Before I call and start yelling...

August 19, 2005 6:09 AM

Before I call and start yelling...

I currently bank at National City, and this past Tuesday and Wednesday my account went negative. Which isn't that big of a deal, I normally have no problem paying over draft charges when they're my fault.

Last night (Thursday) I was waiting for my paycheck (direct deposit) to be deposited in my account at midnight per usual. For some reason, they held it until 3 in the morning, and then they charged me with 4 more overdraft charge fees, even though the funds should have been available at midnight. This is the second or third time they've done this.

Isn't there something wrong with that? I mean... isn't that or shouldn't that be illegal? They're just milking my paycheck!

posted by jackofsaxons to work & money (28 comments total)

They milk everything. That's the way the banks do business. That "October" law the other year was just another way for the banking lobbys to make money off of your money.

If I could make a decent amount of interest off of it and get direct deposit, I'd stuff my money in my mattress.
posted by thanotopsis at 6:18 AM on August 19, 2005

Jackofsxons, as an addition to what thanotopis said, join a credit union. As a member, you'll more or less 'own' part of the credit union. Most credit unions don't do the kind of stuff you mention since they exist to serve the members.
posted by tayknight at 6:30 AM on August 19, 2005

It's not that they're "holding" your check for extra time; they're actually processing all pending debits before processing any pending credits. They can do this as much as they like if they define "next business day" as beginning at, say, 9am or somesuch rather than midnight. It's just a way for them to squeeze you for more fees.

Switch banks.
posted by bcwinters at 6:46 AM on August 19, 2005

Easy solution: Don't go negative.

Problem solved.

Also, are you sure it's the bank's fault that the paycheck didn't arrive until 0300? It could be the fault of your employer or even the payroll service they choose. Remember if your company is like most, the pay period ends on the Friday, not Thursday morning. So while you have gotten used to getting the money on the Thursday AM, they are under no obligation to do so. They will sometimes leave the extra window of time take care of problems that normally don't happen.
posted by Dagobert at 6:47 AM on August 19, 2005

Typically, debits get posted to accounts before credits. Could be the reason for the "delay" until 3am. However, I don't believe you'll find any bank that will guarantee your direct deposit, or any transaction for that matter, is processed at a specific time, consistently.

I don't know where you're located, but both Bank of America and Wells Fargo offer direct deposit advance, where you get access to your direct deposit (for a small fee) before it's officially posted. That's useful for people who have paychecks that come in a day or so before the person is supposed to get paid and need to use the money.

To answer your direct question, no, it isn't illegal for the bank to post the transactions as they see fit. Ask the manager for a copy of their terms of service and find out the bank rules. If, for some reason, they have gone against how they told you they will process your transactions, you can get a refund on the NSF fees. Even if you can't find that information, go to the manager and request a reversal. Start out with a request for all fees and then negotiate down. Perhaps they'll split the cost with you at least.

As a side note, just curious as to what types of transations came in to make you negative at the same time your deposit was supposed to go through? Were you writing checks before the money was there or have EFTs for bills? The types of debits may help your case as well. You don't have control over the timing of the EFTs, but you DO have control over when you write your checks. The bank manager may use that logic when deciding to reverse your fees. Also, ask about overdraft protection linked to a savings account or credit card to help avoid these fees.
posted by cyniczny at 6:57 AM on August 19, 2005

I know a programmer for Wells Fargo who wrote the "maximize penalties" code for that bank. The algorithm goes like this.

"Reverse sort all account activity for the day."

That way, not only is there is the largest chance of overdrawing, but if you do, you'll get the maximum number of overdraft hits, thus generating more income for the bank.

For example, if you have $100 in the bank:

(event order)
-$1
-$50
+$100
-$2
-$51
---
= 0 overdraft events

(sorted evil)
-51
-50 *
-2 *
-1 *
+100
---
= 3 overdraft events, profit.
posted by Invoke at 7:03 AM on August 19, 2005

(the first, "event order" example was supposed to say "= 0 overdraft events")
posted by Invoke at 7:04 AM on August 19, 2005

Unfortunately, in this case, your bank was probably operating normally. It sucks, but like cyniczny says, it's standard for banks to process debits before deposits. You *might* be able to get the fees refunded this one time if you get a sympathetic customer service rep, but I hihgly doubt it, especially not if you have multiple overdrafts in your account history. Banks aren't known for giving money back when they don't have to.

