question huh? 1+1=2, 2-1=1, right?? Well then, kindly place this concept for me in the banking world. What about time stamps? I have provided an example of an exercise I carried out over the weekend in order to recreate the event.

We'll use Bank of America (BoA, Cause it's the one I used.) Numbers have been dumbed down to compensate for my comprehensive abilities. All amounts are inclusive of taxes.

Relevant points:

• BoA Charges $35.00 for every transaction that overdraws the account
• No overdraft protection was used in this instance so no funds were moved to compensate.
• Debit Card was a Visa ... if that's even relevant (...???)

Primary Account has $10.00 in it at 8:00 AM after all purchases have posted.

1:32 PM - $1.16 Double cheese Burger
1:54 PM - $1.00 Soda at vending machine
2:47 PM - $2.35 Pizza
3:32 PM - $1:00 Another soda
4:08 PM - $7:00 Withdrawn from ATM machine.

Hierarchy of purchases on my online account at the end of the day ... (no fuckin time stamps)

$ 10.00 : $03.00 - $7.00 Withdrawal
$ 03.00 : $02.00 - $1.00 Soda at vending machine
$ 02.00 : $00.35 - $2.35 Pizza
$ -00.35 :$01.35 - $1:00 Another soda
$ -00.00 :$02.51 - $1.16 Double cheese Burger
$ -02.51 : $37.51 - $35.00 Overdrawn item fee
$ -37.51 : $72.51 - $35.00 Overdrawn item fee

Essentially, if I would have let this go unchecked and deposited back the $7, I would have been charged for three items rather than one. Why is this? Why do ATM transactions post before merchant transactions?

It's horseshit and defeats principles of finance ... (wait, what's that? There are none?) I mean, if the purpose of being entrusted with a VISA card is to have enough funds to cover transactions, why don't they keep their end of the bargain and use the fuckin' time stamps???

This is predatory if you ask me ...

[Manic_Skafe]

It's funny how an overdraft of a few cents can cost you serious cash in fees but you agreed to these terms when you signed up for the account. If I've understood your post correctly, they fronted you a few bucks and charged you for the inconvenience of doing so. When charges post the account are irrelevant - you should know how much cash is in your account before you go spending.

It's doubtful that your overdraft really was a $35 inconvenience to them but that's why I always keep cash on me for the small purchases and watch my account balances like a hawk. Most banks will drop an overdraft fee if you talk to them about it but you should expect to be dripped dry for every penny if you're using one of those free checking accounts.

Wrong? Kinda. Predatory? Not really.

[Xerxys]

I totally agree but if this isn't relevant then I don't know, you see, Manic_Skafe, I only overdrew 1 transaction. They charged me for 2.

Didn't think about the agreement, I'm going to read the fine print and see if they really say that They can re-arrange shit like this so as to get the maximum amount of charges off you.

[Willravel]

I'd call it predatory, but predatory can still be prevented and it's the second wrong. Always, always have more than enough money in your account. As soon as you spend money that's not yours, and yes they get to write the terms of what constitutes "yours", you have to pay a fine.

I personally have been screwed several times by BofA. I only use them for checking now. Farmers and Merchants is by far my favorite bank, they've been nothing but lovely to me for as long as I've had money in a bank.

[shakran]

This is a common practice with banks. They stack the day's charges in order of amount from highest to lowest. That way 10 transactions that should have only overdrawn the account on the last transaction end up overdrawing it on 9 of them, and they get to charge you beaucoup fees. Even better than that, let's say you start with that 10 bucks. You withdraw 9, then deposit 20 in cash and withdraw another 19. They'll stack it so that the withdrawals are processed first, overdrafting the account, before the deposit. It should be illegal.

[Martian]

I would guess that if you asked the right person you'd get a lot of info about processing times and such. I don't know a whole lot about how the US banking system handles such things, but it sounds pretty backward.

In Canada we have an intermediary for the purpose, known as Interac. I believe it's jointly owned by the major banking institutions here. All debit transactions (including both ATM and point of sale transactions) are performed through the network, which is tied into the banks. If the funds aren't in your account at time of purchase, you won't be able to complete the transaction.

