Ripped Off by the Banking Industry

Bankrupt folks who participated in the Consumer Bankruptcy Project 2007 had the opportunity to complete a telephone interview. For the interview, they were paid $50. Respondents who shared particularly heroic and inspirational stories could be nominated by the interviewers for additional compensation. Denise McDaniel, one of our interviewers, nominated Erica Stevens (not her real name) for this "award." Little did we know that Erica's bank would take this opportunity to rip her off.

Here is an excerpt of what Denise had to say about Erica when she nominated her for the extra compensation: Erica is 46 years old and suffers from end-stage multiple sclerosis. She was diagnosed about 10 years ago and given 5 years to live. Over the past months, we have shared a lot. Sometimes when I called, her speech would be very slurred and I would know it was a bad day. Then, other days, I could barely tell she had any health problems at all. In spite of her illness, Erica looks past her own misfortune and sees the positive things in life and others. She is very brave and strong and creative and incredibly unselfish. She takes in stray kittens, cooks home-made soup for her elderly neighbors, rolls pennies to buy gas for her husband's truck, and even gets her antibiotics from her veterinarian if she can, so she doesn't have to spend money on a doctor's visit."

Based on Denise's nomination, we sent Erica an additional $100. What should have been a very positive thing turned quite unfortunate, thanks to the greed of Erica's bank. Denise sent the following email to me a couple days ago:  "She [Erica] got her check a couple of days ago and had her husband deposit it in the bank. They barely cover expenses each week so she was thrilled to encourage him to put more than $10 gas in his truck, pick up some milk and bread at the grocery store, pay a little bit on a bill they owed, and buy another item they needed. Then when she checked their balance at the bank yesterday, they had over $100 in overdraft charges, something like $33 for each of the items he had bought. She called the bank and they said they were holding the Harvard check for 5 days, so it wasn't available for them to spend when he made the purchases. She asked to talk to a supervisor and was transferred here and there and finally she said she was hooked up with someone she was sure was in India, because she could barely understand her. When she insisted that they had never held any other checks on their account, the lady told her that they often do that for checks from out of the country. Erica asked her where the hell she thought Harvard was and then just gave up."

Two specific points here. First, why in the world is holding a check drawn on a leading bank common practice? My guess, although it is simply a guess, is that it provides a beautiful opportunity to nail families with overdraft charges. What a windfall for the banking industry. And what an unethical practice. If my memory serves, checks I write are deducted IMMEDIATELY from my account--thanks to technology, it simply is not possible to float checks anymore. Yet deposits I make are not recognized for days. Why???

Second, $33 for a single overdraft. What the heck??? Who in their right mind thinks it is acceptable to charge that? And why in the world aren't our elected officials calling hogwash on this? If Obama and Clinton want to take a stand that will resonate with the average American, I'd suggest taking the banking industry to task for this practice. It's unethical and it should be illegal.

Comments

[Adam Levitin]

If the bank that Erica used was a member bank of the Federal Reserve system, then what it did might be illegal--the bank may have violated Reg CC. Funds availability for deposits at Federal Reserve member banks are governed by Reg CC, section 229.10(c)(vi) of which provides that: "A depositary bank shall make funds deposited in an account by check available for withdrawal not later than the business day after the banking day on which the funds are deposited, in the case of-- (vii) The lesser of-- (A) $100, or (B) The aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability under paragraphs (c)(1) (i) through (vi) of this section." There are some exceptions to the section 229.10 next-day availability rules, however, so even if this is a Federal Reserve member bank, there are some factual issues to check out.

Reg CC attempts to balance funds availability concerns like Erica's with check kiting concerns. But it's been around for a while without any inflation adjustment to that $100 figure, so the overdraft net keeps getting wider.

[anon]

Fundamentally, checks are a bad idea. You think that you have the money when you're holding the paper check, but you don't actually have it until the check clears. (And this is independent of any holds that the bank may place on your deposits. In the classic advance fee scams, the victim deposits a counterfeit check, waits for the funds to become available, withdraws them, and then discovers two weeks later that the check didn't clear.)

A system of bank transfers, like they use in Europe, is less prone to abuse. Instead of mailing you a check, I mail my bank a transfer request, with your banking details. You confirm receipt of the funds by calling your own bank.