It's a good idea to have overdraft protection, but it wouldn't have helped you here. OP usually only protects you against fees from merchants and *other* banks, not your own bank. Your own bank can and will charge you as much as they can, for anything they can.

On a side note, you might want to keep in mind that many banks have a tiered system for overdraft fees. Once you rack up enough overdrafts, you may be charged a much higher fee every time you go negative than someone who's only done it once in, say, the past few years. I'm not getting up on a "don't go negative" high horse, just sending out a word of caution, because it seems like such a waste of money. One idea that a lot of people use to avoid overdraft fees is to keep some "invisible" money in your account. Deposit, say, $100, but don't record it, and when you balance your checkbook, subtract that $100 from the balance. That way you'll have a bit of a pad in case you get stuck again. Good luck!
posted by boomchicka at 7:12 AM on August 19, 2005

Wow, Invoke, that's a smoking gun...

For the bankers out there, is there any reason beyond rank profit maximization for banks to process debits first?
posted by footnote at 7:26 AM on August 19, 2005

[fixed Invoke's "0 overdraft events" table]
posted by jessamyn at 7:49 AM on August 19, 2005

I asked my credit union to post my paycheck first, and they obliged.
posted by grateful at 7:51 AM on August 19, 2005

No offense, but you're just cutting this way too close. A 3 hour delay shouldn't affect anything.

My suggestion is to get financial software like Quicken, and get a bank/credit union that can do transaction downloads and online bill payment with it.
posted by mosch at 8:02 AM on August 19, 2005

If you don't want to or don't have access to a credit union with more flexible policies, see if your bank offers a credit card backup for your account.

It's by no means a perfect solution, but for my bank (Wachovia) if you link a Wachovia credit card to your account, it will borrow against it if you overdraft. It's a five-dollar fee if this happens and money is added to your checking account from the credit card account in $100 increments. Yes, they've arranged this so that they get you for $105 at whatever your credit card interest rate is unless you pay back the credit card immediately after getting your paycheck. However, it's a whole lot better than overdraft fees and bounced check fees. Also, it protects your credit rating -- for those purposes, the bank considers my available funds to be my credit limit, though they provide my "real" checking account balance to me when I check my account on line.
posted by desuetude at 8:16 AM on August 19, 2005

That's not the worst of it. According to my friend, that sorting/profit-maximization only happened on free accounts, with the rationale that they needed to recoup their costs somewhere. In addition, to avoid it being obvious that they were doing this, they would only actually apply it in situations where it would net an overdraft fee. Otherwise the transactions would appear on the statement in their received order.

It is hearsay, of course, but seems to fit with what I've observed about that bank.
posted by Invoke at 8:45 AM on August 19, 2005

I work in banking.

Generally speaking, your direct deposit is going to be sent to the bank as a file probably three days in advance. We can't really post it before the file says to post it. (If BoA wants to provisionally credit you for the deposit ahead of tmie, I suppose they can afford to do that, but not all banks can, and therefore most will not. )

Here, we run debits after credits. So, your direct deposit is going to post, and then if you had a paper deposit that arrived and was processed overnight, etc. Then your debits are going to start posting. Paying the largest item first may be seen as "evil" by some people, but the logic applied is that if you have say $700.00 in your account, and you pay $450.00 in rent, and then $250.00 for your car, and you write a $30.00 check to the 7-11 and a five dollar check to your dog, you'd rather us pay the rent and your car before we pay the 7-11 or your dog.
posted by Medieval Maven at 8:53 AM on August 19, 2005

Besides the fact, it's rarely so simple as "my deposit arrived at 2pm and this debit arrived at 3pm" -- things are done in files or batches. Your check card, sure that can put a hold on your account right away, but throughout the day stuff's just run and batched, run and batched. Unless you're making some sort of "in person" transaction (teller transaction, ATM Machine) it's just going to become part of a file.
posted by Medieval Maven at 9:05 AM on August 19, 2005

Mideval Maven, do you know why BofA has the reverse policy of the other banks mentioned in this thread?

