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Citibank Changes Overdraft Procedure: Fewer Fees

This article was written by in Banking. 6 comments.


At the end of March, Fifth Third Bank changed its procedure for dealing with overdraft fees. When a customer has many debits (withdrawals) posting on the same day, and they are not real-time debits, banks often start with the largest amount. Ordering the debits from largest to smallest ensures that customers who do not have the funds to pay for the largest withdrawal are hit with multiple overdraft fees in the same day.

Banks often argue that they want to start with the largest debit because these often signify more important payments, like mortgages and rent checks. Starting with the largest debit gives the most important debits a chance of clearing first. Customers who are aware of this practice are also aware that the reason the banks have chosen this approach has little to do with customer service; this is the way to collect more fees from customers.

A class-action lawsuit is changing this. Fifth Third Bank changed their procedure a few months ago, and now Citi has announced that it will do the same beginning July 25. At that point, checks will be paid from the customers’ accounts ordered by size from smallest to largest.

The key to avoiding this altogether is maintaining a register of the checks you write. Sometimes your deposits take time to clear, and you could be hit with an overdraft fee even if you’ve deposited enough to cover your check. Don’t send checks out without verifying you have the funds available to cover it. Then, short of a bank error or someone using your bank account without your permission, overdraft fees will be in your past, regardless of the bank’s procedure for applying them. The old policy may be a good way to trap customers into paying a string of fees, but it’s easily avoided if you don’t write checks without money in the bank.

Published or updated April 4, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar Danielle

…which is ILLEGAL!!!

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avatar nimrodel ♦42 (Newbie)

I’d rather they just processed debits in the order they’re received….

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avatar skylog ♦368 (Nickel)

agreed. with all the technological advances that have been made, i do not see why they can not be real-time and in order of the actual transaction. to me, this would be best.

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avatar rewards ♦31 (Newbie)

Order they’re received gets messy as well. Perhaps a user selected option for how one wishes transactions to be processed? Largest to smallest, smallest to largest, first come first served?

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avatar Auntie D

If you have deposit and have debits the same day they list the debits first and deposit last. So, if you have $50.00 in the bank and a withdrawal for a payment is $90.00 they will pay it, then withdrawal the payment and charge a $34.00 non-sufficient funds fee. They are doing this just to make money.

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avatar Kathleen

I’ve noticed that at 12 midnight if I check my account online, everything is okay but sure enough the next day everything has been rearranged in my account and things that were marked paid are again marked processing. Then some of my items start to overdraft because they hold the items being processed and overdraft larger to smaller items. At the end of the overdrafts are the items that were pending a few hours earlier that had appeared the day before as cleared payment.

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