by Lauren Gensler …..
Before heading to Lowe’s one Sunday, Sheryl Rudder checked her bank account balance online. It said $600, she recalls. That was more than enough to pay for the lumber she needed to repair her barn. But when she swiped her debit card at check-out, it was declined for insufficient funds.
“They were saying I was minus, but I couldn’t see it,” says Rudder, 62, who stood at the register for 30 minutes, embarrassed, while she was on the phone haggling with Wells Fargo.
During that unpleasant experience, a Wells customer service rep informed her that not all pending transactions were visible and instead of relying on her online balance, she should keep track of her balance independently, particularly when it came to bills and checks she had written.
That’s right: While banks aggressively market their online banking services and their ability to accept check deposits via smartphone app, they still say that if you want to know your true available funds you have to balance your checkbook. (You know, that paper register, with the fake leather cover that you stuck in the back of a desk drawer somewhere.)
Call it the online trap. It’s never been so easy to check your bank account balance. Millennials do it all the time on their smartphones. The display creates an apparently false sense among customers that they know exactly what their available balances are–after all, that swipe of your debit card a few minutes ago may well show up online. The not-so-small problem: what’s shown might not be a great source for judging whether you’ll be hit with overdraft fees or even have transactions declined.
“Consumers need to understand that the balance you see is not necessarily your actual available balance because there are so many moving parts,” says Mark Ranta, head of digital banking solutions at ACI Worldwide, which provides payments systems for financial institutions.
As Rudder and others have learned the hard way, it’s a gamble to try and predict when things will hit your account. Rudder, a retired college financial aid officer who lives in rural Northern California, was low on cash and had been vigilant about checking her balance at least once per day to avoid overdraft fees. She knew she had written a check recently but didn’t see it reflected online yet; She also planned to make a deposit the next day. “I figured it would all come out in the wash,” she said.
Not necessarily so. “For people who count on timing things, it’s getting harder and harder to play the game,” says Jerry Silver, global banking research director at IDC Financial Insights, a financial research firm.
This has everything to do with how banks process a tangle of transactions. According to a 2015 study from the Pew Charitable Trusts, roughly half of banks still intentionally reorder transactions, meaning, they rearrange payments, processing them from largest to smallest, which maximizes the overdraft fees they can charge. (Say you’ve got $1,000 in your account and have written one $900 check and five for $100. By processing the $900 first, they insure four of the five $100 checks will bounce. If they processed the $100 checks first, you’d have only one overdraft fee, for the $900 check.)
To be fair, it’s not just banks trying to maximize fees that creates the problem. They also have to deal with a hodge podge of payments infrastructure, which dictates how, and at what speed, different transactions are processed.
“We’re going from a paper-based banking world that has existed for hundreds of years to a digital banking world that’s still relatively in its infancy,” says Ranta, who adds that real-time processing is still a ways off.
This transition has been rough on consumers. According to the Center for Responsible Lending, confusion over available balance is now the top complaint consumers have when it comes to overdraft fees, followed by the timing (and sequence) in which debits and credits are processed.
It’s not difficult to see why. Some transactions, like groceries that you pay for with your debit card, hit your account right away and are typically deducted from your available balance even before they are fully processed. There are quirky things that can happen, though. If you go to the gas station, for instance, and buy a $2 pack of gum, a $50 hold might be put on your account. That’s because the gas station is reserving enough against your account to fuel up an SUV. Fair? Nope. But it’s legal and few consumers have any idea it’s happening.
The biggest troublemakers are checks and ACH payments, like the kind you authorize for your monthly gym membership or phone plan. This is partly because they take the longest to hit your account. They’re also processed overnight with a batch of other transactions – remember each bank has different cutoff times for what gets included and also different rules for the order in which things are processed – meaning the money can vanish from your account when you don’t see it coming.
Not surprisingly, this balance uncertainty works to the benefit of banks, helping them to rake in huge overdraft fees (to the tune of $32.5 billion in 2015, according to Moebs Services, an economic research firm).
“It’s very confusing,” says Rebecca Borne, an attorney at the Center for Responsible Lending, who specializes in overdraft fees. “And the incentive that banks have to keep people confused is extraordinarily large.”
To be sure, plenty of people incur overdrafts and plainly acknowledge it’s because they didn’t have enough money in their account. There are also those who keep a cash cushion and have never noticed the day-to-day fluctuations in their balance. Yet, there’s still a basic expectation that bank account balance information is up-to-date. Getting hit with surprise overdraft fees can be particularly frustrating and costly for people who live paycheck to paycheck and keep careful tabs on their balance.
One TD Bank customer complained to the Consumer Financial Protection Bureau about being hit with overdraft fees even though their bank account “was never actually underfunded.” Another individual in Iowa reported several occasions “when the funds are there” but BB&T still charged her overdraft fees. A Virginia woman complained she had checked her SunTrust balance before making a few small purchases such as ice cream for the kids and parking at the airport. The balance showed she had enough to cover the purchases — although it was close. Yet, over the weekend, she was hit with several overdraft fees. A customer service rep told she had overdrawn her account, even though everything she had seen online led her to believe she had maintained a positive balance. (The banks all declined to comment on individual cases.)
Banks aren’t unaware of the customer unhappiness. Go to the SunTrust website and the very first question in its FAQ section is: “Why was I charged a fee when I had enough money in my account?” Regions Bank has put together an 11-page guide to help consumers understand their balance and avoid overdraft fees, and suggests that customers keep their own records. Wells Fargo urges customers to “faithfully” keep track of their transactions so that they’re “in charge” of their finances and provides step-by-step instructions included next to a photo of a man with pencil and paper.
An 11-page guide? Are they kidding? We called the American Bankers Association, which represents the banks, to ask if they could give us a few simple rules of thumb about how transactions are processed to help consumers avoid nasty surprises. “This is an enormously complicated question,” responded the ABA spokesperson. “There’s no one answer.”
Things get even messier for frequent overdrafters. For instance, while a bank might make a cashed check available to most people within two days, it can take longer to clear if your account is in bad standing. This makes it even more difficult to figure out your true available balance.
Banks can also flat out refuse to process transactions that would overdraw your account. Rudder’s experience had been that when she wasn’t vigilant, Wells Fargo would approve a purchase and then levy an overdraft fee. But at Lowe’s checkout, the bank denied the transaction. (Her ex-husband had to come and pay for the lumber.) A Wells Fargo spokesperson declined to comment on information specific to any one customer and said a card can be declined for any number of reasons, including if a customer had too many overdrafts.
In addition to the obvious financial cost of overdrafts – these fees run at an average of $35 a pop – you also risk losing your bank account. If you try to get another one, you could find your name has been added to a blacklist of sorts, like Chexsystems. More than one million people say they’ve been booted from the mainstream financial system primarily because of fees, according to the FDIC.
Rudder, who has been a Wells Fargo customer for nearly three decades, hasn’t lost her bank account yet. In fact, they’ve waived some of her fees. Yet, her apparent inability to keep tabs on her money is causing her to lose sleep, not to mention her confidence in banking in the 21st century.
“In this age, they’re saying you can’t trust what you see,” says Rudder. “My question, then, is why does anyone use online banking?”
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