Bankruptcy Blog-How banks scam you with fees

By Bankruptcy Attorney Kara O’Donnell, Quincy MA  Call 857-526-1355 to answer YOUR bankruptcy questions in MA.

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Just this week I was the victim of an online hacking to my personal checking account, linked to a Paypal account.  However, the resultant Insufficient Funds (NSF) fees reminded me of a documentary I had watched which investigated how the banks made money, expecially by offering so many “free” “no-fee” accounts.   The answer, in part?  NSF FEES.

When a person has several charges within a few days’ period the banks will actually process the LARGER ones first then the smaller ones after that, regardless of timing.  They do this to maximize their overdraft fee charges.   And, in fact, they have a SOFTWARE designed to do just that.

TRUE STORY!  On Jan 31, 2010, I bought my Chihuahua, Taz, a dietary supplement online at Ebay, paid through Paypal, for a cost of $17.33. I had the money in the bank. It would have no trouble clearing.

On Feb 1, ALSO through Ebay and Paypal, a hacker goes online and buys 2 $500 gift certificates with my account. Now CURIOUSLY, not only did the $500 charges bounce but also the $17 one which was the day BEFORE the fraud charges.  How does THAT happen?

In a documentary I recently watched (PBS maybe) a bank president admitted that they hold  multiple charges (in a few days period) then process the LARGE ones first.  The interviewer asked, “but doesn’t that result in more NSF fees to the consumer if they then get hit for  NSF fees for their $3 Starbucks charge, $2 bagel etc?”  The bank president then stated that the bank viewed it that, “We thought the consumer would appreciate their large charges, like rent or auto payments, being processed first.”

Geez, thanks alot, Rich Bank Guy.

So, that explains it. On Day 1 you make 3 small charges.  On Day 2 you charge coffee then lunch then breakfast.  On Day 3 you pay your car or rent online.  You know you’re $50 short but figure, “Oh well. I’ll get one NSF fee.  At least my payment won’t be late.”   Then you check your account a day or two later and discover SIX insufficient funds fess – all at $35 each”  Now you are not just $35 in the hole BUT $210 in the hole.

In a USA TODAY article, it reported that in 2009, Bank of America settled a class action lawsuit over their overdraft fees.  They also had the software to calculate how to generate the most overdraft fees when a customer went negative on his or her account. 

But have the banks stopped this practice?  Obviously not.  Look at a screenshot of my Sovereign Bank account charges below.  My EARLIEST charge for the dog medicine was processed LAST even thought it was purchased the day before the hacker hit!

WHAT A SCAM!!!

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BALANCE 818.96 NEGATIVE.   The earliest fees area at the bottom

02/02/2010  INSUFFICIENT FUNDS  FEE       $35.00-
 02/02/2010  PAYPAL INST XFER 100201 5JFJ243L       $17.33-
 02/02/2010  INSUFFICIENT FUNDS FEE       $35.00-
 02/02/2010  PAYPAL INST XFER 100201 5JFJ243M9E       $500.00-
 02/02/2010  INSUFFICIENT FUNDS FEE       $35.00-
 02/02/2010  PAYPAL INST XFER  100201 5JFJ243M9      $500.00-
02/01/2010  CHK CARD PUR 83xxxx HOMESTEAD.COM   CA       $4.99-

The good news? NSF fees are dischargeable in a Bankruptcy. Of course, only a small fraction of people affected by this will actually end up filing for bankrupcty. Most will be forced to just take their lumps and walk away.

(On a side note: The banks allow you to withdraw money you don’t have, they call it overdraft protection and they make their NSF fees on it. Interestingly, most banks will NOT allow you to turn off this “protection.” Trust me, I’ve tried.)

Kara O’Donnell, Esq.
O’DONNELL LAW OFFICES (857)526-1355
Quincy, Massachusetts
http://www.QuincyLegal.com
Help@QuincyLegal.com

Posted by Kara O’Donnell