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My bank (let's make up a name for them for the purposes of conversation... oh I don't know... how about "E*Trade?") is pretty awesome, but they have a nasty habit of posting incoming credits after posting outgoing debits, which maximizes the risk of overdrafting. With linked savings and brokerage accounts, I try to keep a minimum balance in my checking account, so occasionally I've run into this. They unfortunately don't offer overdraft lines of credit and will return a check unpaid rather than letting one's account go $0.01 negative, but I digress...

It seems to me that this kind of manipulation of numbers to push the consumer towards incurring additional fees may also be pushing the law (state unfair business practices suits may be a good start). I've sued about a dozen financial companies a la FDCPA/FCRA/TCPA/others in the last 6 years in small claims, state civil, and federal courts, so I have the experience required to file such a suit. I'm trying to find case law on the subject, and so far all I've found was a settlement against 5/3:

https://www.overdraftsettlement.com/

...which may be a good start, but unfortunately when things are settled, the judges don't rule on the issue or set precident.

It would surprise me if this issue was not in the courts many times over, so perhaps some of you have heard of such a thing?

--Jon

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Curious: how does the "order they arrive" work when these are all ACH transactions that come in during the start of a da... (more)

fw101 (Apr. 15, 2011 @ 4:16p) |

The bank practices described above in this thread have been under legal attach for years with some success. see for exa... (more)

MrKlick (Apr. 15, 2011 @ 5:24p) |

Not particularly looking for a class-action. I think asking for declaratory relief will be enough to scare the shit out... (more)

bills50000 (Apr. 16, 2011 @ 6:01p) |

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One of my credit unions does that too, and they caught me once with the NSF fee.

There's this one too:

http://www.huffingtonpost.com/2010/08/11/wells-fargo-overdraft-l...

...but this bank is accused of re-ordering debits, which is slightly different than ordering debits in front of credits.

You need a good class-action attorney to look at this practice and determine if it's actionable.

I doubt this will go well for the plaintiffs as writting checks BEFORE you have the funds in the bank is called KITING Checks which I think is illegal.
So the banks that process Debits before Credits will have legal ground that if the customer did not have the money in the bank, why did they write the check.

Every bank or credit union I have opened accounts with in the last 5 years has terms and conditions that clearly state that's what they are going to do. Would they still be legally liable for doing it?

No, it's not kiting. See: http://en.wikipedia.org/wiki/Check_kiting

Beyond that, I don't do checks. The debits were automatic recurring payments, and I transferred the money to the account for the day before I expected the debit to hit. But, occasionally for random reasons, money transfers take an extra day, which is what happened to me yesterday. So, the debit and credit arrived simultaneously, and the bank decided to accept the debit first (as is policy, according to the CSR and sup).

forbin4040 said:   I doubt this will go well for the plaintiffs as writting checks BEFORE you have the funds in the bank is called KITING Checks which I think is illegal.
So the banks that process Debits before Credits will have legal ground that if the customer did not have the money in the bank, why did they write the check.


--Jon

My hope is "yes."

Consumer protection laws exist, among other reasons, to prevent companies from including/enforcing contractual terms that exist solely to screw over the consumer.

kranky said:   Every bank or credit union I have opened accounts with in the last 5 years has terms and conditions that clearly state that's what they are going to do. Would they still be legally liable for doing it?

--Jon

Ok not specifically check kiting. You are issuing Debits on an account that does not have funds in anticipation that a transfer will go through that day. Isn't that still writing checks without money in the bank?

An incoming credit is always having some inherent risk for the bank; e.g. what if the credit gets reversed or is deemed an error? That's why credits or checks may take longer to post.
Debits, being more straightforward, could probably get processed before credits. Just my 2 cents.

Do you count check deposit, ACH, etc? How do you verify when the bank get the credit? I must be missing something here because I don't see any case here.

Check deposits are seen as unsecured funds. Some banks place a hold on an account of they deposit a check. This ensures the bank some funds just in case the check bounces. My bank even places a hold on money orders and cashiers checks. The only thing that is secured funds is green cash. As far as processing debits over credits...unfortunately, that is the practice. You may be able to fight off a charge if your bank time logs the activity of your transactions.

