Predatory Banking Practices Undermining the U.S. Consumer 38 comments
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A simple predatory accounting policy provides windfall profits for banks at the direct expense of struggling homeowners. Never before has this deceptive practice been more destructive than in the face of escalating home foreclosures and on the eve of the 3rd major down period in US history. Recent reports suggest that foreclosures increased by 121% over the past year, and there's no end in sight. This banking practice increases the rate of home foreclosure and creates an avoidable strain on our economy.
The US economy and consumers specifically lose approximately $30 billion every year due to this ongoing predatory practice. The persons most affected by this practice are the same persons who are already struggling to pay mortgages that were designed to put them in homes they normally could not afford.
Debate aside, declining home prices and increasing adjustable rate mortgages are a reality for millions of our countrymen. Our government is looking for ways of alleviating the resulting strain on our economy, but my simple approach has thus far gone unnoticed. My approach would inject approximately $30 billion into our economy every year and add sustainable relief during the long term economic down cycle facing our economy. That ongoing relief would be far greater than the proposed bailout of Fannie Mae (FNM), which is $25 billion, and would remove significant pressure from the rate of home foreclosure.
I am presenting this with a demand: Our government must take action against this practice immediately and alleviate the added strain on our economy.
Officials are not aware of this problem because they rarely experience it first hand. In fact, when presented with the issue they usually disregard it altogether. I hope that does not happen this time.
According to the investment rate [TM], whose chart is offered below, the US economy has already entered the 3rd major down period in US history. Akin to the Great Depression and Stagflation of the 1970s, this major down period will result in severe economic weakness for the next 5-10 years at least. We must do everything we can to protect the consumer during this downturn. Consumers make up 70% of GDP. They are the foundation of our economy, and the deceptive practice mentioned above and detailed below is a detriment to the consumer.
First, this projected longer term down trend is defined by the investment rate [TM]. This is a proprietary report, and the most accurate leading longer term economic and stock market indicator in history. Although ARMS decline in 2009, the economic weakness will continue. The entire report tells us that the risk of a Greater Depression [TM] is real, and the burden of increased severity lies on the shoulders of our government leaders and the policies they impose. The longer term cycles of the investment rate [TM] are defined in the chart below:
click to enlarge
With the findings of the investment rate [TM] understood, my resounding demand for relief encompasses both the immediate burden of home foreclosure and the continued pressure on our economy as illustrated in the chart above.
The Procedure:
This predatory banking procedure is an accounting practice, and a method of order - posting imposed by our nation's banks. First, the banks claim they have the right to record transactions in any order they choose. In reality, they use one posting method, which is to record transactions from largest to smallest regardless of the order those transactions were made. The table below provides an example of this widely used accounting procedure:
Rhetoric imposes yield to past scrutiny of this practice. However, after careful evaluation of the impact that this practice has had on our economy in the past, that is currently imposes, and that it will levy in the future, detailed reconsideration is warranted.
First, we must realize the extent of this misconduct. Individually, these small excess fees almost seem like a slap on the wrist for overdraft accounts. However, after careful investigation I have found that overdraft fees are indeed a material source of revenue for major banks like Wells Fargo (WFC), Bank of America (BAC), JPMorgan (JPM), and Washington Mutual (WM), just to name a few. Overdraft fees are never disclosed as a line item on company reports, but they are coupled with other fees and non-interest income to conceal their relevance.
After discussions with representatives from Wells Fargo (WFC), who wish to remain anonymous, I discovered that Wells Fargo processes approximately 500,000 overdraft fees per day. The representatives also acknowledged that about 3/4 of the fees occur as a result of the firm's posting policy (largest to smallest). This practice is an industry norm, and predatory by nature.
The following example can be applied to all major banks.
These estimates have been supplied by bank representatives, and they are not disputed by the investor relations departments of these banks. The $4.65 billion in estimated annual excess overdraft fees produced from the predatory banking practices implored by our Wells Fargo, and similar excess fees charged by our nations largest banks, are adding tremendous pressure to our troubled economy.
