A lawmaker in Maine recently proposed a ban that would restrict banks from reordering transactions as part of their overdraft program policy.

Several widespread overdraft practices have been considered controversial, and none more so than that of reordering transactions in a manner that maximizes the amount a consumer is then forced to pay in overdraft fees.

Democratic state Senator Mike Carpenter proposed the bill, intending to ban the practice of deceptively reordering transactions in order to wring the most in fees out of their customers. This is a practice some call “resequencing.”

The effect these practices can have is serious. “This amounts to billions of dollars to the bottom line, nationwide,” says Carpenter. In many cases, consumers are paying overdraft fees that are triggered by other overdraft fees, due to banks reordering transactions in a way that processes the largest transactions first.

Several banks across the country may also have this policy of regularly reordering transactions. “I do suspect from talking to people that it may be going on, certainly with the larger, multi-national corporations,” notes Carpenter.

Several banks are currently being investigated for possibly employing deceptive overdraft policies, such as reordering transactions. Banks involved in the investigation include HBSC and Capital One.

What Exactly is Overdraft Protection?

Overdrafts protection programs are a fairly standard feature at banks and credit unions all over the country. Overdraft programs can give customers extra padding in their checking accounts, allowing them the ability to have money transferred to cover transactions even after they would have otherwise hit the bottom. This service is offered in exchange for a set overdraft fee.

But at some financial institutions, high overdraft fees and unfair practices can cost consumers a substantial amount in fees. Overdraft fees vary from state to state and bank to bank, and the average fee is around $31, but many banks charge even more.

Every time a customer makes a transaction that overdraws their account, they are charged an overdraft fee. Unfortunately, overdraft fees compound.

Any additional transaction on an overdraft account will in turn bring its own fee, which can quickly add up. This is especially true if a bank uses unfair practices to incur the maximum amount of overdraft fees they can.

Unfair Overdraft Practices Include Reordering Transactions

Banks can use a number of methods to incur excessive overdraft fees, even stretching as far back as to when the customer originally signed up for a bank account.

At that point, the customer may not have been told all the details of the bank’s overdraft program, such as its associated fees, how fees compound, or the possibility of these fees being hiked. Others may not even be informed that they can choose to opt out of the overdraft protection program in the first place.

Some banks reportedly make a practice of deliberately reordering transactions to collect more in fees. Banks can skew the order of customers’ transactions to charge the most overdraft fees possible.

Customers generally expect that their transactions will be processed chronologically, but some banks may be reordering transactions from highest to lowest rather than from first to last.

This makes each successive transaction increasingly more likely to overdraw an account. This can end up meaning that a large fee processed earlier can tip a customer to overdraw their account earlier, with even more transactions following, allowing overdraft fees to compound rapidly. This can leave customers paying a much heftier charge than they ever expected.

Filing a Lawsuit Over Deceptive Overdraft Practices

HSBC Bank, Capital One, and other financial institutions are currently under investigation for possibly deceptive overdraft protection policies.

Just last year, HSBC Bank settled a massive class action regarding its overdraft fee policies for $32 million. The lawsuit was filed over the alleged HSBC overdraft fee practice of reordering transactions.

If you have been affected by deceptive overdraft policies like reordering transactions from HSBC Bank, Capital One or another bank, you may be able to file a class action lawsuit.

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