So I just found out recently, the very hard way, the big banks like Bank of America are using a very nasty practice with their debit cards to maximize their profits and wanted to let everyone know so they can keep an eye out for it and avoid it.
They push their debit card service, saying it is more convenient and easier to use than checks... which, it really is. They're great. You can use them just like a credit card or as a debit card anywhere your type of card is accepted (Visa, Master Card, etc.). What they don't tell you and put in the fine print is that they process your transactions a little differently than one would think, which I'll cover below.
First of all, they say you automatically get overdraft protection for free when you get the card. Since I had never had one before I thought that meant it would keep me from overdrafting my account should I lose track of how much money I have... well, it was completely the opposite. Overdraft protection actually lets you overdraft your card to basically give you credit with the bank. They charge a $35 fee for each overdraft and allow the payment to go through. In some cases, that can actually be pretty nice. Say for instance you remember at the end of the day you need to make a car payment and know you don't quite have enough money but since they allow you to overdraft for a $35 fee you can make the payment, pay the fee, and not have to worry about being late on your payment. Once you get your statement, and the little notice they send you letting you know you overdraft your account, you find out that is most definitely not the case.
Through your day's transactions they process your most expensive purchase first down to the least expensive, regardless of the actual time of day of the purchase. They do this claiming that it allows for your more important purchases to go through, like house or car payments as they tend to be the more expensive purchases. Well, that right there is actually a farce in itself considering they allow the payments to go through in the first place with their "overdraft protection". What does this do, you might ask... Depending on the number of purchases you made throughout the day, it can turn what you thought was one overdraft charge of $35 dollars into numerous $35 overdraft charges.
Say you have $500 in your bank account.
- You start your day by getting some breakfast for $5.00
- You decide to go shopping for some clothes and spend $65.00
- You get some lunch while shopping for $10.00
- You need some groceries for the week and spend $200.00
- You grab some dinner before heading home for $10.00
- You realize before heading home you need to make a car payment so drop off your $250 car payment, knowing that would put you over the limit but knowing you would only be charged a $35 fee for this.
That's not how the bank sees it, sadly. Here is how your transactions actually get processed and removed from you account:
1st charge: $250 car payment
2nd: $200 groceries
3rd: $65 clothes (now you are over your limit and have just been charged an overdraft fee of $35 dollars)
4th: $10 dinner (overdraft, $35 fee)
5th: $10 lunch (overdraft, $35 fee)
6th: $5 breakfast (overdraft, $35 fee)
What you thought was a single $35 fee turned in to $140 worth of fees... and there's nothing you can do about it. Its completely legal. I took Bank of America to small claims court over this unbelievable policy but since it was not illegal could not get the money I lost due to this. What's worse... you don't even have to overdraft your account, to get hit with these fees. If you transfer or deposit money after usually 3 pm, it won't show up into your account till the next day so if you spend money thinking the money is there, you'll be hit with the fees.
Here's the kicked to all of it. The big banks like Bank of America are making... BILLIONS a year off of this. BILLIONS of dollars of hard earned money is being sucked from the honest worker every year due to their unbelievable practice. I've seen reports that banks like Bank of America are making nearly $2 BILLION each. That's nearly $2 BILLION DOLLARS PER YEAR that Bank of America, by itself, made from this practice.
What's sick is with the current technology, using a debit card, they know exactly the moment you buy something. They instantly know the amount that was charged (except for in some cases using pre-pay at a gas pump) so they could easily avoid overdraft fees by not allowing the card to be charged when the amount will put you over the limit. I know they can do this... because our very own Howard State Bank does this. These big banks do this to make unbelievable profits from us.
On the gas pump thing, certain places do the card differently. Generally the system only checks if your card has any money then allows you pump the gas. Some check to see if you have at least $50 while some I've heard only check if you have $1. In those cases I could see the potential of overdrafting or causing problems as it only checks if some money is there then charges after you fill up, but I'm not positive.
Anyway... just be careful. If you have a debit card with a big bank like Bank of America, check their policies and make sure you aren't getting screwed. Something seriously needs to be done about this and congress actually has a bill in to stop this, but that bill was started a couple years ago at least and it seems they are more worried about taking over health care than saving Americans billions of dollars a year in ridiculous fees.
Caveat Emptor!
Means more today then ever before!