The same people who bought creative mortgages from these banks are now facing problems as a direct result of this predatory practice. With rising oil prices taking more money out of the general economy, the impact of a simple accounting procedure like this is severe.
Comparative estimates suggest that the combined annual cost of this predatory banking practice exceeds $30 billion per year.
Our leaders need to take action and protect the consumer from the rapacious banks who handle their money. In light of the risks that lie ahead according to the investment rate [TM], if we don't act now it may bee too late. That applies to our entire economy.
My Demand: Stop allowing banks to prey on the consumer!
Proper action will alleviate some of the strain on our troubled economy, it will help moderate the foreclosure rate, and re-propagate $30 billion into the system every year.
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This article has 38 comments:
so you think it's alright for someone to overdraw their acct.?
they should be punished.they should pay it causes everyone problems.
I think it bears investigating if true.
Regardless of what order the withdrawals/drafts are processed, the implication is that their are not sufficient funds in the checking account to cover all outstanding transactions. Whether you process larger or smaller amounts first has no effect on the end result: the person has overdrawn their account.
The bottom line (no pun intended) is that people need to manage their personal finances more wisely. The overdraft fees should serve as a motivational tool.
- Do not allow banks to decide how they apply payments. There should be a formula, which allows people to crawl out from under their debts.
- Do not allow lenders to adjust the interest rate up on people that are becoming less credit-worthy. This only serves to guarantee defaults.
- Do not allow lenders to reduce the grace period on payments for the same reason.
- Do not allow lenders to run around campuses handing out credit cards to children (with the accompanying t-shirt and discount coupon for the local pizza parlor.) Screwing up an 18 year olds credit history is an abomination. We do not allow 18year olds to drink, why are banks allowed to take advantage of young people beginning the credit process.
- Reduce overdraft fees to a reasonable level. The charged fee is inexcusable, particularly when it is a matter of transferring dunds from a savings to a checking account, or when the overdraft is a result of another party either bouncing their check, or stalling on clearing it (Hello Wamu!!!! ).
- Interest charges should be reduced to a reasonable level. What ever happened to the legal definition of usury and why did Congress allow this limit to superceded by the greed of our banking and credit industry.
For the record, I am very financially sound and while on my rant (sorry about that..) here's a BIG thumbs down to BofA, Wells Fargo, Etrade and TDAmeritrade, none of whom should be allowed to touch anyone's money.
jegan ;-)
What " udder nonsense " !!
I completely agree, people who overdraw their accounts should be punished for it, and without question. I am not arguing that point. What I am arguing is the discretionary order posting policy of the banks in our country.
Should 1 punishment turn into 4?
Maybe this will be a good analogy for stock traders: What if your broker re-ordered your transactions from highest to lowest at will? Example: you made 6 trades one day, the last trade of the day was the biggest, and it put you over your margin limit. The penalty imposed by your broker is that you do not have access to the cash for 1 day for every over limit transaction; in this case you would have to sit out the next session and wait for your account to become tradable again. Some brokers operate like this as you know.
Now, implement the policies imposed by our banks: If those transactions were re-ordered highest to lowest, that largest (last) transaction would have caused you to exceed your buying power right away, and the number of penalty days would multiply. Instead of sitting out 1 day, you could reasonably sit out 5. This, due to a simple accounting policy and even though it was the last trade you made.
Obviously these are not directly analogous because some brokers treat margin differently, and these posting policies do not apply because brokers want you to trade all the time. But what if these policies did apply? Would you be concerned then?
More often than not, people who manage their money well who never incur these fees don't see what is taking place, and don’t care. However, if your business is based on consumer spending, maybe you should be concerned. The consumer is losing more than $30 Billion every year because of this. Banks are stealing money from millions of consumers every day, money that could otherwise filter down to other businesses.