There is generally no fee to have or use the service at point of sale, although there is usually a fee for ATMs other than the ones branded as belonging to one's own financial institution.

I've never been interested enough to research the details of how it works.

Interestingly, overdraft protection is handled differently here as well. Rather than tying to your credit card, overdraft in Canada exists as a small line of credit attached to your account. This provides a lot more flexibility, and means that if I go over my balance by $1.50, I pay interest on $1.50 and not $100. Or I would if I had overdraft protection, which I've never felt the need to establish.

There have been a couple of rare occasions where I miscalculated and overdrew my account by a few dollars. This is invariably an end of the month thing and is the downside to the Interac system (easy to overshoot by small amounts). In those instances my bank has simply processed the order and charged me a $5.00 processing fee; I have no problem with this, as I consider the fee to be reasonable and it is, after all, my own damned fault. I very much would have a problem if the fee was $35, however.

I have no idea if this is standard way such instances are handled when overdraft protection is not in place. I would assume it's either because I have funds in my savings, or because I've been making regular deposits to that account for about a decade.

As an aside, a debit card in the US seems to be a very different thing from what it is here. It's impossible to get a bank account without one here and has been for quite some time. I quite literally use my debit card for everything these days. Even when I go to the actual flesh-and-blood teller I have to swipe my card and enter my PIN before she'll talk to me. Upside, aside from cashing a cheque I never have to sign for a damned thing.

Other than that, I can only parrot what's already been said (and is, incidentally, also known as Martian's Secret to Debt Free Living): don't spend money you don't have.

[Xerxys]

Originally Posted by shakran

This is a common practice with banks. They stack the day's charges in order of amount from highest to lowest. That way 10 transactions that should have only overdrawn the account on the last transaction end up overdrawing it on 9 of them, and they get to charge you beaucoup fees. Even better than that, let's say you start with that 10 bucks. You withdraw 9, then deposit 20 in cash and withdraw another 19. They'll stack it so that the withdrawals are processed first, overdrafting the account, before the deposit. It should be illegal.

HOLY SHIT MOTHER@#$@%@$#%^$ WHAT THE ^$%@$#^$ IS THIS &^@#$@

WHAT

Really? That is just nonesense!! Ohh My GOD!!

[Plan9]

Get an actual credit card. One with a rewards program would be recommended.

[Cynthetiq]

yes, they do that, and they also rank customers based on "profitability" for those that continue to do things just like that. Isn't it fun? Isn't this what life is all about? Isn't it a nightmare too????

I'm not sure that credit unions do such things.

yep that's why I don't trust the mutherfuckers with my purchases...

I pay with a credit card and pay off the balance, I do a mileage rewards card, so I have enough miles to purchase 2 round trip business class tickets anywhere in the world. All for the price of the annual fee $85x2. So far I cashed in 1 R/T valued at over $10,000 to go around the world. Prolly should consolidate that, but there's some benefits to seperate accounts.

But when they decide to start dicking us around, it's back to CASH. Planning purchases, and keeping enough cash for the week. The idea of the convenience and then they get to fuck you through the drive thru??? No fucking way, not on my watch.

[shakran]

Originally Posted by Cynthetiq

I'm not sure that credit unions do such things.

I'm not aware of any that do. I know for certain that mine does not. If you read Consumerist (and if you want to be financially educated, you should), they like CU's a lot more than banks.

[The_Jazz]

Originally Posted by shakran

This is a common practice with banks. They stack the day's charges in order of amount from highest to lowest. That way 10 transactions that should have only overdrawn the account on the last transaction end up overdrawing it on 9 of them, and they get to charge you beaucoup fees. Even better than that, let's say you start with that 10 bucks. You withdraw 9, then deposit 20 in cash and withdraw another 19. They'll stack it so that the withdrawals are processed first, overdrafting the account, before the deposit. It should be illegal.

