Debit-Card Overdraft Fees

Debit-Card Overdraft Fees

Overdraft fees have become a huge cash-cow for banks. Nationwide, banks took in $20.2 billion in debit-card and ATM overdraft fees in 2009. In California alone, Wells Fargo Bank assessed over $1.4 billion in overdraft fees between 2005 and 2007.

Recent lawsuits against banks, such as Wells Fargo and Bank of America, have revealed that unfair and fraudulent business practices are driving this massive revenue stream. To maximize their profits, banks have intentionally manipulated the way transactions are processed, often resulting in customers being charged multiple overdraft fees instead of just one.

If you have been assessed multiple overdraft fees for debit-card transactions over the course of a single day, we would like to hear from you to determine if you have been the subject of unfair and fraudulent business practices.

Background to the Debit-Card Overdraft Fees Scheme

When you purchase an item with a debit card, banks have the ability to determine instantaneously whether your account has sufficient funds for the transaction. Instead of refusing to allow insufficient-funds transactions to go forward at the point-of-sale, banks have instituted and promoted “overdraft protection” as a beneficial service for their customers. Through “overdraft protection,” banks allow a purchase to go forward despite the lack of funds in the customer’s account. The customer is then assessed a fee for each overdraft transaction.

Banks do not process debit-card charges at the point of sale, automatically deducting the amount of the transaction from your account. Rather, after midnight, banks take all debit items presented for payment during the preceding business day and subtract them from the customer’s account balance. This process is called “posting.”

Rather than processing the debit items in the chronological order in which the debit card was used, certain banks have posted the items from “high-to-low,” meaning that the most expensive debit transaction is deducted from your account first and the least expensive item is deducted from your account last.

To illustrate how this practice leads to unfair results, consider the following example:
A bank customer starts the day with $20 in his account. He uses his debit card four separate times during the day to purchase various small items—a latte, a Snicker’s bar, a sandwich, and a magazine—that total $15. That night, he goes out to dinner and picks up the $20 tab using his debit card. If the bank processed the five debit transactions in the order they were made, the customer would only have one overdraft—the $20 transaction at the end of the day. Banks that use “high-to-low” posting, however, would assess the customer with four overdrafts: the $20 item would post first, wiping out the account balance and leaving nothing in the account to cover the four small purchases, even though they were made earlier in the day.

As a result, the customer’s purchase of a $1 Snickers, which he purchased when there was still nearly $20 in his account, would be subject to an overdraft fee, which may be as high as $35.

Take Action

If you have been assessed multiple overdraft fees for debit-card transactions over the course of a single day, you may have a claim against your bank for unfair and fraudulent business practices.

Please fill out the contact form above in order to get in touch with an attorney who will assess the viability of your claim.

We agree to protect your name and all confidential information you submit against disclosure, publication or unauthorized use to the full extent under the law. You will not be charged or have any obligation in connection with our review of your case. We will contact you as promptly as possible.