The overdraft protection plan at East West Bank is similar to that of other consumer financial institutions, which continue to spark controversy over who is being protected, the bank or the consumer.

East West Bank, a subsidiary of East West Bancorp, is headquartered in Pasadena, Calif. According to the company’s website, East West Bank offers an overdraft protection policy that involves an option to link your savings account or another checking account to your primary personal checking account. In the event the primary personal checking account becomes overdrawn, the bank will automatically transfer the available funds from the linked account to cover the difference. That way, the customer escapes paying overdraft fees or returned item fees. However, the customer will be charged an overdraft transfer fee for the convenience of using his or her own money housed in the same bank.

Birth of the Overdraft Fee

According to Pew Charitable Trusts, banks began exploring new ways to make money when interest rates dropped and the banking industry became deregulated. Increased competition led to fewer dollars sitting in the same financial institutions.

Overdraft fees, ATM fees, account maintenance fees and other service fees have doubled between 1984 and 2015, according to Pew’s 2016 review of data from the Federal Deposit Insurance Corporation (FDIC).

Pew noted that $35 is the average amount of an overdraft fee in the United States.

In April 2019, more than a half dozen bank executives met with members of the House Financial Services Committee to discuss bank policies. Three House Representatives asked about the allegations that some banks reorder transactions out of chronological order so that many overdraft fees can be charged on an account in a single day.

Most banks process transactions at the end of the day, and if the largest charges are processed first, no matter what time during the day the transactions were made, the opportunity to generate more revenue for the bank is sometimes a temptation they can’t resist.

Pew determined in the 2016 survey that nearly 40 percent of the largest financial institutions process transactions from largest to smallest amount, which may or may not be in chronological order.

During the meeting, a representative from Bank of America said the bank posts debits and checks in chronological order and has been doing so for “a number of years.” A Citibank spokesperson told Yahoo Finance that Citbank processes transactions from lowest to highest to minimize overdraft fees.

Congressional representatives were testing the waters to see if the nation’s largest bank executives would back a measure to “prevent manipulating the order in which accounts are debited,” according to Rep. Brad Sherman (D-CA).

So far, no legislation has been introduced that affects the reordering of transactions.

Living in a Digital World

In the past, when every monetary transaction was completed through paper processing, it was easier to predict when a check might clear the bank. In today’s digitized banking world, with ACH payments for things like gym memberships and streaming services, it’s more difficult to gauge how much money you actually have in your checking account.

If you check your bank balance online,  you may see that you have plenty of money, but what you cannot see is that your Hulu, Netflix and Showtime streaming subscriptions are being debited first thing in the morning, and you will have an overdraft fee tacked on to your debits.

To avoid such surprises, financial advice website clark.com recommends setting up monthly automatic payments on a credit card instead of a debit card, or if the payments are coming out of your checking account, set up an alert to remind yourself a couple of days before the due date so that you’re not surprised when those transactions process.

If you were charged overdraft fees or NSF fees by your bank or credit union that you believe are improper for any reason, the attorneys who work with Top Class Actions are ready to investigate these fees on your behalf.

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This article is not legal advice. It is presented
for informational purposes only.