Yeah, this is spot on, as well as shakran's later mention of The Consumerist: Shoppers Bite Back. You can learn a lot from that web site, and not just about banks. I read it daily, if for no other reason that to remind myself on what NOT to do for my customers.

I suggest calling the bank and complaining. The worst they can do is say "no" and you'll have wasted some time. At best, they may waive one or both of the overdraw fees. If you feel unsatisfied, move your account elsewhere - which is probably a good idea since BOA isn't the most customer friendly institution out there.

[Charlatan]

What a bullshit system.

It's a wonder that anyone uses their services.

My experience is the same as Martian's. The Canadian system is much more sane.

[Willravel]

I'm starting to wonder why I don't live in Canada. That kind of thing wouldn't happen here because the banks are way too powerful.

[Baraka_Guru]

Originally Posted by Charlatan

The Canadian system is much more sane.

...and stable.

[Charlatan]

Very true. The Canadian system didn't participate (in any large way) in the subprime nonsense that sucked the US economy into quicksand. Our regulated banks weren't allowed to do so.

[shakran]

Originally Posted by Charlatan

Very true. The Canadian system didn't participate (in any large way) in the subprime nonsense that sucked the US economy into quicksand. Our regulated banks weren't allowed to do so.

So what you're saying is that government interference in the form of regulation of business actually helped Canadian businesses by preventing them from having the floor yanked out from under them.


How fascinating.

[Xerxys]

Originally Posted by shakran

So what you're saying is that government interference in the form of regulation of business actually helped Canadian businesses by preventing them from having the floor yanked out from under them.


How fascinating.

I guess he must have meant to explain further by adding 'in a huge way'.

Thanks shakran BTW for the heads up about the consumerist website. I have no idea how I have survived all my life without ever visiting the site once.

[tooth]

If you had kept track of your money, you would have known that you wouldn't have enough to cover the ATM withdrawl at the end of the day.

Stop blaming the bank for your irresponsibility.

It doesn't matter what order they post the transactions if you keep track of your own shit.

[shakran]

Originally Posted by tooth

If you had kept track of your money, you would have known that you wouldn't have enough to cover the ATM withdrawl at the end of the day.

Stop blaming the bank for your irresponsibility.

It doesn't matter what order they post the transactions if you keep track of your own shit.

That's true that he shouldn't have overdrafted at all. However, if someone does overdraft, are you suggesting that the bank then has carte blanche to take as much money as they want from the guy? If the bank took the transactions in the order that they were made (i.e. didn't mess with the truth), then he would have overdrafted only once. But the bank wants to set it up so that you artificially overdraft more than once. I submit that we are responsible for our own actions, but not for the dishonest actions of the bank.

[tooth]

Originally Posted by shakran

That's true that he shouldn't have overdrafted at all. However, if someone does overdraft, are you suggesting that the bank then has carte blanche to take as much money as they want from the guy? If the bank took the transactions in the order that they were made (i.e. didn't mess with the truth), then he would have overdrafted only once. But the bank wants to set it up so that you artificially overdraft more than once. I submit that we are responsible for our own actions, but not for the dishonest actions of the bank.

If being able to OD your account with minimal repurcussions is your goal, then choose a bank that has more favorable practices. My bank posts deposits before withdrawals, so don't tell me that all banks behave like BofA.

As for what order the withdrawals get posted in, again it shouldn't matter if you are responsible with your money. Really, if it (ODing your account) were an anomaly for you, talk to someone at the bank to see if they will waive the extra charges. If it happens all the time, then suck it up and learn how to balance your checkbook.

[shakran]

Originally Posted by tooth

If being able to OD your account with minimal repurcussions is your goal, then choose a bank that has more favorable practices. My bank posts deposits before withdrawals, so don't tell me that all banks behave like BofA.

No one's telling you that ALL banks behave like BofA. Stop telling me that one mistake means the banks are justified if they lie, cheat, and steal any way they want from you. By the same token I don't think you should get the electric chair for jaywalking. Sure, it's irresponsible to break the law, but adding undeserved consequences to the punishment is uncalled for.