If ALL banks, and this happens with ALL Banks, are allowed to re-arrange the order of your transaction to increase their internal overdraft charges (four - fold on average), aren't they imposing a rapacious practice on their accountholders?
In my example (article), you had the money in your account to pay the first 4 charges, but the last caused a penalty. Instead of penalizing you for 1 charge, the charge that took you over your limit, they actually penalize you for the 4 charges you had the money to pay for instead.
That's wrong, no matter who you are.
Further, now that the economy is weak, those same people who are struggling to pay mortgages on homes they could not afford (thanks to the creative mortgages they purchased from these same banks) are foreclosing at a higher rate as a direct result of this practice. Not only are they struggling to pay their normal bills and ARM payment, but now the bank is stealing money from them as well.
Argue the point of 'paying the price' for overdraft accounts all you want, and I'll agree with you that for every legal overdraft fee a charge should be imposed. However, when a bank imposes a predatory practice like this one onto accountholders who are struggling in an already weak economy which can, arguably, be directly tied to the mortgage banking policies of recent past, something should be done to curb it.
Banks should not be allowed to increase overdraft fees at will.
PS: Half of your face is falling off, you might want to get that checked out.
Yeah, I found that during this investigation too...the banks claimed that the reason they changed the order was because they wanted to ensure that the more important transactions were paid first.
However, interestingly, they will pay all of the transactions no matter what order they come in or what size they are, so this claim is moot.
If they drew the line, and refused to pay, then there would be no overdraft charge, but they don't.
- while you're at it, why don't u ask Congress to pass a law to clear checks in the most advantageous way for the customer? Maybe even requiring the banks to call the customers to see if they could add funds to thier a/c's? As u can see, anyone who thinks more regulation of banks is the way to go can't be serious.
> jack
Go cry elsewhere baby, and learn how to balance your checkbook
Overdraft protection is a short term loan which covers all checks written above your present balance until the next deposit covers them. Not for free!-you pay a prevailing interest rate on which the Bank makes a profit--just not a predatory--"Thieving" profit.
To most problems there is a simple answer. But they will not offer the option least in their interest--you must ask.
Which bank is that? At my bank, they ding you either way. Maybe the fee is different, but they do ding you. And, of course, if they don't pay the check, you get dinged at the other end. And then the check gets resubmitted, most of the time it mkes it thru the second time. Unless you really truly wrote a bad check.
...Overdraft protection is a short term loan ...
Yest, AND MORE FEES ON TOP OF THAT.
It is true that banks charge the highest amounts first if you have little money in there. Doesn't matter if it's a mortgage. They take the largest debits first that way they can get extra overdraft fees. You deplete your funds first and use theres. BAC is notorious for this...
Now if they actually post them in the order that they were received they would have less overdraft fees each month. This way the consumer would have more money in the bank and would be able to go and spend it. Instead of giving hundreds of thousands of dollars to the banks for them playing sneaky account with the postings.
The author has it right. Consumer banks are as predatory as loan sharks, with the added advantage of having bought and paid for Congress (speaking of whores).
You'll get the same story from any bank. They'll tell you it didn't HARD POST until the day you got overdrawn. The funny thing is that if you deal with the same merchants often enough and you check your account daily, that the so called HARD POSTING days can differ quite greatly. If you didn't have a transaction come through several days later, then these things will show as HARD POSTING the day of, the next day, or at the latest, 3 days after the transaction. It never takes 5 days to HARD POST, unless of course, your account gets overdrawn and they can see a way to juggle the dates and have them HARD POST after your account is overdrawn.
I've been watching it for a while now, and of course the bank won't admit that it does this, but if you deal with the same merchants and you check your account then you can see on average, how many days it takes for their transactions to post. If the merchant tends to take a while, the bank might even put those funds back in your account and then take them back out on the day it actually posts. But most of the time, it is quick enough that those funds are out of your account the whole time. The only difference I have noticed is if the account gets overdrawn. Then the bank looks back several days, even up to a week ago (I haven't had them go further than that, I think) and will take any and all debit transactions done in those days and change the "HARD POST" date to the same date as whatever transaction made your account get overdrawn, and then of course they can go from largest to smallest on that date. That's why they have to change the dates. That's the only way they can make it so those earlier transactions can be taken out after a large later transaction that overdraws the account. So instead of getting 1 overdraft fee, they easily make 3 or 4, depending on how many earlier transactions they can do this with.
