I read this article about a man challenging the bank practice of charging penalty fees greater than the administrative costs required. That meant that the bank was using the penalty fees as a profit-making enterprise.
I saw that and thought, “Finally! Get back at those banks for screwing people!” I had gone through a rough time when I was out of work and occasionally bounced a check by accident and was charged a processing fee that was occasionally larger than the amount of the check! And if I was already in the red, what f’ing good is it to push me even further down?
Is there a similar law in the US that we can use to stick to the banks the way this guy did in the UK? If so, I think we should nail them to the wall! Any legal/financial/banking people know about this?
That would be terrific. I wish someone in the know would answer this question.
I don’t have much information on the legality of the issue in the OP but I’ll add another wrinkle.
Does anyone know what the check processing sequence policy is for your particular bank? Most do not but it can become relevant for lots of people; consider the following.
You have $500 in your checking account.
On one particular day 4 checks come in in the amounts of $500, $25, $25, and $50.
If your bank processes checks by lowest amount to highest amount, it will pay the 3 lower dollar checks and take you negative + fee for the $500 one.
However if your bank processes checks from highest to lowest amounts it would pay for the $500 one and then hit you with a fee 3 more times for the smaller checks.
I did the analysis on this for the last bank I worked at years ago when it was acquired by another bank with a different sequence policy. Interesting results.
There are some down sides to this story. Several people have sued the banks for overcharging. The banks have made out-of-court settlements and paid the people back their charges . But then the banks have closed the accounts of these people and told them to take their custom elsewhere.
Also, at the moment, most people in the UK enjoy free banking, with no monthly fees or charges for cashing cheques etc. If the banks are forced to charge the true cost of transactions such as bouncing cheques or writing to customers then all they will probably scrap free banking .
I think you’re probably right about scrapping free banking, or at least them trying it. I would hope that competition between the banks might ensue and if enough customers switch banks to to one’s offering free or lesser charges then they might think again.
I know they have to make a profit but there’s a certain amount of greed involved too.
Most banks will process the checks largest to smallest.
This does two things:
The first is they’re working on the apparently altruistic assumption that the larger check is for something really important like a mortgage payment. Bounce that and you’re severely screwed. So they pay the big stuff first, and if the $10 check for the newspaper bounces, no huge catastrophe.
The second is not coincidentally, this maximizes the opportunity to gather fees from either bouncing items or paying them as a courtesy.
Well, anyone know any banks without arbitration clauses? My bank recently introduced this, and although I never plan to sue my bank, who knows?
Bank of America has screwed me over with their “largest check first” policy several times. Incidentally, they were sued for this practice in 1999 and settled for $9M.
Overdraft fees are a billion-dollar a year earner for banks. They won’t go away in the US unless the laws change.