The fact is, if you start out with $100 and make 10 withdrawals of $1 and then make a $100 withdrawal, you overdrafted once. Not 11 times, as the banks would have you believe by monkeying with the (truth) (facts) times that you actually withdrew the money.

If the OP had OD's once, and had gotten one NSF fee, I'd have told him to quit whining and learn to balance his checkbook. But he didn't. He OD'd once and got multiple NSF fees. That's not right, it's not just, and it should be illegal.

You also in your eagerness to slam people for making simple mistakes seem to have missed the part where I pointed out that if you make a deposit, it's added into your account at the END of the withdrawal tallys. So even if I am responsible and deposit $200 into an account that had only $50 in it, if I then spend $75 that day, I will get an OD notice and an NSF fee, even though I have deposited enough money to cover what I spent. In short, you can be responsible and still get screwed over. Or is that also OK?

[tooth]

Originally Posted by shakran

No one's telling you that ALL banks behave like BofA. Stop telling me that one mistake means the banks are justified if they lie, cheat, and steal any way they want from you. By the same token I don't think you should get the electric chair for jaywalking. Sure, it's irresponsible to break the law, but adding undeserved consequences to the punishment is uncalled for.

The fact is, if you start out with $100 and make 10 withdrawals of $1 and then make a $100 withdrawal, you overdrafted once. Not 11 times, as the banks would have you believe by monkeying with the (truth) (facts) times that you actually withdrew the money.

If the OP had OD's once, and had gotten one NSF fee, I'd have told him to quit whining and learn to balance his checkbook. But he didn't. He OD'd once and got multiple NSF fees. That's not right, it's not just, and it should be illegal.

You also in your eagerness to slam people for making simple mistakes seem to have missed the part where I pointed out that if you make a deposit, it's added into your account at the END of the withdrawal tallys. So even if I am responsible and deposit $200 into an account that had only $50 in it, if I then spend $75 that day, I will get an OD notice and an NSF fee, even though I have deposited enough money to cover what I spent. In short, you can be responsible and still get screwed over. Or is that also OK?

But those(the timing of posting transaction) are all things that are dictated by bank policy and terms that you would agree to when opening your account. How exactly are the banks lying, stealing, or cheating if they are doing exactly what they said they were going to do when you agreed to do business with them?

[shakran]

The banks do not tell you about these policies when you first sign up for your account. They do not tell you that the day's transactions will be stacked up in order of amount so that they can unfairly charge you more when you make a mistake. They also do not tell you that you can waive the "courtesy" of having them cover overdrafts, and they do not tell you that (at some banks) you can set things up so that if the checking overdrafts the money is automatically deducted from savings, so that the bank doesn't have to cover it and you don't have to pay an NSF fee.

This is somewhat of a sidebar, but I just had (another) long conversation with my mother, who proudly thinks that the credit card companies love her because she pays her balance in full every month, and who thinks the bank loves her because she never overdrafts and always has a $2,000 reserve in her checking account that doesn't get touched in order to cover any problems. It's difficult to get her to understand that the credit card companies and banks actually hate customers like her because they can't make money off of them. Visa is much happier if you carry a balance all the time because they get to charge you interest. Banks are much happier if you overdraft all the time because they get to take a lot of money from you.

Look at it this way. If I have $100 in my account and write a $101 check, I get charged a $35 NSF fee. that's a 350% interest rate on the temporary loan the bank gives you. that's bad enough, but let's say I have $100 and I write, in order, checks for $1, $1, $1, $1, $1, and $99. The bank restacks it so that I have 4 overdrafts of $1. So for a 4 dollar loan, the bank charges me $140. That's a 3,500% interest rate. What the bank should have done was cleared the $1 checks and overdrafted the $99 check, loaned me the $4, charged me $35, which would have been an 875% interest rate - still extortion, but much more reasonable than several thousand percent. the NSF fees, as the bank will tell you, are to cover the loan. That means that they're really interest on the loan, but they're called fees because if the bank was honest and called them interest, they'd be prosecuted for violation of usury laws.

I stand by what I said originally. People should be on top of their checking account, but a minor mistake should not allow the bank to rape them financially.

