“You want to tell me that we live in one big community? Don’t make me laugh. I’m livin’ in America, and in America, you’re on your own. America is not a country, it’s just a business. Now f**king pay me.” – Jackie Cogan, Killing Them Softly. 

The last 20 years have shown us just how cutthroat banks can be. We all remember 2008, when the greed of Wall St. bankers nearly obliterated the U.S economy and left millions of people jobless or homeless, or both. Even consumer banks, where we deposit our checks or create savings accounts, operate with reckless abandon. Just look back at when Wells Fargo fraudulently opened fake accounts in their customers’ names in 2016. Millions of customers were charged fees and suffered credit score drops through no fault of their own. Banks engage in a number of abusive practices that are designed to build their profits with complete disregard for the customers they are supposed to be financially protecting.

Financial regulators have started looking into one predatory practice conducted by banks called overdraft protection. When a customer’s account lacks sufficient funds to cover a transaction, the bank chooses to pay the transaction anyway, placing a hefty fee on the overdrawn account — usually around $35. 

Overdraft fee revenue, which makes up a significant portion of many bank’s overall fee income, has been rapidly increasing in the past few years. A recent report from the Center for Responsible Lending (CRL) shows that the country’s biggest banks took in over $11 billion in overdraft fees from customer accounts in 2019. One reason for this spike in overdraft fee revenue comes from the deceptive practices used to enroll customers.

Deceptive enrollment practices

An entrepreneur drinking coffee and working on her laptop
An entrepreneur drinking coffee and working on her laptop

Just last week, TD Bank was forced to pay restitution of $97 million to over a million of its customers because of their illegal overdraft enrollment practices. An investigation led by the Consumer Finance Protection Bureau (CFPB) showed that TD Bank representatives presented their overdraft protection as a service that automatically came with a new checking account. In many cases, some reps simply enrolled customers in overdraft protection without their knowledge. In the U.K., Nationwide Bank had to refund close to one million pounds for failing to warn customers that they would be charged overdraft fees.

Although overdraft protection can be a useful tool to ensure your transaction goes through, some customers may choose to opt-out because they do not want to fall deeper into debt or drown in overdraft fees. Banks are required by law to allow customers to opt-in or opt-out of their overdraft protection programs, and yet so many people fall victim to deceptive enrollment practices. 

High-to-low reordering

An entrepreneur going over his receipts
An entrepreneur going over his receipts

Another reason that the overdraft fee business is booming for banks is because they reorder your transactions so that the largest transactions are posted first, increasing the likelihood of being charged multiple overdraft fees that you would not have otherwise incurred. This predatory practice is called high-to-low reordering. Let’s take a look at an example.

A student with $60 in her account makes four consecutive purchases at $10 each, leaving her with $20. She needs to purchase a $50 textbook for class that evening, so she purchases it, knowing that she will be charged a single overdraft fee of $35. 

But with the high-to-low method of processing, the $50 textbook transaction is deducted first, leaving her account with $10 then the four other $10 transactions are deducted. This deceptive reordering practice allows the bank to charge a $35 overdraft fee three times over. Instead of paying a single $35 fee, the student’s account is now negative $105. 

Several banks and credit unions have been hit with class-action lawsuits in recent years over how they order customer transactions. While transaction reordering for debit card transactions has become less prevalent, in light of the multiple lawsuits within the banking industry, many major financial institutions still use this reordering process for other transactions like checks, bill pay transactions, and wire transfers. 

Protect yourself

An entrepreneur signing a contract
An entrepreneur signing a contract

As these predatory and deceptive bank practices have been brought to light, banks will search for innovative and legally grey ways to make money off of you. It is important, now more than ever, to be on your guard and make sure that your bank is treating you the way you deserve. When opening a new bank account, be sure to always read the fine print before signing anything. Use mobile banking apps to stay on top of your account balances and see what fees your bank is charging you for. Stay vigilant and ask questions if certain elements of your account don’t make sense to you. Otherwise, you could end up being the victim of the next big bank scandal. 

Have you been the victim of any of these deceptive banking tactics? Let us know in the comments!

This article originally published on GREY Journal.