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.