[The_Jazz]

"tooth, at the next TFP meet-up, I'm going to punch you in the face. If you show up, prepare to take one in the choppers."*

Now, apply that idea to banking. The concepts are identical. It's an "if" statement. Sure, Xerxys never expected to get overdrawn, but the bank went out of it's way to screw him when he made a mistake. It was unexpected, and the bank went out of it's way to make it worse. I'm positive that they have to disclose this sort of thing, but how prominently do you think they do so?

*kidding. I'll buy you a beer instead, if that's what you prefer.

[Cynthetiq]

Originally Posted by tooth

But those(the timing of posting transaction) are all things that are dictated by bank policy and terms that you would agree to when opening your account. How exactly are the banks lying, stealing, or cheating if they are doing exactly what they said they were going to do when you agreed to do business with them?

all companies change their TOS all the time. they just have to send you a little pamphlet in the mail, it has all this small print on the 8 page gatefold.

You read it, you don't like what it says. You like the service they provide.....

Do you really cancel it?

Almost all contracts contain "mandatory arbitration" that removes the ability to go to court and sue the company. Yet, you've agreed to it in just about every single contract you've sign in the past 5 years. You've agreed to it even if you signed a different contract and they sent you the little gatefold.

[tooth]

Originally Posted by Cynthetiq

all companies change their TOS all the time. they just have to send you a little pamphlet in the mail, it has all this small print on the 8 page gatefold.

You read it, you don't like what it says. You like the service they provide.....

Do you really cancel it?

Almost all contracts contain "mandatory arbitration" that removes the ability to go to court and sue the company. Yet, you've agreed to it in just about every single contract you've sign in the past 5 years. You've agreed to it even if you signed a different contract and they sent you the little gatefold.

Again, it all comes back to personal responsibility and making choices.

If Jazz is going to punch me in the mouth the next time he sees me, I get to choose to go to a party with him don't I? If I show up at the party anyway and he punches me three times instead of once, sure he's being a dick, but I went to that party forewarned that something bad was going to happen to me, didn't I?

[snowy]

Xerxys, this is why my SO no longer uses BofA as his primary bank. BofA did the same thing and then refused to take redundant overdrafts off of the account; they said that the "system" wouldn't allow the local branch to do it. He's now switched over to the local credit union, where you can sign up for overdraft protection if you need it--it's not automatic. I use ING Direct's Electric Orange checking in conjunction with an account at the local credit union. I like the Electric Orange method of overdraft management; you can overdraft up to $250, and they charge you interest on the amount you've overdrafted like a credit card. So long as you pay it off in a timely manner, you're golden.

[The_Jazz]

I disagree that it's personal responsibility and making INFORMED choices. I added that word for good reason - if you're not informed before the event, it eliminates the personal responsibility aspect of the arguement. I don't think anyone here thinks that X didn't deserve to get the first overdraft charge. As others have said, too bad, dumbass, at least as far as that line item goes. But it's the second one that rankles on the rest of us - which actually puts us in the majority of banking consumers.

Personally, I started working with my bank, Chase, to make sure that I didn't get overcharged when I made a mistake. I've gotten my accounts set up so that it doesn't happen, but I'm the one who had to make sure that it was going to work in my favor and it took a while. The relationship, from the outset, was set up in their favor. Luckily, once I had enough money with them to get some attention from an actual banker, it became an easier process because I have someone who takes personal interest in my accounts and making sure that my money stays with them. If my wife overdraws her account and they hammer us with fees, he knows that I'll move enough money to be noticable (to him at least) to somewhere else that will provide better service.

Really, this boils down to a systemic failure of customer service within the banking industry over the past 20 years. They've become less interested in providing it - at all - and more interested in their bottom lines. There are exceptions here and there, especially if you have the luxury of having a big enough bank account, but for the most part, the average consumer is much better off using a credit union for their banking needs.

[Cynthetiq]

Originally Posted by tooth

Again, it all comes back to personal responsibility and making choices.

