The Secret Is Out
Ask any banking manager or representative why their institution pays amounts from largest to smallest and they’ll tell you that it’s because they assume that the larger amounts are the most important and that you’d want them paid first in case there are insufficient funds in your account. Well, if that’s the case then why don’t you have a choice? If you’ve realized that you’ve made a mistake balancing your checkbook or discovered that you’re going to be just a couple of dollars short after all of your transactions clear, you can’t call your bank and ask them to pay items in the order in which they are presented or from smallest to largest in order to avoid multiple overdrafts. In many cases, if banks were to pay items in the order in which they’re received or from smallest to largest there would be far fewer associated overdraft fees. Yes, in many cases I’d probably prefer to have my outstanding checks covered by the bank if there was an error in my balancing. However, if it’s a case where a mistake in balancing causes me to overdraw my account by debit card I’d rather the transaction be rejected than to be charged $38 for the initial overdraft and $38 for each subsequent overdraft-causing a domino effect on fees.
FDIC reports show that banking customers paid $23.7 billion in overdraft fees just in 2008 but “consumer advocates” still spend much of their energy debating about the ethics of short-term lending. The elimination of short-term lending would most definitely lead to an even greater increase in such fees. At least short-term loan fees are contractual, flat fees unless carried over past the original due date. I’m not against overdraft fees nor am I against banks charging the amounts that they do. My concern is the method in which they pay overdrafts in order to capitalize on and snowball what starts as one single overdraft.
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Every balancing and payment process at the bank is meticulously evaluated to maximize the chance of charging fees to the customer. This is why banks came up with this concept of “available balance” and will consider your account overdrawn if they pay on transactions even when money that hasn’t been spent yet is still in your account. I personally think that if a bank is going to charge you a fee when you overdraw your account, it should be when your LEDGER balance drops below $0.00, not some figure that’s based on what the bank thinks you’ve spent already, but hasn’t paid yet. Either that, or pay transactions immediately! Why are you waiting until the next business day?
When using your debit card, on occasion vendors will place a “hold” on a small amount that eventually drops off once the actual amount has cleared your bank account. Most major banking institutions would jump on the chance to charge you $38 on that pending unanticipated hold even if it doesn’t clear your account. It’s a very unforgiving institution.