Overdraft protection: A money churner for banks, money burner for consumers

When I grind pencil lead into my tax worksheet next year, another dark thought besides the financial bailout will cross my mind.  Make that two $35 debit card overdraft fees from Bank of America that my college kid cost me.

He just scored 86 percent on his fluid mechanics test but balancing his debit/checkbook account stumps him.  Not just him either.  Bank account reconciliation now involves knowing when transactions are deferred and how long they stay outstanding. 

First of all, debit transactions no longer are cash withdrawals in real time.  In the past, if an account had insufficient funds, then the banks would deny the withdrawal, making it impossible to rack up non-sufficient-fund fees. 

Now banks give customers the privilege of overdrawing their accounts for cash and outrageous fees.  To avoid those fees, customers have to first know their true account balances, which has become more difficult, because banks don’t withdraw funds until they reconcile and hard post transactions to customer accounts.  That deferral process can take days.

That practice also enables banks to post purchase transactions out of chronological order and “reorder” them from largest to smallest.  That can turn what would be one overdraft charge to two or three or more.   Banks say reordering assures that rent is paid before a pack of cigarettes.  It’s comforting to know that banks are looking out for our interests even if it costs us dearly.

Delayed processing also makes it next to impossible to get a real-time account balance from online review.  The banking industry’s lack of transparency is the engine that powers the money-burning machine, if you are a consumer, or money-churning machine, if you are a bank.  Only those customers who keep every ATM receipt and who manually enter all transaction amounts to get running account balances avoid the “confusion by design.”

A week ago, Bank of America capitulated to consumers and Congress and will now allow customers to opt out of debit card overdraft protection.  Curiously, the term “protection” conjures up mobsters offering protection and extorting payoffs. 

Parallel worlds certainly.  Debit card overdraft fees most recently have injected $38 billion annually into the banking industry’s slumping revenue stream, an enviable amount of capital for any protection racket.

Now for some gonzo journalism.  A week before the bank’s announcement, I tried to persuade a customer service rep to allow my son to opt out of overdraft protection.  The rep said no.  The system doesn’t work that way, she said.

So I researched the subject and found an article this month in the New York Times that quoted Anne Pace, a spokeswoman for Bank of America, saying that “the bank allowed customers to opt out of overdraft services on a ‘case-by-case basis.’”

The article cited a case where the bank exempted a customer with “mental illness” from overdraft protection.  So I called back customer service, cited the precedent, and said although my son is not mentally ill, he is a college student.  You know the type.  “Hi, mom.  Send money” is the slogan.

The rep checked with her manager and said that Bank of America would process my request as “pay no NSF fee,” but added that the fix would not totally ensure that the fees would be waived every time. 

That was unsettling.  The bank will grant an opt-out request but has doubts whether a status change to the account will really propagate throughout the ATM network?

Anyway, I’m still missing seven crinkly $10 bills to pad my wallet.  So I will try and contact Pace to see if she feels my pain.

I’d like a refund and will begrudgingly agree to the standard disclaimer that that Bank of America is not admitting to predatory banking practices and consumers are ultimately responsible for managing their account balances.

Seriously, I hope that she provides insights into the bank’s lobbying and PR strategy on the overdraft issue.  I hope she comments on the bank’s tactics to communicate top-level decisions to its customer service reps – the frontline for the brand and reputation of the company.  A couple of days before the opt-out announcement, the reps were in the dark.

I am prepared to align my expectations with the way the world works.  My lighter wallet somehow feels comfortable against my backside now.  I’m at peace before I’ve even made my peace.  Experience does that.

Contributed by Mike Wysatta, Business Development Manager at Ryder Scott and PRSA Houston Board Member.

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