Sorry, let me be more clear. Both transactions are ACHs. One is incoming, one is outgoing My understanding is both are "queued in the system" when the department that deals with ACHs opens at the bright and early hour of 9:30 AM. The system then looks for all debits queued in the system for my account, applies them, then looks for all credits, and applies them too. The bank is choosing to apply the debits first, and then the credits, and the incoming ACH is no more "risky" than the outgoing ACH.

--Jon

forbin4040 said:   Ok not specifically check kiting. You are issuing Debits on an account that does not have funds in anticipation that a transfer will go through that day. Isn't that still writing checks without money in the bank?

Not necessarily. If you have your salary direct deposited into your checking and schedule payments (for credit cards, utilities, etc) it isn't illegal or kiting right? I have seen on couple of occasions my salary being deposited a day later than normal. Of course, I give 2 to 3 days of buffer to avoid getting into such situations.

pras

FW10001 said:   An incoming credit is always having some inherent risk for the bank; e.g. what if the credit gets reversed or is deemed an error? That's why credits or checks may take longer to post.
Debits, being more straightforward, could probably get processed before credits. Just my 2 cents.


This is indeed true but banks do have these policies in place to catch additional fees.

You can read some more about this here and see how five banks treat the process:
http://www.consumerismcommentary.com/how-five-banks-post-your-de...

forbin4040 said:    as writting checks BEFORE you have the funds in the bank is called KITING Checks which I think is illegal.

False. Kiting checks does not mean that.

As long as your direct deposit is on a specific day, you should see the transaction come in on that day. It might not be all available, but it should come in. Banks are not allowed to just hold funds however long they way, there are specific laws which govern the amount of time a transaction can be held for. As far as I know, SS, treasury or any check of that nature can't be held for more then one day barring some extreme events.

FWIW, I closed my E*Trade account very shortly after opening it due to their "screw the customer" attitude. I never over-drafted, but compared to USAA, they are terrible about posting transfers in a timely manner. For example, if I set up a bill-pay with USAA on 4/15, and it is a mailed check, they mail the check to arrive about 2 days before, and debit my account the day the check clears (usually a few days after the 15th), and never before the 15th. E*Trade on the other hand, would do the same, but always debit my account on the 15th.

Incoming transfers to E*Trade would take 1-2 days to show up, and something like 7 business days to clear. USAA makes the first 3500? or so in deposits instantly available for withdrawal, and everything else is 1-3 business days. Rarely do my deposits even hit that limit.

BTW, my E*Trade account had two $1 quarterly bill pays scheduled when I closed it. Every 3 months they try to execute and fail due to insufficient funds and I get an email about it. I get an error when I try to cancel the billpays because my account is closed. (derp)

Cliffs: E*Trade sucks.

GreyRabbit said:   forbin4040 said:    as writting checks BEFORE you have the funds in the bank is called KITING Checks which I think is illegal.

False. Kiting checks does not mean that.
As stated above GreyRabbit. Yes he is not kiting checks but Kiting Checks does involve writting checks for funds you do not have , but it involves 2 different bank accounts. So I am correct but not for this situation.

forbin4040 said:   So I am correct but not for this situation.Thanks for pointing out that your original post doesn't apply to the OP's situation whatsoever.

bills50000 said:   Sorry, let me be more clear. Both transactions are ACHs. One is incoming, one is outgoing My understanding is both are "queued in the system" when the department that deals with ACHs opens at the bright and early hour of 9:30 AM. The system then looks for all debits queued in the system for my account, applies them, then looks for all credits, and applies them too. The bank is choosing to apply the debits first, and then the credits, and the incoming ACH is no more "risky" than the outgoing ACH.

--Jon

Where are you transfering from? Because ETrade holds incoming transfers (using their system) for 3 days prior to them even being available for withdrawal. And reviewing my account history, deposits pushed from an outside source seem to always be posted before the withdrawals for the same day.

all companies claiming to be a bank are not equal. Some banks process their transactions faster. No credible bank wants the regulators breathing down their neck for crazy tricks to charge additional fees given the scrutiny they have been under for the last 2-3 years. most reputable banks have made changes in this area as there was a lot of negative press and some banks had to change their business model to accommodate. These changes include being much clearer and helping customers not reach an overdraft situation or at least minimize it. That means they have to find another way to make money which is why they are now charging for the basic checking accounts. Checking accounts were never free they were just subsided by overdraft fees. a free basic checking account typically costs the bank about $300 per year to maintain (inclusive of personal, systems, etc...) based on the research that I've read. Free checking accounts are not free. That is why they are starting to charge a monthly fee or require a higher min balance. perhaps banking is not the strong suit for E-Trade .

