What are YOUR Bank's Check-Clearing Policies?

This morning, I opened my checking account webpage to see that, by some horrible error in our bookkeeping, we had overdrawn our account. Great. Just what we need right now, for our bank to charge us more of what we have none of. Well, it was my fault. I should have been balancing my checkbook more closely, since there are two of us using the same account. My bad, and I'll have to deal with the consequences.

However, the problem I really have is that my bank charged me *two* overdraft fees when they could have only charged one. Why? Because they incorporate a policy that I was unaware of until this morning. It's called the "biggest to smallest" policy, and it could cost bank customers a lot of unnecessary fees. It's certainly making the banks a lot of money.

I called my bank customer "service" representative, explaining to her that, if they had simply taken my smaller checks first, or had taken the checks in the order they'd come in, all of the little checks would have cleared and only the large check would have put me into overdraft, charging just one 37.50 fee instead of two. The amount over my balance would have been the same, but the fees would have been less.

"We don't pay attention to how the checks clear, ma'am. We just put them through as they come. "

I hung up the phone perplexed and then did a quick check of my transaction history. Every date--EVERY SINGLE DATE--I checked online showed that all of my transactions were deducted from my account in biggest to smallest order.

For example, just a random date on my statement:

$174.58 --electronic transfer
$74.94 --check
$58.69 -- check
$23.68 -- electronic transfer
$11.27 --check

It's like this for EVERY SINGLE DATE. There is no order to the type of funds, there is no order to the time that the check was written or received by the bank. The ONLY order is that the largest checks clear first and the order proceeds to the smallest.

Do you see why they do this? See, if they take the biggest amount first, and it eats up the bulk of your balance, they can charge you a fee for each small check that overdraws your account.

Example:

You have $700 in your account.
You write a check for $699 to pay your Annual Bear Lodge Dues.
Your wife writes ten checks for $1 each to put in Aunt Hazel's kids' Christmas stockings.
You forget to write those little checks into your register, or--and this never happens--your wife forgets to tell you about those ten small checks.

With the biggest-to-smallest policy that most larger banks now have in place, your checks will be cleared as follows:

$699
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00
$1.00

What that means is, that unless you have overdraft protection (ie, a high interest credit card that can get you into a heap of trouble), your $699 check will clear, the first $1.00 will clear, and the rest will either be cleared and you'll be charged a fee, or they will be returned, if that's how your bank does things. So, you will be charged $37.50 for each of the remaining $9 worth of checks! That's a total of $337.50 out of your pocket and into the bank's greedy hands simply because of their policy regarding the order in which they clear your checks!

I decided to call my bank again and, this time, ask a very specific line of questions. After waiting on the phone for ten minutes (after all, it was their dime), I was greeted by a pleasant and polite customer service representative. The conversation went a bit like this:

"Thank you for calling Gigantic Money-Sucking Bank. This is Marcia Rand. How can I help you today?"

"Hi, Marcia. How are you?"

"I'm fine, thank you. And how are you?"

"I'm doing well. I have some questions about my checking account, if you could be so kind as to help me."

"I'll do my best."

"What is your policy regarding check-clearing order on a consumer checking account?"

"Well, that has changed a bit from the past. We used to run the transactions in order of type, but then people complained so much, so now, for transactions on one date, they are always run by amount, and only by amount, from largest to smallest."

"People complained so much? What were their complaints?"

"Customers were mad because, well, their largest check was usually the most important, so we would put through all these small checks and then their, say, mortgage would bounce. And they would be angry, because that large check was the most important. So we changed the policy to clear largest checks first. Usually, the biggest item is most important."

"And was this policy-change put in writing?"

"Yes. It would have gone out with your statement, about a year ago in January."

"I see. So, then, is there a minimum amount that you can overdraft that you won't get charged a fee?"

"No. No, unfortunately there's not. There used to be a policy that if it was under a dollar, there would be no fee. But now, it's anything that overdrafts that account."

"Even a quarter, then..."

"Yes, even a quarter."

"So, is there a cap on the amount of overdraft fees that can be charged to a customer's account in a day?"

"Well, no, there's not. I hate to say it, but there isn't. I've seen, and especially around the holidays, people use their debit card to eat at McDonald's here and there, $5.00, $10.00, and they can have ten or more overdrafts in one day. "

"$375 in overdraft fees in one day."

"That's right."

I then gave Marcia Rand my scenario, about the Bear Lodge and stocking stuffer checks, and she said, "Yes. Yes, unfortunately, that's the way it would be. I hate to say it, but yes."

After my conversation with Marcia, in which I asked her how one goes about closing a checking account, I visited my bank's website. Nowhere among all the pictures of beautiful smiling people and sales pitches about their accounts and news of business and investor relations and quarterly reports could I find a list of policies, for checking or any other kind of account. I've e-mailed them and asked them to send them to me in writing, or to at least point to where it can be located on their site.

Think I'm being conspiratorial? I searched online and found the article below which was printed in USA Today on November 19th of this year.

In my opinion, this news should be front-page headline material.

In the meantime, I'll be switching to our small, hometown bank and watching my check register very closely.

Banks' check-clearing policies could leave you with overdrafts - USATODAY.com: "As we write checks and use our debit cards this holiday season, banks are forcing some of us to overdraw more often by clearing the largest transactions first, instead of processing them in the order they come in.

Eight of the nation's 10 largest banks Â? Citigroup (C), Bank of America (BAC), Chase (JPM), Wachovia (WB), Wells Fargo (WFC), HSBC (HBC), U.S. Bank (USB) and SunTrust (STI)Â? typically pay checks that arrive on the same day from the largest to smallest dollar amount, according to USA TODAY research. Most large banks do the same with electronic transactions, according to a review of deposit agreements and conversations with the banks.

The order in which banks process checks and other debits determines the overdraft fees they charge. Those fees make up 90% of service charges on deposit accounts, and they're expected to yield a record $53.1 billion for financial institutions this year, research firm Moebs Services says."

Read the entire article here.