About the author: Karney Hatch is a filmmaker whose new documentary, Overdrawn!, explores the predatory lending practices of major national banks with Ralph Nader, Joel Bakan, a loan shark, and many others.

In all the number crunching and legalese surrounding predatory fees of various sorts, it’s easy to forget the visceral reaction that they cause in people. Ask any “telephone banker” who works a call center for any of the big banks, and they’ll tell you the first reaction that these fees cause in customers: rage.

Or, sometimes, shame. Which is the way the banks want it. For the most part, only people with low balances in their accounts get overdrawn, and so one of the most common emotional reactions when the fees hit is shame, and people who are ashamed don’t tell their friends they got overdrawn, they don’t call their member of Congress and tell them something needs to be done, they don’t switch to a smaller local bank or a credit union -– they just pay the fees and go back to their lives. Until the next time they get overdrawn, and then the process repeats.

I have two things that I want to encourage people to do.

Don’t feel ashamed. Shame just makes us feel isolated and powerless. Rage is healthier and leads to actions, like those mentioned above.

I’d like to encourage people to consider an option that hasn’t quite hit the mainstream yet, at least here in the US: microlending. A relative of credit unions, sites like Lending Club and Kiva work by facilitating loans between individuals, but without any kind of bureaucracy that can lead even a well-meaning credit union in the wrong direction. No middle man, no managers, no shareholders watching the bottom line. Just people lending to people.

For now the micro- prefix fits, but there’s no reason that this framework can’t expand into home mortgages, business loans, and so on; in short, every form of lending that banks currently dominate and exploit. As Jessica Anderson, a banking consultant with over three decades in the industry, says in Overdrawn!, “Once that model gets the bugs worked out, then why do we need banks?” And how would that make me feel? Pretty damn good, I have to say.

If you enjoyed this article, please take a look at Overdrawn! The Documentary by Karney Hatch.

Seeking Guest Authors for the Week of November 23. I’m looking for a few writers to provide a small number of articles later this month while I am in California. While I’ll be blogging somewhat regularly during this time, I like to use this week every year to feature writing by other authors. If you are interested, and you don’t have to be a blogger, please read this information.

Secrets of Their Success. Malcolm Gladwell talks about his new book, Outliers: The Story of Success. I’m adding this to my wish list, having liked Blink by the same author.

10 Things Hospital CEOs Won’t Tell You. Don’t forget that hospitals are businesses, not just a public service. Even non-profits need to make money.

American Express Asks U.S. for $3.5 Billion. AmEx is the next company looking to convert its corporate structure. It will become a bank holding company to take advantage of protections now offered by the government.

Banks Boost Customer Fees to Record Highs. Late last month, I provided some suggestions for avoiding overdraft fees and Consumerism Commentary readers provided additional suggestions. It’s not just the overdraft fees that are increasing. Banks are doing everything within their power to charge customers more for the same features. The Wall Street Journal has similar suggestions for getting around fees. I particularly like the suggestion to change banks if you don’t like your current bank’s policy.

Is It Crazy to Spend $1000 a Month Buying DVDs? Although we often try not to judge other people’s spending, it’s hard to avoid, particularly when the details are provided for everyone to read in the New York Times. If I purchased 50 DVDs every month, I may not be so willing to admit it in the New York Times.

Goodwill Adjustment Letters. If you ask nicely, petitioning your creditors, you may be able to have negative items removed from your credit reports! Here is a goodwill adjustment letter template that you can edit to suit your needs.

If you have suggestions for Consumerism Commentary or questions and issues you’d like me to address, please do not hesitate to email tips at Consumerism Commentary (dot com).

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In his documentary film Overdrawn!, Karney Hatch mentions that banks often post your deposits and withdrawals to your bank account in such a way that they maximize the possibility of overdrafts. Even if you believe you have a large enough balance to cover your withdrawals thanks to recent deposits, the banks have a way of calculating debits and credits that can result in multiple overdrafts in one day.

Here is how this works, supposedly. This is the scenario: you know that you have an automatic electronic withdrawal that will be executed today, perhaps to pay your mortgage or cable bill. You realize that you may not have the money in your account so you run to the bank and make a cash deposit to cover the withdrawal. Or perhaps you are aware of the impending withdrawal the day before, so you execute a transfer from one account to another online. In your scenario, the final withdrawal and deposit are executed on the same day.