Also, paying the largest items first is "evil" only if the bank does it the way Invoke describes, because that maximizes total number of overdrafts.

My biggest problem with these kinds of policies is not so much that they are inherently bad, but that people are not adequately informed of them beforehand.
posted by footnote at 9:10 AM on August 19, 2005

Also, what's the meaning of a "file" in banking?
posted by footnote at 9:11 AM on August 19, 2005

A "file" is a stream of bytes stored on a device, such as a hard disk, tape, or CD. Yes, in banking, too.

In any case, banks do have the right to process debits before credits, on the assumption that there are no outstanding drafts against your account that the current balance cannot cover. It's an asshole thing to do, and not all banks run the ledger this way, but they're within their rights.

The primary motivation for doing so is profit. Fees are one of the largest revenue streams for most banks, including the large well-known national bank I used to work for.
posted by majick at 9:34 AM on August 19, 2005

majick's got it. BoA being a behemoth, and so many people being so firmly entrenched with them, they can afford to do whatever the hell it is that they want to do.
posted by Medieval Maven at 10:15 AM on August 19, 2005

I just read a story in the paper last week (or maybe I heard about it on Market Place on NPR...) about a class action lawsuit that just got settled (or maybe it was filed, I didn't really care since it wasn't my credit card company...) between a bunch of customers and their credit card company. It seems that if you mailed them your cheque a day late, they wouldn't process it they day they got it, but rather wait a day so they could get one more day of interest out of the customer.

Sounds like your bank is doing the same thing. You might want to contact the lawyers of this lawsuit if you can find out who they are. Good luck.
posted by pwb503 at 10:19 AM on August 19, 2005

A number of card companies have enriched lawyers over the payment posting issue, Providian being the biggest AFAIK. The order of posting of debits and credits to your bank account, however, is likely spelled out in your account agreement. Odds are they have it on their website. Sadly the debits before credits and decreasing amounts ordering is pretty typical.
posted by phearlez at 10:44 AM on August 19, 2005

It's definitely a policy made up by individual banks, nothing illegal by it at all.

I know when I worked for Fleet, we processed credits before debits, and nothing posted to your account at midnight. Account postings were generally done anywhere between 2am and 5am, because I can remember waiting for my direct deposits to post so I could go grovery shopping at 3am. They'd also process things in the order they were presented against the account, because I remember many, many customers who called to chew me out because we let a $30 gas purchase go through and bounced their rent payments.

Now that Fleet has been swallowed by BoA, I've noticed things are working pretty much the same way on both the accounts I set up before and after the buyout.
posted by chickygrrl at 11:51 AM on August 19, 2005

Get overdraft protection, which is an automated loan. Just make sure you always pay it all off. If you're the sort of person who always maxes out credit, it's a bad thing, but it saved me a lot of money in fees and headaches. Now I use a credit union and have some savings, so it's not an issue.
posted by theora55 at 12:12 PM on August 19, 2005

Midieval Maven seemed to say earlier that BofA actually processed credits first? Is that right, or did I misunderstand?

Also, while processing credits first may be legal, can anyone direct me to the law that enables them to rearrange the order of the debits the way Invoke describes?
posted by footnote at 1:37 PM on August 19, 2005

[I meant processing debits first appears to be legal]
posted by footnote at 1:38 PM on August 19, 2005

I see that the advice to join a credit union got marked as "best", and really, it is.

This is about the fourth question resulting from bank greed that I've seen in the last few months. I don't recall any (nor do I expect to see any) generated by credit union greed.

It took me a lot of years of giving money away to banks before I smartened up. Do yourself a favor and join a CU.
posted by Kirth Gerson at 2:40 PM on August 19, 2005

Ditto on credit unions. Going from Fleet in Worcester to PointWest (nee Multco) CU in Portland was shockingly pleasant.
posted by cortex at 3:44 PM on August 19, 2005