If Jazz is going to punch me in the mouth the next time he sees me, I get to choose to go to a party with him don't I? If I show up at the party anyway and he punches me three times instead of once, sure he's being a dick, but I went to that party forewarned that something bad was going to happen to me, didn't I?

I'm with you on personal responsibility. It's very hard to have personal responsiblity when the other side isn't being responsible or playing fairly. If they were would we not have a solvent banking industry?

Look even at the credit card payments and the credit card reform bill. Would we need such a thing if the banks were playing fairly?

read it and tell me that they were playing fairly. They don't play fairly period, with their credit card holders or with their depositors.

[Lindy]

Originally Posted by Martian

I would guess that if you asked the right person you'd get a lot of info about processing times and such. I don't know a whole lot about how the US banking system handles such things,....

Other than that, I can only parrot what's already been said (and is, incidentally, also known as Martian's Secret to Debt Free Living): don't spend money you don't have.

I directed my sister, who is a branch manager for a regional bank in Kansas, to this thread. She said it is full of conjecture and misinformation from people who hate banks, but really don't know how anything actually works. Here are some of her comments:

Xerxys, transactions don't even go to the bank in order. The timestamp is for the convenience of you and the merchant, not the bank. Businesses send out (what they call "settle") their debit and credit card transactions in batches, not continuously. A high traffic business (Target, WalMart, etc) may settle every few minutes. A small business (or vending machine) settle only once a day, at midnight.

An ATM is more likely to settle in "real time" because it is real money, not merchandise, and to keep track of how much money has been dispensed by the ATM machine.

In Kansas, (and she thinks all states) when the bank closes its business day (most often at 3:00 or 4:00pm) ALL DEPOSITS for that day MUST be credited before any debits are posted.
She challenges anyone to show actual documentation of it being done the other way.

Many banks do pay large drafts first. She says that this is to protect "high value" transactions. Most states have serious penalties for large NSF transactions. Also, do you really want the bank to pay a bunch of small items, and then have the $1000 check to the IRS, or your landlord or mortgage, be the one that bounces?? This practice is becoming less common with electronic processing, when each transaction would be paid in the order in which it is presented to the bank. But that still won't necessarily be in the order in which you made the transactions. And deposits would still post first.

Just some solid information from someone on the other side of the counter at the bank. She suggest that if you are really unhappy, to "vote with your feet." There are lots of banks, smaller banks, community banks, and credit unions tend to be more flexible.
She also suggests using cash for small transactions, because they are so easy to forget. And banks really don't like making $2.00 loans so you can buy a soda.

Lindy
On the road, in Kansas

[thingstodo]

All banks are basically the same. You're much better off using a credit card for all your purchases during the month and then paying the balance in full at the end of the month. No charges. Then, you can go on line and pay your credit card bill from your checking account the day before it is due. No extra charges anywhere. Your checking balance isn't bouncing around. Plus, if you dispute a charge your are OK but the money is already gone from your account if you dispute a check card charge.

Our set charges are automatically deducted from checking...things like car payments, house payment, set amount utillities because we are on the budget system with them. We might write 5-6 checks a year and get cash from the ATM every two weeks or so. Everything else goes on the credit card - gas, groceries, eating out - anything else. Get those Marriott points and stay in hotels for free!!

Plus, all of the above makes balance your checking account a breeze!

[Xerxys]

Thanks Lindy. What you say does make sense in the fact that incoming transactions performed by the debit card come in at different times ...

Bone of contention,

Before I withdrew the $7. I checked online on BoA.com, the transactions had registered. Not posted, but registered. The withdrawal was the last transaction that I performed. (Remember this was an exercise)

Anyway, in conclusion I called them and asked and noone on the phone knew what was up. The reps in the phone only knew that people called in with this kind of issue and were conditioned to NOT provided credits. I went to the bank and spoke to them about it. She explained to me the ethics behind it so closed mindedly much like tooth here, but waived the fee in the end.

I then closed my IRA and savings account with them on the spot. How's that for voting with your feet.

You see Lindy, I understand that transactions may post at different times ... but they cleared the cash register instantly. They simply never used their time stamps and shakran has it SPOT ON!!!