According to experience with many banks, no matter what time your withdrawals and deposits are processed on any one day, the bank will apply your withdrawals first, from largest to smallest, then apply your deposits. So if you have $100 in your account at the beginning of the day, and you have instructions to pay your mortgage of $1,500, your cable bill of $75, a cash withdrawal at an ATM during the day for $80, a debit card purchase at the grocery store for $10, and a scheduled ACH transfer for $2,000, the bank will process your mortgage first, dropping your account below zero and incurring your first overdraft fee.

The bank will then reduce your balance by the amount of the cash withdrawal. Even though you’re already below zero the bank will charge you a second overdraft fee. Next, the bank will process your cable bill, resulting in the third overdraft fee. Your debit card purchase will be posted next, incurring an average fee of $30 for your $10 purchase. You’ve now been charged $120 in overdraft fees alone.

Finally, the bank will apply your deposit, bringing your account balance positive again.

This technique has been observed, and banks have even admitted to this practice. Yesterday, Consumerism Commentary reader Steve claimed that this is not the policy at Wachovia, nor is it the policy at most banks. So I called Wachovia, Wells Fargo, Citibank, Commerce Bank and Chase to try to extract the official policies from the customer service representative or salesperson.

Here’s what I found:

Wells Fargo

Wells Fargo’s policy is to always post ATM withdrawals first, regardless of the time the transaction took place. After ATM withdrawals are posted, deposits and other credits are posted from highest to lowest amount, and finally checks and other debits are posted from highest to lowest. Interestingly, if your starting balance is $0 and you walk into the bank at 9:00 am to make a cash deposit of $100 and at 2:00 pm withdraw $40 from the ATM, according to this policy you could incur an overdraft fee.

Citibank

I don’t have complete faith in the answer I received from Citibank. The representative I talked to did not understand my questions at first and put me on hold for a long time, presumably to find someone who might know the answer, but returned with an answer that still did not match my questions. Eventually, she told me that cash deposits and ATM withdrawals are posted at the time of the deposit, but ACH and check deposits are posted first. Check payments are posted after all other deposits. It sounds like you’re in the clear with Citibank.

Chase

Chase will post your transactions to your account at the end of the day. The bank starts with deposits and ends with withdrawals, both from largest amount to smallest. This policy would avoid overdraft fees as long as at the end of the day you’ve deposited enough to cover your withdrawals.

Commerce Bank (TD Bank)

Like Chase, Commerce Bank (now TD Bank) will post your deposits before your withdrawals. The policy is slightly different. Rather than processing your checks paid from largest amount to smallest, they are posted in the order of the check number, low to high. Commerce Bank assumes you want check number 1001 to pay before check number 1002.

The customer service representative at Commerce brought up an interesting point. First, keep in mind that there is a holding period when you deposit a check. The funds you deposit may not be available on the same day, even if the amount of the check is included in the balance listed online. Additionally, cash deposits have “next day availability,” so even cash deposits won’t be posted to your account until the next business day. Furthermore, on Friday, they consider it to be Monday, The one-business-day rule then stipulates that cash deposits on Friday won’t be available in your account for use until Tuesday!

Wachovia

Like Steve mentioned, the customer service representative at Wachovia explained the policy quite clearly. Wachovia will post your credits first, from highest to lowest amount, and will then post your debits, also from highest to lowest.

According to each bank’s representatives, the respective policies have been in existence as long as they could remember. I would like to contact more banks, like Bank of America, Bank of New York, Capital One, and PNC Bank to determine their policy as well. If I do, I will update this article.

It’s interesting that each bank has its own method of posting items to customers’ accounts. I think this is a practice that should be standardized across financial institutions, and it should be done in such a way that it benefits the banking customer: all overnight credits (ACH deposits, Direct Deposits, checks coming off hold, late ATM deposits) first followed all overnight debits (ACH withdrawals, electronic checks) from lowest to highest amount at the start of the day, then all real-time credits (cash deposits, ATM deposits during business hours) followed by all real-time debits (ATM withdrawals, bank teller withdrawals, debit card purchases) from lowest to highest amount at the end of the day.

