Financial & Insurance Fraud

Payments Puzzle Persists at Banks

high-to-low processing
Posted: July 31, 2014 at 8:00 am   /   by   /   comments (0)

Ever heard of high-to-low processing? It’s a technique used by banks in order to ensure consumers pay the largest possible overdraft fees. The Wall Street Journal reports on how to avoid them…

Hundreds of small and regional banks are clinging to a practice that can cause consumers to incur multiple overdraft fees in the same day, even as the biggest lenders are backing away.

Roughly 16% of U.S. financial institutions process checking-account transactions on a “high to low” basis, according to a survey of more than 2,000 banks, thrifts and credit unions conducted for The Wall Street Journal by Moebs Services Inc.

In high-to-low processing, banks deduct the day’s largest withdrawal before they deduct smaller ones, depleting the account balance faster. That makes it more likely that multiple transactions will bounce, which in turn triggers overdraft fees for each transaction that average about $30, according to Moebs, a research and consulting firm in Lake Bluff, Ill. In the worst case, consumers can end up paying a fee greater than the cost of the purchase.

Giant banks such as Bank of America Corp and Wells Fargo & Co. have moved away from high-to-low processing in the past year as regulators stepped up criticism. Most big banks moved to a practice in which they deduct the payments in the order in which they are received. Of the top 10 banks ranked by assets, only TD Bank, a unit of Toronto-Dominion Bank, still processes the largest transactions first, according to Moebs.

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