Wells Fargo Overdraft Scam Makes Elizabeth Warren More Important Than Ever

[depakid]

A landmark court ruling on Wells Fargo’s outrageous overdraft scam has the potential to return hundreds of millions of dollars in stolen funds to consumers all over the country. But like many of the banking scandals from the past decade, there’s more to the story than simple bank predation. When banks devised this new program to swindle their own customers, bank regulators did not merely look the other way, they actively encouraged the behavior by writing a new rule approving a practice that courts now believe to be unfair and deceptive. The Wells Fargo case should be viewed as a clear example of why Elizabeth Warren ought to head the new Consumer Financial Protection Bureau.

The overdraft scam that Judge William Alsup slapped down yesterday is not unique to Wells Fargo– every big bank in the country has been doing it for years, and if it’s never happened to you, it’s probably happened to your friends or family. Banks make a lot of money from overdraft fees– $38 billion last year, compared to a combined industry profit of just $12.5 billion. They don’t make that money by accident. Internal company emails and memos from the Wells Fargo case show bankers spending a lot of time figuring out how to maximize the number of overdraft charges they can hit their checking customers with.

One way is by changing the order in which your transactions are processed. Most people think that their checks and debit card purchases are processed in the order that they make them. But that’s not how banks actually do it. Instead, they wait for you to make several purchases, and then process the most expensive purchases first. This method pushes a customer’s balance to zero faster than the honest way that actually reflects buying habits. And the sooner your balance goes to zero, the more overdraft fees the bank can hit you with.

More: http://blogs.alternet.org/speakeasy/2010/08/12/wells-fargo-overdraft-scam-makes-elizabeth-warren-more-important-than-ever/

[FBaggins]

1. Ridiculous

There is no method that "pushes your balance to zero faster"

There's simply no way around the fact that you spent money you didn't have. the fact that this became the new "american way" does not excuse it.

[ejpoeta]

3. yes there is. it may not push you to zero faster, but the way in which they process things

can cause you to go over when you might not have. like waiting to charge fees until you have a low balance. or making you have three overdraft fees instead of one. but of course it's ok because the consumer must deserve it because they spend almost every dime they have every week on bills and groceries and gas.

[FBaggins]

7. There is no way they can "cause you to go over"

You have to spend more than you have in the account. Period.

Now... how they handle things ONCE you overdraft is certainly an area for improvement (and most have done so already), but let's not pretend that they can force you to overdraw your account.

And what's this about holding fees until you have a low balance?

[INdemo]

12. Yes they can cause one to go over..

Example..If I deposit my payroll check and it could be that it is not credited for 24 hours or more. Well in the mean time if I have some check card charges and with in that 24 hours and those come in before the check is credited they have charged overdraft fees before in this situation. (I have complained and had them reversed but they still tried)
No excuse for the 24 hour delay for crediting that check..So yes banks can cause a deficit balance that leads to over draft charges.

[FBaggins]

13. Nope

You expect immediate access to your deposit because it's a payroll check?

You're not supposed to spend money until it's collected in your accout. Your grandmother could have told you this. Your spin that there's "no excuse" to wait 24 hours to credit a check is silly. Are you under the impression that payroll checks never bounce?

[dencol]

45. Yes, I expect immediate access.

When the bank gets funds, they should immediately be deposited into my account. Our grandmothers have seen many changes to the banking systems, including electronic processing of checks where money is instantly moved. In those cases, the banks should not be holding onto the cash before releasing it to the account... this is done to collect fees.