Having never worked in a bank, I’m not sure if this policy is feasible, but it would be fair to the customer and reasonable to the bank.

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.

Active stock trading has more in common with gambling than it does with investing. On top of that, it’s expensive gambling. When you step up to a quarter slot machine, you know each bet will cost a quarter. You don’t lose a nickel on each spin as a “transaction fee.” In order to play the stock market, with “play” being the operative word, you lose money right off the bat in the form of commissions.

So if you’re going to invest in stocks, it makes sense to find the least expensive option. Here are some of the more popular choices, updated October 5, 2008 to include TradeKing. What are your experiences with these brokerages?

TradeKing. This online brokerage features low $4.95 online trades. SmartMoney Magazine has awarded TradeKing the award for Best Discount Broker in 2006 and 2007 and Best Customer Service among discount brokerages in 2008. New account holders can qualify for a $50 bonus by maintaining a $2,500 minimum and executing one trade within six months.

ShareBuilder. ShareBuilder’s lowest commission fee on an account without a monthly fee is $4. Last year, ShareBuilder was incorporated into ING Direct. Out of all the discount brokerages listed here, ShareBuilder is the only one with which I’ve had direct experience, and I haven’t had any problems. I currently have three investment accounts, each initiated with free money from account opening bonuses. I invested in one exchange-traded fund and two stocks, MSFT and AKAM. The accounts haven’t fared well, but since I’m playing with small amounts of free money, I am not shouldering much overall risk to my portfolio.

If you trade more often, ShareBuilder is willing to give you a discount on your commissions and some free trades, but you’ll have to fork over $12 or $20 each month. Keep in mind that the low commission will only qualify you for a bulk purchase. That is, if I place a $4 order today, it won’t be executed until next Tuesday with all this week’s orders. If I wanted to purchase a stock in real time, I’d have to spend $9.95 for a real-time purchase.

No matter which monthly plan you join, you’ll have to pay a $9.95 fee for selling.

Zecco. Zecco offers up to ten free trades every month if you maintain a minimum of $2,500 with the brokerage. Otherwise, each trade costs $4.50. These are all real-time transactions, not bulk, like ShareBuilder. Zecco charges $10 if you want to buy a no-load mutual fund, however. That’s an unappealing fee, and it’s a reminder than one should keep holdings in an appropriate account. Zecco might be a good low-cost option for stock trading, but Vanguard and Fidelity might be more appropriate for mutual funds.

Both Zecco and ShareBuilder will not charge you for inactivity. It doesn’t hurt to let your account sit if you decide to stop trading, at least until they change their terms and decide to begin charging an inactivity fee.

E*TRADE. If you have less than $12,000 at E*trade, this brokerage will charge a $12.99 commission fee for each trade. Additionally, E*TRADE will charge a quarterly fee unless you meet one of the many conditions described here.

My comapny stock purchase plan is maintained by E*trade, and due to the market’s poor performance, I’m waiting until the stock is higher before selling my shares acquired over the past two quarters. By combining more share sales in one transaction in the future, I’m also saving on transaction fees. It costs $19.95 every time I sell ESPP shares, so I can save money by not selling four times a year (and also, I hope, waiting for the stock to rise).

Scottrade. Three years ago, Wachovia announced they were adding a $50 annual fee to my discount brokerage account. I tried to get the fee waived, but my protests fell on deaf ears. Rather than paying the $50 fee once and continuing to do so every year, I opted to pay the $75 account termination fee to move my funds to Scottrade. Scottrade offers no account fees other than the $7 commission for online trading. As I was holding only one mutual fund and I didn’t plan to do any trading, the account was free for me.

When I opened up my new Scottrade account, I was referred to a “local” branch. The closest branch was an hour away. I didn’t have to visit the branch to open my account and transfer the mutual fund shares, but they did call me quite often until they realized I wasn’t planning on buying any more products.

TD Ameritrade. TD Ameritrade is “that broker with the actor spokesperson,” formerly TD Waterhouse. To trade stocks online, TD Ameritrade charges a $9.95 commission.

These are the low-cost stock trading brokerages I am familiar with, though I’ve had personal experience with only a few. If there are any others I should know about, please leave a comment with some information. Also, please share your experiences and reviews.