This has several good features. It's "payer push", rather than "payee pull", which complicates fraud--with a check, the payee is given a specimen of the document that he would have to forge, complete with signature. And there's no such thing as a "bad bank transfer", because the bank, who is processing the transfer request, knows your available balance. If you don't have the money, then the transfer simply never goes through.

To some extent, North America is moving towards this. Most banks will let you request on their website that a check be mailed. (They have incentive to do this, since it helps them to detect fraud.) It's not a very big step from "my bank mails you a check" to "my bank mails your bank a check", and from there to "my bank transfers your bank the money".

The same thing is happening with ACH transactions, or those point-of-sale check scanners that read the account number off a paper check. (Or debit cards, of course.) But those are "payee pull", and more prone to fraud and merchant abuse. Fraud against the bank transfer system requires a failure on the part of your bank, but fraud against an ACH transaction requires a failure on the part of any merchant that you've ever dealt with.

In commerce, large-value transactions almost always go through by wire, especially when people don't trust each other (dealing internationally or whatever). That's expensive, but it has all of the good features outlined above. It's unfortunate that we tolerate a much worse system for consumers.

[blue banking]

We *always* tolerate a much worse system for customers (not consumers, thank you; I do far more than simply "consume" a "resource") because customers don't have the same lobby or impetus to change that a large business would. EVERY bank offers the exact same set of standards to virtually every customer. Only if one ventures way off the beaten path, and finds a credit union or bank with a single branch (that has to embrace technology just to survive) will someone see these sorts of features.

I used to have a bank with an 8PM cut-off time for deposits and instant deposit posting, but they had no concept of canceling a debit card (I am not eligible for most, if not all, credit cards without rip-off terms), so I went into debt to them for about $2000 and had to leave them.

[Mike Dillon]

Politically speaking - don't expect either Sen. Clinton or Sen. Obama to do much in the way of "saving" homeowners or consumers. Sen. Clinton's campaign invited me to her predatory lending policy roll out in Derry, NH back in August. My name appears in the transcript of that speech on her website if anyone wants to confirm this. Short story, Neither the campaign nor Sen. Clinton were interested in talking about Mortgage Servicing Fraud. They only wanted a "sob story" of hard times and they wanted it from a woman. When my fiancee' declined to introduce Sen. Clinton they found another woman who was supposedly a predatory lending victim.

I thought this was a rather interesting move simply because the Clinton campaign approached us via my website asking about our 7 year battle with Fairbanks Capital. The interesting thing of it is that my fiancee's name doesn't appear on the loan. If the campaign really wanted the *story* I would have thought that they would have asked me to be involved with the event.

Sen. Obama's explanation is simpler. Penny Pritzker is his national finance chair. The Pritzker family was one of the major owners of Superior Bank FSB which was placed in receivership back in July of '02. Large bunch of crooks. To date, Sen. Obama's camp has zero interest in Mortgage Servicing Fraud either.

As far as checks being held for verification - I thought that wonderful little Check 21 program was supposed to help eliminate this process? Thank dog it wasn't around when I first started having problems with Fairbanks. I wouldn't have the evidence that I have today had Check 21 been in effect back in '01/'02.

[Alaska Hults]

Our bank charges $36 for overdraft fees.

For that matter, it also charges fees now for wire transfers--perhaps in anticipation of changing to a system to the one described in the second comment. OTOH, I can make online transfers from one bank's account to another's without a fee--but again, if I make that request and the money isn't available--I'm charged that NSF fee. It doesn't matter that the original request was electronic instead of on paper.

[Patches]

You have got to read "Is your Bank Evil" Liz Weston MSN Money. Say you deposit your payrol check on friday say 4 pm. they say they will not post until say tuesday around 3 pm. but they will post and charge everything that happened on the weekend. It does not take them 3 days to charge your account for debts. Had a problem with my bank that way. The kicker was that my employer ran payrol thru that same bank! I withdrew kids savings my savings kept just the free checking and I dont run my regular bill pay thru it. Its more of a savings account now than anything. Take your money someplace else. When they ask you why, if they ask you TELL THEM!