[INdemo]

47. I am when there is a history of the same company checks clearing

just fine..A previous bank I was with credited those checks immediately..By the way do you work for a bank.
Any way they have tried to charge me a serice charge on a couple occasions but I called the main office, they reviewed my account and reversed those charges..But some would allow them to get by with this BS and thats how they make maoney

[ejpoeta]

17. when i had charter one my boyfriend used to sign his check over to me and i would deposit it.

i had done this every week for like months without a problem. i know he wasn't on my account, but he signed the check over to me, meaning it would then be MY check right? so one friday they decided without telling me to not accept this check. i had of course gotten groceries and paid bills with it like i always did. on like tuesday i got a notice that they weren't accepting it and it took another couple days to get the check back. of course i had all kinds of things bouncing all over the place. if they didn't want to accept any more checks, perhaps cashing it and sending me a notice or calling me and letting me know that in the future they would not accept the check would have been better. i closed that account and went elsewhere. i don't understand why a check signed over to me is all of a sudden not acceptable.

[FBaggins]

21. The real question is why it had always been acceptable in the past.

Did he come in with you (with his ID)?

If not, the bank would be taking a substantial risk. Forgery claim checks can be returned as much as a year later. It's actually quite common for a bank not to accept such checks.

What is not acceptable is for them to refuse the deposit after you left without making every attempt to contact you. I'd say that you can make a good case for a fee refund.

[ejpoeta]

46. i always deposited them through the ATM because the bank was closed by the time i got there.

if they didn't want to accept the checks, then that was fine. just the fact that they accepted them all that time and then without warning refused it. they should have called me or something. or accept it and let me know that they wouldn't be accepted in the future. this was several years ago before my husband and i were married.

[ashling]

6. However, they do run debits before credits

say I have $100 in my account then debit 50 = 50 left in my account. I deposit 75. Now I have a balance of 125. Then I debit 15 leaving me with 10. I then get a credit of 5, which gives me 15. then deposit 10, leaving me with 25. Then I debit 20 so now I have $5. I deposit 10, debit 5 = 10 add 5 = 15, debit 10 = 5, add 10 = 15, debit 10 =5, credit 75 = 80

Now suppose I do this all in the same day on my card.

All these cards are in the hopper at the same time so the bank shuffles the deck and it comes out this way:

100 - 75 = 25
-50 = -25 - overdraft fee of $35 (cha-ching!) = -$60 -5= -70 - $35 fee (cha ching!) = - 105 - $5 = -110 - overdraft fee $35 (cha cha cha ching!) = - 145 = I'm screwed!

-

[FBaggins]

8. Debits before credits makes sense.

In most cases, the debit is already "gone" (the money is spent), while the credit many need to be collected. The exception would be if you're depositing cash (which generally would go in before debits made after that point), but if you're depositing cash just before you plan to withdraw cash... what sense does that make?

[jeremyfive]

11. Yes but. . .

. . . it is hard for me to justify the fact that Wells Fargo took hundreds of dollars from my account in fees for a number of tiny over-drafts that maybe totalled fifty cents in all. I do not believe that this caused them hundreds of dollars in damage to make a couple bookkeeping notations, even with inflation factored in.

I switched to the credit union where fees are more like $5 than $40. Plus, the credit union does not reorder checks and deposits for maximum profitability. No problems since.

[FBaggins]

14. You're correct.

It's hard to justify hundreds of dollars in fees for a tiny overdraft.

Their defense is that you should know what the rules are and follow them... and from a legal standpoint they're right (and the ruling in the OP is unlikely to stand). From a customer service standpoint, they're dead wrong.

They have since made significant changes that would keep a .50 overdraft from resulting in such fees... but there are still people who overdraft fifty dollars who will do so.

[ejpoeta]

18. my husband's credit union will give him til 5 to fix it. actually woodforest bank did too.

i went to withdraw $20 and pushed the wrong button, thus getting like $80 instead. i did not have $80 in the account... i had like $40. luckily the bank was open and i handed it to them to put it back in the account. not a problem. i imagine if it were m&t they would have tried to ding me for it.

[jotsy]

19. A judge didn't think it was so ridiculous.

<http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=553618&mesg_id=553675>

To the tune of $203,000,000.

[FBaggins]

20. That's correct.

But the ruling will almost certainly be overturned.