[shakran]

Originally Posted by Xerxys

What you say does make sense in the fact that incoming transactions performed by the debit card come in at different times ...

Not really (though I appreciate you saying I had it spot on later ). It doesn't make sense because if the bank tallies up the charges/deposits at the end of the day ( or any time, really, throughout the day. Doesn't matter if it's morning or night), then unless you are in the habit of making only decreasing value purchases in any one day - i.e. whatever you spend at one transaction, you MUST spend LESS at the next, and so on- Unless you do that, it doesn't make sense that the day's transactions are ALWAYS processed largest first unless they are being deliberately shuffled into that order.

Further the idea that "we're protecting the $1000 withdrawal by docking you for the $1 withdrawals" argument fails to hold water at all. You have "overdraft protection," which is really another name for "unlike the old days when hitting your limit would stop the transaction and keep your finances safe, we're going to let you think you have enough money until you get the NSF notice from us at which point you owe us a squillion dollars." If that big transaction at the end of the day would overdraw your account by $50, they're going to cover it just as they would cover a smaller transaction that would overdraw your account by $50. Claiming they're protecting large transactions by processing them first is just playing smoke and mirrors with numbers.

The banks are not out to protect your money. They are not out to help you keep your money any more than any other business is out to help you keep your money. The point of a business is to take money from you. Many businesses do so ethically, by giving you something of value in return. The overdraft protection scheme is not an example of such fairness.

This is important so I will say it again. If you don't have enough money in your account to pay for something, and the transaction is stopped as a result, then you haven't lost anything. You have the same amount of money as you did before. You just don't get to take home that Snickers bar quite yet. But if the bank, without asking you, "covers the overdraft for a courtesy fee," then you have just paid $36 for a Snickers bar. How exactly is this protecting your money? How is this in your financial best interest? The simple answer is, it is not. It is funneling your money into the bank's coffers.

What we have here, and no offense is intended to Lindy or her sister, but "them's the facts," as they say, is a person who is a direct beneficiary of the dishonest decreasing-value-processing scam trying to defend that scam. The more NSF fees that regional bank in Kansas takes in, the more money the bank makes, which not only equates to more money in the paycheck of Lindy's sister, but also job security for Lindy's sister. Such a biased source is not the final bastion of truth when it comes to banking practices.

Now Lindy's sister does bring up a good point that it is technically illegal for a bank not to process withdrawals first. But they get around this by having a "2-3 day waiting period" for deposits. Why does this matter? Because of electronic checking. You may not realize it, but when you write a check these days, it doesn't work like it did in the past. The check information is entered into a computer, and is immediately sent to your bank. It doesn't take two or three days for the check to find its way through the bank's systems before someone enters the information. By the time you bag your groceries, the bank already has the check in electronic form.

Why does this matter? In the first place, it belies the notion that various transactions come in at different times of day and therefore it's OK that the check you wrote at 9am is processed after the one you wrote at 2pm. In the second, think about what this means. The bank can instantaneously take money out of your account, without running it through a clearing process, but the check that you deposit to the bank, despite being entered into their systems right away, takes "2-3 days to process."

It's frankly a load of bunk. If the bank wanted to it could process the deposit check immediately by electronically sending the check to the bank of whoever wrote it, just like the grocery store does with your check. But, it's not in the bank's best interest to do that, because then your deposit would cover transactions that they could otherwise charge you NSF fees for.

[NoSoup]

Lindy is right - timestamps have little to do with processing order.

At the end of the day, it's common practice (and I'm sure in the fine print) that banks have the option to allow the credit to attempt to withdraw the funds twice - even if you are only overdrawn once, they still can try again, charging you another NSF fee.

Granted, usually it's done on one day and then the next, but ultimately it's the terms that you agreed to when you opened the accound.