Some banks are more evil than others.... Shop around! There is a local bank here in S.Texas that is open on Sundays...etc and conducts regular biz on those days. They are closed like 3-4 days a year. Hit them where it counts.......! Good luck all.

[zekezarski]

I am attorney in Austin, TX. I have several of my accounts in one bank and routinely have $50,000+ in that bank between the various accounts. About six months ago I received a check from a major brokerage house from selling some stock and when I deposited the check, I was told there would be a ten day hold on the funds. I asked to speak to the (brand new) branch manager who told me it was "policy." I told him that it had never happened to me before in over ten years and it was unacceptable. He said he couldn't help me. I told him to close all my accounts and issue me cashier's checks for the balances. All of a sudden, he could work with me. No checking with any superior, no reviewing any policy manual, no nothing. So much for "policy."

[Deborah Thorne]

In response to zekezarski: Your determination is admirable. And the manager's change of heart is telling. Policy, my fanny! And what is so darned frustrating is that when those of us with financial privilege make these threats, hmmmm, people bend over backwards to keep us happy. But for those folks who are working class, well, most banks could give a darn. The unending examples of the less powerful getting taken advantage of makes me pull out my hair. Oh rats, I just noticed that I'm bald!

[Sandra Gomez]

First National Bank has similar practices. When we discovered bankruptcy was a waste of time (all it does is add another debt) and lost our home to foreclosure. We started camping a the local KOA in August. Doug got a job up the road right away. So we thought we would be ok. Doug's paycheck was a "direct deposit" so, the bank blessed him with a $500 overdraft protection that we didn't even know about for quite a while. We had over a $1,000 in bank charges in four months. They would do things like do all the debits first and then deposit his check even though it was already there. We would take a debit from and ATM and pay only $30 a transaction, BUT they also charge $30 for the $2.00 transaction fee. Finally we had to go to a cash only position in January because they had us $633 and change over drawn in one week! According to my figures we should be $49 overdrawn. I'm sending them my figures and the rest is up to them. FIRST THE MORTGAGE CO. AND THEN THE BANK I THINK I NEED A LAWYER!
Sandi

[Amy Tupper]

TWICE I had a major bank, Wachovia, pull the following stunt:

I deposit a large check for thousands of dollars. One was from out of state, the second was proceeds from another major bank in state.

Both times, Wachovia held my check for 10 business days as expected. What was unexpected was that Wachovia not only added the funds and subtracted them while they waited to clear, but then SUBTRACTED it a second time. So all my funds were frozen as the rather large amounts were of course larger than what anyone would keep in a checking account. Twice in 3 years.

I closed my account with Wachovia last week.

[John Nash]

The very best thing I did in my entire life was to go cash only. You won't believe the amount of stress the banks cause monthly. I don't recieve junk mail ever! I don't recieve junk mail!
I don't have to read every notice the bank sents looking for account, fee, or other changes that screw me. I don't get credit card offers, bank mailings, or junk mail. Well, I still get junk in my sunday paper but thats another matter. Since closing my accounts and using cash only I feel great! I'm in control. I decide what to purchase and I only purchase it one time. I always pay cash and I've got no shortage of it. I enjoy going to the mail box! I'm always looking for new Netflix arrivals.

I don't make reservations that require a credit card. If I acually needed to make reservations that required a credit card, I would consider a pre-paid Visa card from Wal-mart but I always get by. I paid for house many years ago. If I ever needed to move, I would sell my current house and purchase a smaller house wiith the procedes. You don't need a Bank to fucnction in this country! Don't believe the B.S. about cash is dead! Cash is alive and well! BTW, I also have a thin credit file and I haven't checked it in many years. I don't need rip-off credit or banks to live a happy life! You can do the same.

Also, EDIT ALL CONTRACTS and FORMS before signing! I always get the look when I return on and I just smile! You can keep the arbitration crap! Another note, you can get a Bond to cover your financial requires for car insurance. Check with your state before you do and judge for yourself if it's something you want. I don't have car insurance either but I'm Bonded and financially secure. Remember, no Bank or Insurance makes you stress free and Happy! Look into these ideas if interested. Either way, good luck!