[jotsy]

22. According to...?

May I inquire as to why you think the banks should be allowed to prevail at the expense of a near destitute population yet again?

Whether you do it with a gun at a cash register or a briefcase and a pen, robbery is robbery.
<http://www.huffingtonpost.com/2009/08/09/banks-make-38-billion-fro_n_255135.html>

How about income taxes?
<http://www.charlotteobserver.com/2010/03/26/1337021/billions-in-tax-benefits-for-banks.html#storylink=omni_popular>

The banking industry on the whole has generated billions per year with this bogus activity. When will the rule of law be applied to these entities as enthusiastically as the average citizen?

[FBaggins]

23. Legally right and morally preferable are not the same thing.

May I inquire as to why you think the banks should be allowed to prevail at the expense of a near destitute population yet again?

Judges aren't supposed to look at two parties and decide who is more appealing... then rule for that person. They're supposed to rule on the law. The article itself makes clear that the banks already had government approval for the policy... customers had it disclosed to them and had every opportunity to avoid the fees (and, of course, were free to move to a different financial institution at will).

Whether you do it with a gun at a cash register or a briefcase and a pen, robbery is robbery.

Calling it "robbery" is just silly. Customers have every reason to be upset and should include fee structure when they make their decisions re: who to bank with... but it isn't robbery.

How about income taxes?

Many banks lost money last year. You don't pay income taxes when you have no income.

When will the rule of law be applied

As soon as someone can point out a law that they broke. If you sit down at your daycare provider's office and sign a contract that says that you'll pick your kid up by 5:30 every day or pay a penalty of $50 per half hour that you are late... then it doesn't matter if it doesn't cost them $50 to provide that service. If they figure out that they can make more money by moving that pickup time up by a minute for every minute you dropped the kid off early in the morning... then you still have to pay (assuming they disclose the change). If you don't like it, then you can go down the street to a different daycare provider. Suing for something like that is just childish.

[jotsy]

25. I might be inclined to suggest that advocating on behalf of the affluent

in the face of a starving public goes beyond silly.

We're talking about the difference in the spirit of legality and the letter of the law, which is full of loopholes that benefit banksters, quite exclusively. The reason for that is industry lobbyists wrote the laws because congress dishes out their homework.

Why are you not interested in seeing a public that surrounds you treated fairly? And before you hit me with that whole life ain't fair crap, I don't have a problem with that. I could slip on the porch and die falling down the stairs, fair or not. The contention that people are life, and they can get away with being unfair is what I find detestable.

[FBaggins]

26. And I might be inclined to point out

that identifying reality and "advocating" are not at all the same thing.

Why are you not interested in seeing a public that surrounds you treated fairly?

How is it not fair? Were the fees not disclosed? Did the person NOT spend more money than they had? Was the customer forced to deal with some giant bank rather than the little bank on the corner or a credit union?

Keep in mind that such action used to result in potential criminal charges for writing bad checks - now you seem to treat it like it's a right.

And before you hit me with that whole life ain't fair crap, I don't have a problem with that.

Life CAN be fair... but "fair" doesn't mean "protect people from their own actions and/or lack of common sense" - It isn't the role of the government to pick the players and call the plays... just to level the playing field.

The rationale behind the ruling is that profit is always evil. The company set up a policy that is designed to make them more money than the service costs them to provide. By that standard I should also be able to sue them for charging higher interest on loans than they pay on deposits, right? Or heck... I should be able to sue ANY profitable business because their policies are designed to make them a profit.

The judge should have gaveled once ten minutes into the proceedings and said "I recommend that nobody deal with bank 'A'... and I recommend that you learn to balance a checkbook or find a better bank. Case dismissed".

