Banks Make $38 billion a Year from Overdraft Fees

Please read this post my Karl Denninger over at the Market Ticket.

According to Karl, "70% of the overdrafts happen at an ATM, not by writing a check. The bank knows before they approve the ATM transaction that the money isn't there in the account. It gets better: Banks will intentionally "sort" transactions from a given day to produce the maximum overdraft fee. They sort withdrawals to debit them largest-amount-first, because the fee is assessed per item. An example: You have $1,000 in your account. You write checks for $20, $50, $100, $1,000 and all are presented on the same business day. How many checks will hit you with an overdraft fee? THREE - every time. The bank will re-order the transactions so that the $1,000 check is processed first, guaranteeing that the $20, $50 and $100 checks overdraw, thereby generating three overdraft charges. If they processed the transactions "largest item LAST" you'd generate one overdraft fee - on the $1,000 check."

"But wait, it get better. It gets better. You have that $1,000 in your account. It is after 3:00 PM, the cut-off for a business day. You go to the mall and use your debit card four times to buy a $5 Latte, $15 lunch, a $40 pair of pants and $25 for a couple of movie tickets. The next morning a $1,000 check hits your account. The bank processes the $1,000 check first, even though in terms of actual presentation time the debit card withdrawals were approved first, and whacks you for four overdraft fees instead of the one legitimate fee on the $1,000 check. That Latte just cost you as much as $45!"

"This sort of predation is responsible for nearly $40 billion dollars a year in pure "profit" for the banks, it is directed specifically at those who have the least in resource to cover it, and it relies on lack of clear disclosure and intentionally-predatory "sorting rules" to get past what would otherwise result in a howl of protest by consumers and lawmakers alike."

This is what I want you to do. Forward this post to your banker and ask for an explanation on how they calculate and process those items in determining overdraft fees. Better yet, take a copy to your bank and talk with one of the many Vice Presidents or go directly to the President. Then, send a copy of this post along with your bank's explanation (if they give you one) to your Congressional Representative and Senators.