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Overdrawn!: A Documentary About Bank Fees, Screening Tonight

This article was written by in Banking. 8 comments.


If you are in the area of the University of California, Berkeley, stop by Mulford Hall tonight to see a screening of Overdrawn!, a documentary film by Karney Hatch. In the film, Karney takes a hard look at practices by big banks, primarily overdraft fees. The documentary follows the writer/director as he talks to bankers, a former loan collections agent, a loan shark, consumer advocates, Ralph Nader, and members of Congress in attempt to explain the inner workings of the consumer banking industry to the public.

I took away several interesting points from the film.

The application of deposits and withdrawals

Many Consumerism Commentary readers already know this, but it’s an important reminder. Banks will “apply” deposits and withdrawals in the order that favors the institution. Even if you deposit cash on January 2, if you have checks that pay that day or ATM withdrawals, at the end of the day, the bank will apply your debits before your credits, increasing the chance of an overdraft.

Additionally, the debits are ordered from largest to smallest. If your ending balance on January 1 was $500 and on January 2, you have two checks paid, one for $550 and one for $20, the check for $550 will be applied first. You’ll receive an overdraft fee for the first $50 overdraft. Next, your $20 check will be applied, inducing a second overdraft fee on the same day.

Overdraft fees and interest rates

The Federal Reserve Board as well as consumer groups consider overdraft fees to be loan interest. Overdraft protection, a service offered by banks, is basically a loan extended to the customer. If you don’t have money in your account when your check is cashed or when you use your debit card in a transaction, rather than disapproving the transaction or bouncing the check, the bank does you a favor by letting you use their money for a time.

The size of the overdraft fee does not depend on the amount of the overdraft. Charge $0.05 more than you have in your account or $500 more, you will be assessed a $30 fee, for example. Fund your account back to zero within 24 days, and your $30 fee on a $0.05 equates to an annual interest rate of 219,000%.

Overdraft fees make a payday loan, with typical interest rates of 100% to 1,000%, sound like a good idea.

In Overdrawn!, Karney Hatch beat his bank’s overdraft policy through small claims court. His bank reversed the overdraft fees incurred through his experiment. With the bank’s bottom line always in mind, the company decided it was less costly to credit his account for the fees and court costs rather than face legal expenses.

If you can’t make it to Berkeley tonight for the screening, Karney is taking the film on tour. In addition to college theaters, you can find the film in some locations projected onto the white walls of bank buildings for a unique experience. If a public showing isn’t available for you, you can also order Overdrawn! from Amazon.com or directly from Karney Hatch.

Updated December 22, 2011 and originally published October 27, 2008. 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 .

{ 8 comments… read them below or add one }

avatar Miranda

Thanks for sharing this! I know from experience the pain of overdraft. In one instance, the bank, for some reason, was a day late in “making” all of its deposits. Imagine my surprise when overdraft fees started piling up because of this error. Even though the bank reversed all the fees, it gave me great insight in how quickly $39 per overdraft can add up. In a matter of 36 hours, it amounted to more than $400.

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avatar EN

How could he have gone to USC and not UCLA. I’m appalled. :-P

Thanks for mentioning this….I really despise those bank fees.

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avatar Steve

“the bank will apply your debits before your credits, increasing the chance of an overdraft.”

This is not true. Banks might be different, but my understanding is that all banks apply credits first. I work for Wachovia, and I’m 100% sure that is the case with us. The key to remember is that the banking day ends at 3pm, so after that it’s the next business day. Sure, we stay open after 3, but that’s for your convenience…it doesn’t mean that transactions are processed differently then they were back when all banks closed by 3!

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avatar holly

that’s 100% not true. Fifth third bank will always apply debits before credits even if you deposited cash at 10:00 am. They are an evil corporation that needs to be regulated.

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avatar Luke Landes ♦127,387 (Platinum)

Steve: Wachovia is one bank that I have personal experience with (though it may have been First Union at the time), and in my situation, debits were applied first, causing an overdraft fee when it wouldn’t have been necessary had the funding credit (cash deposited previous day past 3:00 pm) been applied first. Perhaps the policy has changed since then, but many banks still freely admit that they post debits before credits, starting with the largest debit. Perhaps the policy differs by branch.

Searching online for some corroboration, many customers agree that Wachovia, like almost all other banks, posts debits before credits.

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avatar Steve

It’s absolutely true. I promise you.

Here’s a situation…
- You have $10 in your account this morning (with nothing else pending or on hold)
- You go make a $50 purchase at noon
- At 1pm you make a $50 deposit into your account

You will NOT have an overdraft. As long as it’s the same business day, credits will post before debits. Feel free to call 1-800-Wachovia and ask them.

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avatar Luke Landes ♦127,387 (Platinum)

Steve: I called Wachovia, and guess what — you’re right. :-) At least according to the customer service representative. Perhaps the policy changed since my experience or I’m not remembering my situation correctly.

In the documentary, Karney mentions that is is common for banks to post the day’s withdrawals first, from largest to smallest amount, then post the day’s deposits, in order to make sure your bills get paid (or whatever you happen to be withdrawing money for) and to open up the possibility for earning overdraft fee on top of overdraft fee within the same day.

In addition to calling Wachovia, I called Wells Fargo, Citibank, Commerce Bank, and Chase to clarify their policies. The results are interesting, and I’ll post them tomorrow.

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avatar vh

I haven’t had a negative experience with my credit union’s overdraft fees. It’s a loan, but the interest rate is within reason.

Because My Beloved Employer, in a huge and clumsily managed outsourcing of its payroll processing to PeopleSoft, botched paychecks and in many cases simply failed to pay some people, I arranged overdraft protection in the amount of one month’s pay. It was a relief to know that my automatic bill payments would not bounce of my paycheck didn’t show up–a distinct possibility, given the dozen pay periods it took PeopleSoft to get my check right.

After all that dust settled down, one weekend I made an online transfer of about $500 in error. I quickly switched it back, but the overdraft protection kicked in. On Monday I visited the credit union, where a rep said she thought nothing would happen but I should keep an eye on it. Duh! In my senility, I instantly forgot it. A full month later when I went to reconcile my accounts, lo! there was the loan, still fattening my checking account and ticking away interest. The cost was about twelve or fifteen bucks, not enough to bankrupt me, and well worth the expense had my account run dry and the gas, electric, water, mortgage, and insurance payments been at risk of bouncing! If I’d stayed awake and alerted the bank rep more promptly, the cost would have been almost nil.

Maybe this is just another reason to do your banking at a credit union. :-)

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