[jotsy]

31. This is a playing field that strikes you as level?

<http://www.bnet.com/blog/financial-business/how-wells-fargo-used-overdraft-fees-to-prey-on-customers/7067>

First, Wells posted debit-card purchases to customer accounts in highest-to-lowest order. This maximized the number of overdraft fees, since clearing the largest transactions first increased the chances that customers would overdraw their account. Alsup writes:

Since there is no real benefit to Wells Fargo customers when debit-card transactions are in high-to-low order, the only impact of the bank’s posting practices was and remains to multiply the number of overdraft fees assessed on its customers…. This is surely because high-to-low posting is not a customer plus. Rather, it was used and is still being used by Wells Fargo as a snare for the unwary.

Second, Wells started “commingling” debit-card purchases with checks and automated clearing house transactions. Since checks and ACH payments tended to be larger items, they were posted to customer accounts first. That drained a person’s balance even faster than if smaller debit purchases had been charged first. The ruling states:

… Wells Fargo executive vice president Ken Zimmerman, who personally took part in the decision-making process for the commingling change, admitted at trial that the bank was well aware that commingling was expected to produce a “significant increase in overdraft income.” According to Mr. Zimmerman, the increase in overdraft income was “one of the significant factors in the decision-making” process for the commingling change. Indeed, the trial record shows that it was the only significant factor.

Third, in 2002 Wells implemented a secret program called the “shadow line” (as in line of credit). Previously, the bank had declined debit-card purchases when a customer’s account had insufficient funds. But that year the company began authorizing transactions that it knew would cause overdrafts. Alsup writes:

Specifically, this was done without any notification to the customer standing at the checkout stand that the charge would be an overdraft and result in an overdraft fee. Thus, a customer purchasing a two-dollar coffee would unwittingly incur a $30-plus overdraft fee. The amount of the credit ceiling per customer was and still is kept secret (italics mine).

In its defense, Wells argued that its customers preferred transactional practices like high-to-low posting. Oddly, however, the company never promoted the feature. Instead, it buried any reference to its new approach under what Wells’s own experts conceded were mountains of impenetrable legalese.

snip

Indeed, a consolidated class-action filed in federal court in Miami makes similar allegations against 30 other lenders, including industry leaders such as Bank of America (BAC), Citigroup (C) and JPMorgan Chase (JPM).

###

This is a country said to be governed of, by and for the PEOPLE, not the profiteers. BTW, the fictional character you use as a handle here, he embarked on a harrowing journey to rid his world of the ring of power, only to be succumbed by it at the last moment. I suppose the same might be said of you, but I'll bet it happened sooner!

[FBaggins]

34. Yes. Absolutely.

Wells isn't the only game in town. There is probably greater competition in the financial services industry than just about ANY other. Not everyone charges such fees, so vote with your feet.

That's as level as you get.

Since there is no real benefit to Wells Fargo customers when debit-card transactions are in high-to-low order

There is if some of them get bounced and some of them get paid.

This is a country said to be governed of, by and for the PEOPLE, not the profiteers.

And here the people have the opportunity to fix the problems for themselves (by walking to a different company), while you unknowingly shill for a different bunch of profiteers (lawyers) who will now profit for those same people.

The banks won't make less money in the end.. they'll just shift the fees back to the responsible customers (instead of only those who can't add and subtract).

[Smashcut]

40. "There is if some of them get bounced and some of them get paid."

THEY ALL GET PAID. That's the point. They all get paid, and in return YOU PAY $35 a pop for each four dollar starbucks charge that hits after your account goes to zero, because they deliberately put the largest transactions first.

What it really amounts to is a personal loan at several hundred percent interest. It's absolutely criminal, it's unfair, and the judge was right to condemn this practice.

I can't believe you're advocating on behalf of a bank that is BILKING its most vulnerable customers instead of being glad that fairer banking practices will likely result.

[jotsy]

41. Guess again.

<http://www.fdic.gov/bank/individual/failed/banklist.html>

We are at over 200 banks closed since the start of last year; we are ahead of last year's pace. Awaiting info from the FCIC.

The business model this industry follows is anything but a 'free' market. Consumers have fewer choices all the time, and if the banks engage in collusion (racketeering) to maintain comparable low bar standards...what's the difference.

