After-Hours Trickery by Bank of America?
The following is a guest post from Ryan P. Welch, ETF Consultant with State Street Global Advisors in Boston. I encourage our readers to contact me with their own stories of banking and credit tricks and traps. - KL
I write with concern about a practice I encountered with Bank of America, which involves the process by which debit card transactions that are not immediately withdrawn from your account are later debited. Should it be possible for a debit posted after regular banking hours to reflect on the same day’s ledger, as if it were transacted that morning, when credits to accounts are unable to be made in the same manner? Or is this yet another trap by a bank to collect penalty fees (such as overdraft fees) from unsuspecting consumers?
Most people are aware of the basics of debit card transactions. When a purchase is made, a hold is placed on the user’s account as the bank awaits formal billing from the vendor. In the case of Bank of America, this hold reduces the available funds in the account for 72 hours. If no formal billing is received within this time frame, the funds are temporarily released back into the account.
In the past – prior to the shift towards electronic banking – once the billing had been received these transactions would be posted overnight, along with any after-hours deposits or pending electronic deposits, to be reflected in the account balance the following business day. Typically, transactions would be posted in the order of credits, then debits (largest to smallest), "for the benefit of the customer."
Under Bank of America’s current system (likely used by other banks as well), all such withdrawals are now posted at 7:59 pm, two to three hours after the close of traditional bank branches – and four hours prior to the posting of any pending electronic or late-day deposits, as any such deposits are not posted until midnight. Additionally, the account holder is unable to view any pending debits to be withdrawn, even within minutes of the transaction.
This practice specifically targets a gap in the day during which account holders are unable to attempt to cover their account for pending debits. Were one to still keep a traditional register and balanced checkbook, this wouldn’t be as much of a problem. However, banks penalize account holders for using traditional banking techniques, charging additional fees or offering severely reduced savings rates for those who choose to forgo online banking.
"Additionally, the account holder is unable to view any pending debits to be withdrawn, even within minutes of the transaction. "
I'm not sure I can agree with this statement. I am a BofA customer, I do use electronic banking, AND I keep my traditional check register. If I go to the grocery store on my way home from work and purchase with my debit card, I can see that debit in the pending transactions section of my on-line banking. Most of the time transactions like this go thru at midnight that same day.
I rarely carry any cash any more, I use my debit card for practically everything, and I can see every transaction on-line practically within minutes. I check my account daily on-line and I have overdraft protection, which costs me nothing.
I think the larger problem here is that people have become far too lax in keeping track of their transactions and are too quick to blame the banks for their poor record keeping. While I realize that ALL banks are ripping customers for all kinds of ridiculous fees and up to some dirty tricks so they can cash in on overdraft fees and such, I don't see how this is one of them - at least not the way it's been explained here. My experience is quite different.
October 2, 2006 6:43 AM | Reply | Permalink
I'm dealing with a problem that seems blatant to me. I sent in a large extra payment for my mortgage and after almost two weeks, it has not yet been posted to my account. The mortgage company says it takes longer for larger amounts of money. Really. Can someone tell me what Federal or state (Virginia) agency I should contact with a complaint?
October 2, 2006 9:10 AM | Reply | Permalink
The bank used by the mortgage company is far more likely to be regulated, under the Sarbanes-Oxley Act and the Gramm-Leach-Bliley Act, than the mortgage company. SoX does apply to the mortgage company if it's publicly traded, and GLBA probably does in any case.
You could start with the mortgage company, but the challenge will be reaching the right people: the internal auditors. First, you need to find where their corporate headquarters are located; most firms just give out their mortgage servicing. There are various tricks, such as finding their financial reports on the SEC's EDGAR database, which will usually give you the address (and hopefully phone) of inside or outside counsel.
If you can reach internal auditors either at the mortgage company or the bank services it, start out by saying that you assume Internal Audit is the Rodney Dangerfield of a financial institution -- it doesn't get respect, but it tends to have real power and no one consults them. That tends to get a laugh from the receptionist and get you pointed to someone.
I've had the actual bank holding my mortgage say they outsourced their actual collections, so there would be several days before it would post. "Posting" is one of the great lies of financial institution. Mention the Realization Principle under GAAP (Generally Accepted Accounting Practices), which says that they realize revenue when the service is performed. Under the law of agency, delivery to their agent constitutes completion of your obligation. In any serious audit, the slowness of their posting system isn't your problem. If you have proof of delivery, they have to use that date.
The regulators involved, assuming it's a federally insured bank, could be the Federal Reserve, the FDIC or FSLIC, or the Federal Trade Commission. I'm pretty sure the Federal Reserve sets the clearing times.
--
Howard
*equal opportunity offense to both extremes*
October 2, 2006 10:03 AM | Reply | Permalink
Thank you, Howard. This is just what I needed to know. For starters, I went to the SEC's Web site and just read some angry complaints about the company.
October 2, 2006 11:22 AM | Reply | Permalink
Regardless of one's ability to view the transactions, the question remains: why does the bank post debits four hours earlier than credits?
Invariably, some customers will slip through the cracks of overdraft protection, not be home to check their transactions online, etc. The banks make money off of the fees they can draw from anyone who makes the smallest of mistakes.
This is why the banks are good at what they do - if the trap is subtle enough, and few people get caught in it, they can rake in a little extra without the hassle of answering for their policies.
Reminds me of a little electronic accounting scheme from the movie Office Space (only better planned).
October 2, 2006 1:30 PM | Reply | Permalink
Whatever BoA's motives here, it seems to me that any sensible account holder could easily avoid this issue by NEVER using a debit card when there were insufficient funds in the account to cover that usage. And given the easily avaialbility of one's balance via online account access I donlt think that's hard to do in most circumstances.
October 2, 2006 5:56 PM | Reply | Permalink
You might consider writing a letter to the OCC (Office of the Comptroller of the Currency) an agency within the Dept. of Treasury who is responsible for the regulation administration of national banks.
http://www.occ.treas.gov/
Jim Anderson
The Truth About Credit
October 3, 2006 7:45 AM | Reply | Permalink
Another treat from BoA: their VISA debit/check card lets you overdraw your checking account. Instead of denying the charge for insuffficient funds, they post the charge, give you a negative balance and tack on a hefty fee for each transaction.
One typical errand day, I accidentally racked up over #100 in fees buying breakfast, gas, lunch, groceries and some new shirts. All because my car insurance bill (on EZ Bill Pay) posted a day before my direct deposit.
Whoops!
-- "Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable." (John Kenneth Galbraith)
I'm a little tired of disastrous. (jalmari)
October 3, 2006 3:10 PM | Reply | Permalink