Just so you're aware, I don't necessarily agree with the practice, but keep in mind what it was originally there for - it's to protect the folks that allow you the convinence of using your debit card/checks. It's frustrating for the consumer when the barely overdraw the account and are charged a whopping $35 for it, but that is the set price - if you would have bounced a $2000 mortgage payment the fee would be the same. It's a big fee - and it has to be. If it only cost an extra $1.00 every time you bounced a check, more people would do it more often. Heck, at a fee of $35 people still do it on a pretty consistant basis. It isn't fair to the vending company if you never deposited more funds into your account and basically stole the soda from them, either.

I'm probably a bit biased since I've worked at financial institutions for years, but it ultimately comes down to the customer's responsibility of keeping track of your funds. It can get frustrating (not to mention expensive) but it's a lot better system than keeping your paychecks stashed around your house in cash...

[Xerxys]

Then why don't the motherfuckers not pay the $2.00 and instead pay the $2000.00 then? No, they are not out for my interests.

[Lindy]

Originally Posted by Xerxys

I then closed my IRA and savings account with them on the spot. How's that for voting with your feet.

Xerxys, I hope you did a rollover to another IRA instead of actually closing it, which subjects you to both taxes and a penalty.
I know it is hard to act rationally when acting out of anger, but this is what they call "cutting off your nose to spite your face."
And any given bank could be a bad place to have a checking account, but a good place for savings, an IRA, or some other kind of account. I spent enough time in poverty that I learned to avoid irrationality with money. And that means I have to act like I'm in a buffet line, and take only what I want off the line. And I don't need to throw down the whole tray because the soup is lousy.

Lindy

[Xerxys]

Yeah, I have the papers still being processed to my coastal FCU account. After this friday's paycheck their stupid credit card is gone also.

It's gonna shit on my credit, I read somewhere Suze Orman said you don't shut down accounts but they are so full of it it hurts. I have to get this out somehow.

[Cynosure]

Originally Posted by Crompsin

Get an actual credit card. One with a rewards program would be recommended.

Yeah, do that. You think your bank is screwing you? You ain't seen nothing yet!

Originally Posted by Willravel

Always, always have more than enough money in your account.

Well, duh!

However, telling low income people in the U.S., who live paycheck-to-paycheck, "Always have more than enough money in your account," is like telling a commoner in South Africa, "Always have more than enough food in your pantry".

[MSD]

Originally Posted by Lindy

Xerxys, transactions don't even go to the bank in order. The timestamp is for the convenience of you and the merchant, not the bank. Businesses send out (what they call "settle") their debit and credit card transactions in batches, not continuously. A high traffic business (Target, WalMart, etc) may settle every few minutes. A small business (or vending machine) settle only once a day, at midnight.

If I buy gas at the nearest station to my house, they will not batch out credit cards for two or three days. If I have $20 in my account, spend $25 on gas then deposit $10 at my bank down the road 15 minutes later, my account will show $30 for two or three days, then the $25 will post with a timestamp of when I bought gas, and late fees will be retroactively applied to any purchases after that.

Four or five years ago, I overdrew my account, deposited money to cover the transaction and fee, and was charged a second NSF fee when the first fee brought me back below $0. It took half an hour of discussing it with customer service to get them to admit it was unfair. Last week, I was charge a NSF fee when my account was not actually overdrawn because the bank had put a duplicate hold on my account for a bill I paid. The automated system hung up on me twice before I managed to speak to a supervisor, who fortunately agreed to refund the fee.

Probably not this paycheck, but for the one after it, I'm switching to a credit union. Wachoiva deserved to go under for their business practices, Wells Fargo is worse, and as much as I like the local people at their branches, I don't want to do business with them anymore.

[Willravel]

Originally Posted by Cynosure

However, telling low income people in the U.S., who live paycheck-to-paycheck, "Always have more than enough money in your account," is like telling a commoner in South Africa, "Always have more than enough food in your pantry".

I don't think Xerxes is in that kinda shape, he just wasn't familiar with rather unfair banking processes. The same thing happened to me once upon a time. It happens to a lot of people. If I were to choose one piece of information for people that are opening their first checking account, it would be "always have more than enough money in your account". The second would be, "Don't spend more than you have because it will end up costing you a lot more."