What you may come to learn bagsin, is there is always a new bottom, and that someday folks like you will be the next target on the horizon. You keep shaking your pom poms now, and it'll just happen that much quicker. Enjoy.

[Mosby]

35. The banks are breaking the law concerning backdating

They have no business deciding what trans to process first, they need to process transactions as they show up period.

[FBaggins]

37. I have yet to see any claims of ACTUAL backdating.

What I've seen is merely examples of people using that label because it makes it seem worse.

The bank can't post a transaction for a day earlier than when it was received. What they CAN do is post all transactions for a particular business day in whatever order they disclose.

And it really shouldn't make a whit of difference. The rule has always been that you can't write a check until you have collected funds credited to your account. Not "write the check on Monday but make the deposit on Tuesday since you know the check can't get back to the bank before Thursday"

If you weren't "playing the float to almost kiting" there wouldn't be a thing that the bank could do to you... no matter how hard they try.

[Smashcut]

38. You're missing the point.

The point is how many overdraft fees they should be entitled to charge you.

If they're deliberately processing the largest transactions first, regardless of the chronological order in which they were incurred, so that as many smaller transactions as possible go into the negative in order to maximize the number of fees, that's a scam. BofA did this to me for years when I was in college until I caught on to what they were doing and dumped their asses.

[bergie321]

42. You see no problem with this:

I have $700 in my checking account

I spend $600 on rent.
I spend $50 on groceries.
I spend $5 11 times at random locations.

The bank will put a "hold" on all of the charges until you go over by $5 and then they will cascade the overdraft fees until every charge goes over and you have $400 in overdraft fees for going $5 over your limit. This happened to me once when I was in the process of moving. The worst part of it was that when I opened the account, I specifically requested no overdraft protection because I knew I was bad with money at times. They turned on overdraft protection without even asking me. Luckily I raised all sorts of hell with the bank manager until he got tired of me and reversed all of the fees.

[ejpoeta]

2. i've had that happen to me. i went to the bank and complained.

sure it was my fault for screwing up my account, but i had three or four transactions and they took the largest and put the transactions through in a way that caused two or three overdrafts. if they would have put them through the right way then i would have only had one. the lady at the bank said they had to hold the funds for the one, thus making the account go over immediately, but they never did that before. that was crap. she did end up taking two overdraft fees off and then trying to get me to get the overdraft protection. i did not qualify for that because i had a bad credit score. i have often thought they messed with things to make me go over. like putting fees through miraculously when i had a low balance. i try to keep a cushion in my account now to avoid this. i have m & t btw. i am seriously considering closing that out and going to ESL credit union since they are building a branch near here. at least if i go over i'd get some of it back in dividends.

[ashling]

9. As more and more people are living (and banking)

closer and closer to the knif edge they are getting sliced and diced by it.

[Uben]

4. One should treat banks like used car dealers.....

....all of them are out to get your money....it's what they do. I have used a credit union as a bank as long as it has been legal to do so, but that does not mean they are exempt from screwing you, too. The more you can avoid using banks to purchase items, the better off you will be! They are no more than usurious loan sharks. We allow them to charge $40 for an overdraft fee on a check for $5. That is 800% interest, and should be illegal.

[INdemo]

10. .........And these new so called banking regulations, which dont amount to

dip point sh&*t are being used by the banks as an excuse to raise fees..Fess for services that before were much less or even free..And the banks did not lose anything with this so called banking reform bill.

[FBaggins]

15. We should be surprised?

Of course they're going to try to replace lost fee income.

But your perspective is incorrect. These fees came about as monthly account fees were ending (and "free" accounts became popular) and the interest margin for banks contracted sharply. Banks will simply return to the old way of doing business... charging a monthly fee on all checking accounts unless a compensating balance (or other collection of services) is maintained.