My suggestion is ... write a letter with the facts to E-Trade and attach any proof you have. review it before sending it and ensure this can stand on its own as it could be used in an investigation. If you have the proof/evidence to support it then your position could be that E-Trade committed a fraud upon you by deliberately processing the debits before the credits to ensure an overdraft fee was collected. IF you don't think you can support that then consider stating that you could understand the overdraft fee would be necessary if the transactions occurred on different days and you should not be penalized for their antiquated processing of these transactions--you can prove your transfer of $ began days ahead so it wasn't a last minute deal. Ask them to investigate and request a full refund. Send letter in certified mail. If they do not credit you the fee they charged, then find the regulator that oversees E-Trade and file a compliant.

see this link with the listing of some of the regulators at the bottom. you can also search for their name. before writing the regulator, i'd suggest calling them to verify they are the right regulator for this bank.
http://www.ffiec.gov/consumercenter/default.aspx

best of luck!

My rule of thumb is to close any account that charges me fees or refuses to refund the fees. There are plenty of banks that dont screw the customer. Huntington Bank has a 24 hour grace period for overdrafts. Schwab Bank has low fees and I believe they refunded a fee when I made a mistake.

I got to say I am surprised. Over the past twenty years I have had accounts with various credit unions, local banks, regional banks, and national banks. Not once, ever, did any of these financial institutions ever process debits before credits. It's always been credits before debits for me. If ETrade or some other FI is doing that, I'd say it's time to move on. Even the big boys with their "greediness" do credits before debits. Holds are a different story and are influenced by many things. But even with unfavorable holds, I've still always seen credits post for processing, holds against the balance, and then debits. Odd indeed.

Most, if not all banks do this. Yes, it's a way to get fees from you due to overdraft. I've complained before, but all they say is that this is how their systems were programmed.

I just closed my main checking account (PMA) with Wells Fargo after 15 years for this exact reason. They hold my direct deposit as pending, and then process all my debits first. Slowly moving everything to USAA and PenFed!

Not only will they do debits first, but they will do the largest debits first so you can have as many overdraft fees hit as possible. $200 in your bank account and you write $10, $15, $15 and $180 in that order. Some will process it in the opposite direction so you'll get 2 overdraft fees instead of 1.

I did bank consulting for 5 years and there were some shady ideas floating around on how to improve profits.

I'm getting ready to close Wells Fargo accounts because of their lack of thrift. Their electronic systems are just too slow compared to the competition.

However, you should not have to pay any overdraft fees just because the clear the debits before the credits. If your account is negative you have until the end of the day to deposit funds. Don't expect them to tell you about that.

Firstmerit in Ohio had a class action filed against them for this sort of thing, but I haven't heard much about it since:
http://www.cleveland.com/business/index.ssf/2010/12/class-action_suit_filed_agains.html

Not only will they do debits first, but they will do the largest debits first so you can have as many overdraft fees hit as possible.Reordering debits in highest amount first is now illegal. Banks and financial institutions have to order them in the order they arrive.

axiom said:   Not only will they do debits first, but they will do the largest debits first so you can have as many overdraft fees hit as possible.Reordering debits in highest amount first is now illegal. Banks and financial institutions have to order them in the order they arrive.Curious: how does the "order they arrive" work when these are all ACH transactions that come in during the start of a day (e.g., bunch of ACH pulls for payments made at CC webpage)?

The bank practices described above in this thread have been under legal attach for years with some success. see for example http://www.mymoneyblog.com/bank-of-america-overdraft-fee-class-a... and the many others a quick google with turn up.

The new Consumer Financial Protection Agency is on track to ban many of the more sneaky practices with the banks yelling and crying all the way.

If you are unhappy with the way your bank treats you on ordering of deposits and payments, talk to a class action lawyer. You can find one in your area at naca.org.

Not particularly looking for a class-action. I think asking for declaratory relief will be enough to scare the shit out of them and get me a nice settlement.

Thanks, guys. I'm pretty busy at the moment, but when I have some time, I'll write up and file the suit. Will let you know how it goes.

--Jon



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