I actually shouldn't say large banks really, there are some smaller banks and credit unions that do the same thing. Be sure to read the fine print or ask as many questions as you can before using the debit card to sure you won't get hit with the fees.
One reason i deal in cash now days. don't have a bank account. BUt you can get a walmart debit card. They do not incur overdraft fees and wont' allow you to go over the limit.
simple solution to this - DON'T SPEND MONEY YOU DON'T HAVE, credit/debit card or not ! ! ! ! !
Quote from: flo on November 06, 2009, 02:28:05 PM
simple solution to this - DON'T SPEND MONEY YOU DON'T HAVE, credit/debit card or not ! ! ! ! !
This kind of reply I see every single time something like this is discussed. This is beyond spending money you don't have because of the way their system works. I've read of people having experiences where they NEVER took too much money out of their account but were still charged the overdraft because of how the bank puts money into your account and takes it out.
Like one of my examples above, where if you put your money in the bank after a certain time of day, even though you had enough money in your account their system shows purchases, even after depositing the money, as being purchased before you deposited the money. You can keep track of every single penny you spend and deposit and still get hit with overdraft fees if you aren't 100% careful with how their horrible system works.
I do agree that you shouldn't spend money you don't have and have a horrible habit of that with credit cards, but what these banks are doing is simply sick. They turn what could be good, helpful technology against anyone and everyone that lives paycheck to paycheck and even some who don't have to.
QuoteLike one of my examples above, where if you put your money in the bank after a certain time of day, even though you had enough money in your account their system shows purchases, even after depositing the money, as being purchased before you deposited the money. You can keep track of every single penny you spend and deposit and still get hit with overdraft fees if you aren't 100% careful with how their horrible system work.
James made two deposits, the same day, within minutes of each other. One was at an ATM, the other drive-through. One was credited that day (the ATM); the other was left pending for 3 days. Overdraft fees! :(
Pending... those really chap me. I deposited a check from my mom a while back and they put a hold on it for a few days without giving a reason. >:(
Oh yeah, only reason I went with BofA was they gave me a home loan without any questions since I had great credit, even though my wife's wasn't all that great (student loan lies, that one will be another post some time :D). They told me since I was getting a home loan I would get a free checking account, yada yada. Turns out they were charging me for the checking account after a few months of having it. That one I luckily did get money back from while in small claims. Don't trust 'em!
I did end up closing my checking account with them recently but I still have the home loan and also have a credit card with them. Recently went online to pay my credit card bill, like most big banks let you do... but, BofA wouldn't let me since I didn't have a checking account with them. Talk about a crock. ::)
Of course banks will do what they can to get money from you, that's how they stay in business.You really have to stay on your toes, read the fine print and ask the right questions. I won't use my card as a debit card for that reason, as well as the fact that for the most part you have no protection from mistakes as with a credit card. Some will think its all unfair,tsome will praise them for being good at business and should be able to charge whatever they can get. I'm such a tightwad I just never get caught with overdraft fees and such because it's just throwing money away and I hate the thought of that.
Quote from: flo on November 06, 2009, 02:28:05 PM
simple solution to this - DON'T SPEND MONEY YOU DON'T HAVE, credit/debit card or not ! ! ! ! !
I've had situations where like tripco does by placing a hold on 50 dollars on your card. That will trigger the OTL fees if your down pretty close to zero.
Quote from: Diane Amberg on November 06, 2009, 04:12:33 PM
Of course banks will do what they can to get money from you, that's how they stay in business.You really have to stay on your toes, read the fine print and ask the right questions. I won't use my card as a debit card for that reason, as well as the fact that for the most part you have no protection from mistakes as with a credit card. Some will think its all unfair,tsome will praise them for being good at business and should be able to charge whatever they can get. I'm such a tightwad I just never get caught with overdraft fees and such because it's just throwing money away and I hate the thought of that.
IF i screw up i accept the fees without question since it was my screwup. But the practice of taking multiple purchases and running the most expensive through first so that you can maximize bounced is wrong and dishonest. They should process each transaction as they are made. Its not like they dont have the ability to do this you know.
Then that practice should be made illegal. It's done by a lot of banks. Ethics doesn't seem to mean much.
Debit cards are just that. When you use them they debit from you account. If you do not have enough money to cover tell me why should the bank let you use their money to run on since you did not have enough of your own. The ideal of the debit card was so a busniness could be guaranteed their money. What your are trying to get by floating your checks to give you more time to deposit money.