Five years from now the complaints will be in the other direction. Instead of only the "offenders" paying bank fees, everyone will. People will say that they used to be able to control their fees by simply managing their finances the way their grandparents did and non spending money that they didn't have... but now they pay every month because they can't afford to park several hundred dollars in their checking account.

[indepat]

5. Taking banksterism to to new heights?

Pure de blatant systemic and systematic fraud of a nature in which you or I would end up behind bars. :grr: :mad:

Edited to add second sentence and change/add emoticons.

[wisteria]

16. I got stung recently and argued the same points with my bank as are being stated here.

I am unemployed and very careful to watch my account almost daily. My balance went from a healthy amount for what was due in the coming days-before another pay period- to a negative number in one day. I had made three 15.00 or 20.00 debit card purchases and that depleted my balance. Why, because automatic deductions that should have posted after the pay deposit hit, were submitted earlier than I had expected-which was unusually. I was charged 220.00 in overdraft protection fees-well more than the cost of the three debit purchases. I called the bank, argued my point and pleaded a hardship and they wiped half of the fee off. But, they said I needed to consider a savings account in order to protect myself in the future, because the protection was a normal part of the service.Now where is an unemployed person going to get money for a savings account? Now, thanks to Pres. Obama I have been able to opt out.

[grasswire]

24. another DU-er filed a small claims and won

....because the bank didn't bother to show up in court. Ralph Nader suggested in 2009 that a million Americans should file in small claims court for those predatory overdraft fees to make the banks stop.

Here's part of a documentary regarding that situation.

http://www.youtube.com/watch?v=YjH4Us0n0QY

[wisteria]

36. Thanks.n/t

[Politicalboi]

27. I once had an overdraft fee of

Over $800.00 from Citizens bank. They still to this day try and get me to pay it. A few years ago, I had a chain link fence put up. The man came over gave me the estimate, and I paid half with my bank card. By the time the other half was due, I didn't have enough money in that account. Well to make a long story short, Citizens allowed the charge to go through with not enough money in the account. I had direct deposit, and was able to stop that before Citizens could get their hands on it.

[FBaggins]

29. That doesn't sound like an overdraft fee.

It sounds like theft. Either by you (if the fence was actually built) or by the fence builder if he charged your card and didn't perform the service.

[Politicalboi]

43. The fence was built

It was just lack of funds. The fence guy charged me for the second payment before I knew what had happened. The bank allowed whatever I had in the account, but it wasn't enough. So I got overdraft fee's for hundreds of dollars. I called the bank and tried to work it out, but they wouldn't do anything for me. And each day the fees grew. When fees are 100's of times the amount overdrawn it becomes ridiculous. They were charging me like $134.00 a day.

[county worker]

33. He is what I don't get. You say you knew you didn't have enough money to cover the charge yet you

went ahead and did it?

[Politicalboi]

39. No I paid half and no problem

But the fence man went ahead and charged the card a few weeks later for the other half. I didn't have enough money in the account. I called him and told him to charge my other card, but he didn't get the message in time. The bank should have denied the charge and let me deal with the insufficient funds with the fence guy. But instead they allowed it to go through on a Monday, and I got paid on Thursday's with direct deposit. I must admit, I have always had money problems, but I couldn't believe my bank didn't deny that charge.

[county worker]

44. My old credit union use to put the higher payments first then the little ones the day

before my direct deposit. I would use the debit card on the weekend and the charges would not hit until the next thursday. If I did a larger one on thursday it hit instantly then came the little ones from last weekend with an over draft charge on each one. Luckily I can keep some extra money in the account now and got a better credit union.

[Stuart G]

28. K and R

[Gormy Cuss]

30. I remember discussions here a few years back when some here insisted this never happened.

It was a cynical, sleazy way to bilk customers out of more fees and should have been stopped cold years ago.

[midnight]

32. So does this ruling mean the banks can't pick and choose

the most financial damaging order to process your money withdraws? Let Elizabeth head the new financial protection bureau. She can stand up and show the big guys that we are their piggy bank.