CLEVELAND - An exclusive 5 On Your Side investigation has found some Ohio banks are accused of "gaming the system" to unfairly collect huge overdraft fees from consumer checking accounts.
Consumer advocacy groups say many consumers are completely unaware of techniques some banks use that have enabled billions of dollars in profits that totaled $12.6 billion in 2011.
According to the Federal Deposit Insurance Corporation, FDIC, there are 260 banks across Ohio.
It's called "re-ordering" and it determines how banks process checks and debits to consumer checking accounts.
Here's an example used in a recent federal lawsuit that found Wells Fargo guilty of "unfair and deceptive" practices.
Check out the graphic below and click "How Wells Fargo Reordered Them" to see what happens if banks process checks and debits from larger to smaller amounts instead of the order in which consumers paid them.
By processing larger amounts first, banks can more quickly drain checking accounts, exposing much smaller debits, often only a few dollars each, to repeated overdraft fees that can total hundreds of dollars.
Consumer groups says many banks argue that larger checks are often tied to mortgages and car payments and by processing those first, consumers are actually protecting against missing important payments--even though it can lead to excessive overdraft fees.
Akron-based FirstMerit Bank currently faces similar litigation for allegedly levying excessive overdraft fees on consumers.
FirstMerit declined repeated efforts to obtain comment or explain current overdraft practices.
Jim Griffiths said FirstMerit unfairly charged him $490 in repeated overdraft fees he claims were unfair.
"I did balance my checkbook every day," said Griffiths,"and there should have been one item that bounced."
It has become such a widespread practice, Ohio Sen. Sherrod Brown is introducing federal legislation to bank the practice.
"Too often the banks have gamed the system," said Brown," and created a lot of fees that people had to pay that they wouldn't have had to pay if the banks simply cashed them in the order the banks received them," referencing how checks and debits are processed.
Meanwhile, both the newly created Consumer Financial Protection Bureau in Washington and the PEW Center on the States have published reports on bank overdraft programs calling for changes. The PEW Center also has published an Ohio fact sheet discussing overdraft fees.
Some banks have already changed their policies, including PNC, Key Bank, Fifth-Third, Chase and Huntington Bank.
PNC spokesperson Marcy Zwiebel says PNC made a change in the posting order of customer transactions in early 2012.
"Improving technology has enabled us to more accurately determine when a charge was made and when possible, we post charges chronologically," said Zwiebel.
"At PNC, deposits always post first."
Key Bank Spokesperson Drez Jennings said, "The processing groups depend on your account type."
Chase Bank spokesperson Emily Smith said "we do process some items 'high to low' (checks), but most other items such as debit card and online transactions we post generally in the order received and have since 2010."
Fifth Third Bank spokesperson Laura Passerallo said the bank "posts ATM, debit card and account transfers in chronological order, and then process checks, online bill payments and ACH transactions in order from largest to smallest dollar amount."
At Huntington, the decision was made voluntarily "to put consumers first", said Daniel P. Walsh, Huntington Bank President, Northeast Ohio.
"Everybody's working hard, trying to make a living, paying their bills--this shouldn't be a gotcha or any kind of opportunity to take advantage of anybody," said Walsh.
"If a consumer makes a mistake, or they have a problem, it's the last thing they need is a bunch of fees that rack up."
By revamping its computer system to eliminate huge overdraft fees, Huntington Bank says it spent $30 million dollars.
In addition, Huntington says it is forgoing another $30 million in overdraft fees by allowing bank customers a 24-hour grace period if an account is overdrawn before a fee is applied.
Consumer advocates advise:
- Obtain copy of overdraft disclosure agreements from banks. We've listed a few of those at the end of this article.
- Determine how you bank processes transactions
- Immediately follow up on overdrafts that may be unfair
Overdraft disclosure agreements