Maxine and I use debit cards but we check our account everyday.
Diane, I heard somewhere that congress is addressing these issues as well as gouging on the credit cards. Hopefully, they will get something done. It seems that more and more service companies are less and less service and more and more company. :o
Maxine just reread your post and it is not the bank that process your spending, it is how the business sends in your charges to the back. You may have ate breakfast at 10:00am but the transaction may not have reached the bank due to the clearing house they use. And as far as overdraft, you have to set the up with the bank. Say you have a house payment of $200.00. Thay will set the overdraft for that amount and not charge you for it just to protect you credit score.
Maude.
I've always used small, home-town banks. Although you miss out on the internet features (online bill pay, online transaction tracking, etc), the personal service is the best. One bank I used helped protect you by putting a daily spending limit on your debit card (unless you called in and let them know to remove it for that day). That way, if your card was stolen, they would only be able to spend a certain amount (like $250). That same bank also had a feature that if you had a savings account with them, you could sign up for overdraft protection... which meant they would automatically take the money from your savings account and transfer it to your checking account so you wouldn't get an overdraft from the business. They did charge you for this ($11 I think at that time).
Quote from: Maude on November 06, 2009, 05:16:21 PM
Maxine just reread your post and it is not the bank that process your spending, it is how the business sends in your charges to the back. You may have ate breakfast at 10:00am but the transaction may not have reached the bank due to the clearing house they use. And as far as overdraft, you have to set the up with the bank. Say you have a house payment of $200.00. Thay will set the overdraft for that amount and not charge you for it just to protect you credit score.
Maude.
Actually these days that's not true. They know the instant the debit card is used. They may not actually pull the money out for a period of time but when the card is swiped it checks for an authorization of that amount which the bank's system can see as a charge. I've tried it myself by just authorizing a $1 charge to my card (only authorizing, not actually pulling the money from the card) with our business account and it instantly showed up in my bank account online as being withdrawn so the system knows when you use the card even if the card processor doesn't actually pull the money out.
That's where my other problem is... they have the technology to protect the consumer, not hurt them. They instantly know what is being charged so can easily refuse the charge so that one doesn't overdraft their account. Like I said, Howard State Bank does this with their debit card. If the money is not there it will not allow the card to be charged and that is how it should be in my opinion. Sure, the banks won't make billions off of it but least people would be able to pay their bills again since they aren't being gouged by the bank. The banks like to say the people need to be more responsible to avoid overdrafts but the banks too need more much more responsible so that they don't have to gouge innocent people to keep their profits up.
Quote from: Tobina+1 on November 06, 2009, 09:00:48 PM
I've always used small, home-town banks.
Me too. Never had a problem yet. They know me, I know them. I wouldn't have it any other way! :D
I will never go back to a big bank, we use the Credit Union here in Topeka and never once have we had any problems.
Jane
I'm a little prejudiced, but I will always choose a small bank. :angel:
Also, folks watch out for changes in all your major credit cards in the next couple months. They are getting ready for new regulations coming soon and are re-adjusting (raising) their fees and interest rates. Don't take any chances, know what's up before you stack Christmas gifts on your card. Even JCPenney's raised my rate.
Card companies usually don't make any money off people like me who pay it off monthly (though they do get a cut from the merchant's share of my purchases); but if you're late or forget even one time, they are legal to charge you the crazy fees and interest you ignored before because you "know" you'll never make that mistake.
Just be aware of your current terms. They (card companies) can change them, with those tiny-print notices in your monthly bill, anytime; and your only option is to agree or to pay off the card and close the account.
I've heard that some cards are going to charge a fee soon even if you pay it off every month like I do. I 'm watching very carefully.
Well, I guess if we want to play it smart we all will just pay cash and not worry about it.
Jane
The reason we pay it off each month is to avoid a fee.....
I hope they don't start that, if so, guess it will decrease a lot of our shopping --- well, on second thought it may be a good thing. lol lol lol
I find it kind of funny that credit card companies are now jacking up the interest rates as high as they can. Especially so on those that already make the minimum payments as that is all they can afford. Talk about one big way of not getting your money back... I foresee people simply no longer paying their credit cards off because the interest is too high for them to. Ridiculous.