After the success of several class action lawsuits against banks for overdraft fee abuse, banks should no longer try to maximize fees by manipulating the order of a customer’s transactions.

Still, 40 percent of the nation’s largest banks continue to place transactions in an order that increases overdraft fees, according to a new report released by Pew Charitable Trusts.

Eighteen of 44 U.S. banks were found to process purchases, payments and withdrawals in an order from the highest amount to the lowest.

Banks that process the biggest transactions first tend to bring your account balance down more quickly than processing these transactions in the order that the bank actually receives them.

The result of such overdraft fee abuse is that consumers have to pay more fees.

Financial Institutions Accused of Overdraft Fee Abuse

Some banks and credit unions have been accused of withholding the posting of deposits, even cash deposits, in order to subtract withdrawals first. Consumers have reported making a cash deposit followed by paying bills with checks or debit card transactions.

A few days later, the cash deposit still does not show on the account, but those subsequent purchases have gone through, resulting in overdraft fees.

Instead of declining debit card purchases that will lead to an account being overdrawn, the bank lets more bad transactions through, allowing the overdraft fees to add up quickly.

The bank knows it will not be out any money because your deposit is there; the bank just has not yet posted it. Such overdraft fee abuse is detrimental to consumers.

In its defense, Virginia O’Neill, senior vice president of the American Bankers Association’s Center for Regulatory Compliance, says, “Banks use a variety of methods to process and post checks. For some customers, paying the largest transactions first may be preferred because it ensures that important payments like mortgage rent or utility bills will be paid.”

Most consumers don’t appreciate those large transactions being posted first, though, according to Joy Hackenbracht, a research officer from Pew.

Hackenbracht says, “Transaction reordering from high to low is a practice that harms consumers, and regulators really need to ban it.”

Overdraft Fee Abuse Helps Banks

By posting debits and withdrawals in non-chronological order, banks can greatly manipulate the number of overdraft fees they collect. The Pew Charitable Trust is backing new rules to make sure banks post transactions in a neutral way that doesn’t artificially inflate the number of overdraft fees it collects.

According Pew’s report, nearly 80 percent of U.S. banks charge overdraft fees when they allow consumers to overdraw their accounts due to insufficient funds.

Approximately 18 percent of consumers pay the majority of overdraft fees. Consumers who make less than $50,000 per year account for almost 70 percent of repeat overdraft customers.

If you have banked with a financial institution that charged you overdraft fees, you could have a legal claim and should speak with a lawyer regarding your options.

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