For most of my life, banks ran an algorithm on overdrafting accounts so that charges would clear in whatever order triggered overdraft protection the most times. It was an open secret, then it came out and companies tried to insist they could do whatever they wanted.
Lots of real world cases of a single unexpected charge coming in and clearing a full day earlier than expected so a bunch of small charges (a pack of chewing gum) would each trigger the fee. $100 total charges, $500+ in overdraft fees.
As far as I’m aware most normal banks here don’t have overdraft fees, they just charge interest for every day you spend in the overdraft. Depending how deep you are in it (as long as it is an agreed overdraft) then it could end up being pennies to a couple of pound maybe.
A non agreed overdraft I believe will incur a fee plus the interest per day perhaps at a higher rate. I’m not sure but I think it’s a single fee a day (as in if something comes out that’s a £12 fee, if you remain in overdraft but no further withdrawals/charges then no more fees) but don’t quote me on that. It’s been a very long time since I was in an overdraft and longer since I worked in a bank!
Don’t transactions have timestamps? Or are you talking about paper cheques? Like I don’t trust the big banks in my country either, but I’m pretty sure all transactions are logged in real time and can’t be rearranged later.
Again, different countries might have banks work differently. When a debit is being applied (money removed from the account) it has a lifetime. First it is pending, and then it “clears”.
It clears when the bank approves that the money transfer is definitely happening, and that is the moment it is removed from your account. Importantly, the debit clearing from your account on a purchase does not mean the other party has fully received the money.
It used to be that a lot of charges would sit pending overnight and then all pending charges apply in the morning. Yes, even small purchases like a pack of gum bought at the corner store. All they did (and I think Wells Fargo in particular got caught and there were lawsuits about this) was decide the order of clearing pending charges with the intent of maximizing overdraft fees.
And how does that work? Let’s say I have $1000 in my account but forgot my $900 rent is coming out. ALong with some other transactions, they could clear like:
They could $0.99 gum, $150 car payment, $150 groceries, $900 rent. Overdraft fees = 1
Or
$900 rent, $150 car payment, $150 groceries, $0.99 gum. Same transactions processed at the same moment. Overdraft fees = 3! When that stuff happened to me back around '04, overdraft fees were $35 per overdraft. So that example was a $70 difference. In reality, between billpay and small purchases, the difference might be $500+.
My true story was that I had a dick of a landlord. My Bank’s autopay was running slow and despite the bank check already being in the mail and deducted from my account, my landlord insisted I pay immediately, and I was dumb enough to cave. So I cut him a check and asked him to hold it a day or two til the actual check was delivered; he cashed the same day. Double-rent for a 24 year older meant my account went into the red. I had 10 pending transactions (from gas to bill pays) for the next morning. All 10 (despite being already delivered and should’ve cleared first) waited to clear until the double-paid rent cleared. I was charged $350 in overdraft fees, almost as much as my $500 rent was (cheap back then lol). And despite agreeing the check getting to him late was their fault, my bank refused to refund more than $100 in overdraft fees because that’s what their algorithm valued my business at. I got the first rent payment back, fortunately. But was still out $250.
If I recall, the canned defense for this in lawsuits is “we just coincidentally process all transactions large to small instead of old to new because it makes sense to the bank to do so”. If I recall, some states (maybe fed?) ended up having to pass laws regulating overdraft fees a bit. It didn’t go far, but from what I hear it stopped that particular behavior.
For us the transfer is either near-instantaneous (new system, called UPI) or done in batches every half an hour (old system). I guess this is why banks can’t do this trick.
I think it’s closer to that way now. There was incentive to banks in the past to process it differently.
That said, my bank’s “pay bills” function still takes your cash out before sending the check, despite the check NOT being a cashier’s check when not linked to an e-account. They just refund you in 90 days (or so) if it isn’t cashed.
Here’s some context for you.
For most of my life, banks ran an algorithm on overdrafting accounts so that charges would clear in whatever order triggered overdraft protection the most times. It was an open secret, then it came out and companies tried to insist they could do whatever they wanted.
Lots of real world cases of a single unexpected charge coming in and clearing a full day earlier than expected so a bunch of small charges (a pack of chewing gum) would each trigger the fee. $100 total charges, $500+ in overdraft fees.
Very interesting.
As far as I’m aware most normal banks here don’t have overdraft fees, they just charge interest for every day you spend in the overdraft. Depending how deep you are in it (as long as it is an agreed overdraft) then it could end up being pennies to a couple of pound maybe.
A non agreed overdraft I believe will incur a fee plus the interest per day perhaps at a higher rate. I’m not sure but I think it’s a single fee a day (as in if something comes out that’s a £12 fee, if you remain in overdraft but no further withdrawals/charges then no more fees) but don’t quote me on that. It’s been a very long time since I was in an overdraft and longer since I worked in a bank!
Don’t transactions have timestamps? Or are you talking about paper cheques? Like I don’t trust the big banks in my country either, but I’m pretty sure all transactions are logged in real time and can’t be rearranged later.
Again, different countries might have banks work differently. When a debit is being applied (money removed from the account) it has a lifetime. First it is pending, and then it “clears”.
It clears when the bank approves that the money transfer is definitely happening, and that is the moment it is removed from your account. Importantly, the debit clearing from your account on a purchase does not mean the other party has fully received the money.
It used to be that a lot of charges would sit pending overnight and then all pending charges apply in the morning. Yes, even small purchases like a pack of gum bought at the corner store. All they did (and I think Wells Fargo in particular got caught and there were lawsuits about this) was decide the order of clearing pending charges with the intent of maximizing overdraft fees.
And how does that work? Let’s say I have $1000 in my account but forgot my $900 rent is coming out. ALong with some other transactions, they could clear like:
They could $0.99 gum, $150 car payment, $150 groceries, $900 rent. Overdraft fees = 1
Or
$900 rent, $150 car payment, $150 groceries, $0.99 gum. Same transactions processed at the same moment. Overdraft fees = 3! When that stuff happened to me back around '04, overdraft fees were $35 per overdraft. So that example was a $70 difference. In reality, between billpay and small purchases, the difference might be $500+.
My true story was that I had a dick of a landlord. My Bank’s autopay was running slow and despite the bank check already being in the mail and deducted from my account, my landlord insisted I pay immediately, and I was dumb enough to cave. So I cut him a check and asked him to hold it a day or two til the actual check was delivered; he cashed the same day. Double-rent for a 24 year older meant my account went into the red. I had 10 pending transactions (from gas to bill pays) for the next morning. All 10 (despite being already delivered and should’ve cleared first) waited to clear until the double-paid rent cleared. I was charged $350 in overdraft fees, almost as much as my $500 rent was (cheap back then lol). And despite agreeing the check getting to him late was their fault, my bank refused to refund more than $100 in overdraft fees because that’s what their algorithm valued my business at. I got the first rent payment back, fortunately. But was still out $250.
If I recall, the canned defense for this in lawsuits is “we just coincidentally process all transactions large to small instead of old to new because it makes sense to the bank to do so”. If I recall, some states (maybe fed?) ended up having to pass laws regulating overdraft fees a bit. It didn’t go far, but from what I hear it stopped that particular behavior.
This is very sad.
For us the transfer is either near-instantaneous (new system, called UPI) or done in batches every half an hour (old system). I guess this is why banks can’t do this trick.
I think it’s closer to that way now. There was incentive to banks in the past to process it differently.
That said, my bank’s “pay bills” function still takes your cash out before sending the check, despite the check NOT being a cashier’s check when not linked to an e-account. They just refund you in 90 days (or so) if it isn’t cashed.