As far as I know, they can only do this date manipulation thing with debit transactions that are processed like a credit card, where you have to sign. I think they can't do it with debit transactions where you actually put in your PIN. But why do you think you see so many banks having sweepstakes and encouraging everyone to sign when you use your debit card in order to be entered into these sweepstakes? All the advertising you generally see regarding debit cards is for trying to get people to use them more like credit cards, not by inputting your PIN. Why do you think that is? It's because banks make more money on overdraft charges if people use their debit cards this way because they can fiddle with the transaction and so-called "HARD POSTING" dates and get additional overdraft fees from people who normally would have only incurred 1 overdraft fee.
Just be very careful if you use your debit card as a credit card. Make sure that not only you have the funds in the account when you actually use it, but that nothing (and I mean NOTHING) can possibly happen in the next week or two that will overdraw your account because then it won't matter one bit that you had the funds to cover those debit transactions when you made them. If they can find a way to make 1 overdraft fee into more, believe me, they will! I think it's wrong because it hurts people that can least afford it and like stated above, instead of punishing one mistake, it makes that one mistake get punished 3 or 4 times as much. It's the same as making the fee $90-120 for one item because that's basically what you're paying for one transaction that ended up overdrawing your account. In a non-predatory scheme, that one transaction would cost you $30-35, which is still pretty high, but not as bad as 3 to 4 times that much. It wouldn't even make me as mad if they just increased the fee to $90. It's the whole issue of having to pay 3 or 4 fees instead of one. They are screwing the consumers and they know it. Most people I know would actually be able to keep more of the money they earn if they didn't put it in a bank anywhere. I've considered just using the bank to get my direct deposit, then withdrawing my entire check and using cash or maybe even travelers cheques to pay bills, get gas, and finding a pre-paid Mastercard or Visa to put some money on to make purchases that have to be shipped, and just cutting up my debit card. I may look into getting a small fireproof safe to keep at my house and being my own bank. I trust myself more than I trust any bank out there.
I've had Bank of America hold checks for over 2 weeks that cleared on my dad's end (he has Wells Fargo) in 24 hours. This resulted in overdraft fees, naturally, as they stopped reversing the results of their "holds" even though their policy is that anything that is a result of their hold will be reversed fee-wise.
Now i've had this experience where they socked me with 5 overdraft fees instead of one. Instead of bouncing or charging one fee that overdrew me and assessing me the one overdraft fee, they ran 4 charges as "after" that occured LAST week. This last charge, which I know for a fact was run on Monday, was never put into action until Monday. It wasn't even on their radar. There was no "pending". So to post that first and then the small charges that were actually pending on my acct (which had enough at the time) is totally predatory.
What i hate is when people say "I've never had an overdraft fee" blah blah blah. Well obviously then either you're lucky or rich. If you've ever lived close to your income line, running into these issues with banks is next to impossible short of using them only to cash your paychecks and doing everything by money order. I'm switching banks. My dad had this issue with Bank of America 20 odd years ago and so nothing has changed, it seems. But I'll try a new bank and just pay off my bank of america overdraft & close it. I've reached the point where I'm so tired of them sharking me I'm apathetic. If I added up how much money they've made off me, it's probably half of what I deposited in the last half year, seeing as I'm a broke-ass college student (and they know it, since I have COLLEGE checking).
On Jul 28 12:10 AM Thomas Kee wrote:
> Loaded...
>
> Yeah, I found that during this investigation too...the banks claimed
> that the reason they changed the order was because they wanted to
> ensure that the more important transactions were paid first.
