Overdraft Fee Anger: Out-of-Order Charges

Consumers say they get more overdraft fees due to out-of-sequence transactions.

ByABC News
September 28, 2009, 6:30 PM

Sept. 29, 2009— -- After Maria did the math, she was aghast. Since the start of the year, the Houston woman said, she and her husband have paid more than $1,200 in overdraft fees at their local credit union.

Maria, who asked that ABCNews.com withhold her full name, said part of the problem lay in the fact that the credit union didn't seem to be posting her debit card charges and big bill payments, like car loan payments, in the order she was making them. Multiple, small charges would be applied later than large ones, triggering many overdraft fees.

"We were having a hard time keeping up with the bills and to have all these overdraft charges come in and attack us, hit us even harder," she said.

The order in which banks post charges is one of several issues lawmakers are looking to tackle amid growing public uproar over overdraft fees -- the fees banks and credit unions levy when a consumer overdraws an account. Proposals floated by Rep. Carolyn Maloney, D-N.Y., and Sen. Chris Dodd, D-Conn., both include measures addressing the timing of bank transactions.

Banks often process large payments ahead of small debit card charges made the same day -- a practice sometimes called reordering. It's a safeguard, banks say, to ensure important bills such as mortgage payments get paid off first -- but critics allege that reordering allows banks to increase the number of overdraft charges they collect.

It's a "gotcha-type practice," said Greg McBride, senior financial analyst at Bankrate.com

Maria said that, in her case, her credit union processed her car payments and insurance payments ahead of small debit charges made the same day. After the large bills sapped the funds in her account, the credit union would then apply the small charges Maria made on her debit card for expenses like trips to the pharmacy or movie rentals. Those triggered multiple overdraft fees.

Maria said she would rather have contended with one overdraft charge on one big bill than multiple overdraft charges on several small ones.

"We need to watch our money better," she said, "but at the same time they need to stop moving our transactions around in a way that's hurting us."