>
> However, interestingly, they will pay all of the transactions no
> matter what order they come in or what size they are, so this claim
> is moot.
>
> If they drew the line, and refused to pay, then there would be no
> overdraft charge, but they don't.
On Nov 26 09:44 AM GradStudent888 wrote:
> Hi
> I've had Bank of America hold checks for over 2 weeks that cleared
> on my dad's end (he has Wells Fargo) in 24 hours. This resulted in
> overdraft fees, naturally, as they stopped reversing the results
> of their "holds" even though their policy is that anything that is
> a result of their hold will be reversed fee-wise.
>
> Now i've had this experience where they socked me with 5 overdraft
> fees instead of one. Instead of bouncing or charging one fee that
> overdrew me and assessing me the one overdraft fee, they ran 4 charges
> as "after" that occured LAST week. This last charge, which I know
> for a fact was run on Monday, was never put into action until Monday.
> It wasn't even on their radar. There was no "pending". So to post
> that first and then the small charges that were actually pending
> on my acct (which had enough at the time) is totally predatory.<br/>
>
> What i hate is when people say "I've never had an overdraft fee"
> blah blah blah. Well obviously then either you're lucky or rich.
> If you've ever lived close to your income line, running into these
> issues with banks is next to impossible short of using them only
> to cash your paychecks and doing everything by money order. I'm switching
> banks. My dad had this issue with Bank of America 20 odd years ago
> and so nothing has changed, it seems. But I'll try a new bank and
> just pay off my bank of america overdraft & close it. I've reached
> the point where I'm so tired of them sharking me I'm apathetic. If
> I added up how much money they've made off me, it's probably half
> of what I deposited in the last half year, seeing as I'm a broke-ass
> college student (and they know it, since I have COLLEGE checking).
No, they did not hold the checks. Checks take at least ten business days to clear the maker bank after being deposited in another bank by the payee. Reg CC requires that the first one hundred dollars be available on the next business day to a depositor, and most of the time, the full amount of the check is made available to the depositor. Just because Wells Fargo gave your father access to the funds, does not mean that the check has cleared B of A. Next time, keep track of your purchases and checks using a check register. Your online banking doesn't know that you have written a check.
If you aren't able to do that, get a credit card and link it for overdraft protection, the fees are less than one-third of a traditional fee. You may also link a savings account with the same protections.
If you aren't able to do any of these things, please accept that you are unable to use your account properly. Close your checking account and open a savings account and an old-school ATM card. Deal in cash and pay your bills with money orders.
323324, your logic is sound and your advice is reasonable. However, you apparently don't dispute that banks do re-arrange the transaction order to maximize overdraft fees, since you aren't addressing this issue (which started this thread). What you seem to be saying is, in essence, "e caveat emptor." If the banking practice in question is predatory, then I guess it is up to the consumer to be aware of the potential predation and to avoid the risk, much as a swimmer entering shark-infested waters does so at their own risk. But does that make it right for banks to practice what is in essence accounting fraud? I don't think so.
On Dec 20 12:16 PM User 323324 wrote:
> I know that this is my third comment, but I work at a bank. It is
> really quite simple to avoid overdraft fees. There are a number of
> ways. The most obvious is to avoid spending money that is not yours
> to spend. You say you shouldn't have to pay excess overdraft fees;
> I say the bank should not have to pay for things when you don't have
> the money.
>
> If you aren't able to do that, get a credit card and link it for
> overdraft protection, the fees are less than one-third of a traditional
> fee. You may also link a savings account with the same protections.
>
>
> If you aren't able to do any of these things, please accept that
> you are unable to use your account properly. Close your checking
> account and open a savings account and an old-school ATM card. Deal
> in cash and pay your bills with money orders.
On Jul 27 04:26 PM LoadedBanker wrote:
> Two words: Total Crackpot
The author of the article is absolutely right. At the present moment I'm starting a legal action against the overdraft predatory practice. I'm in demand of lawyers to screw the fat thieves.