FDIC study Shows banks game the system to generate additional fees at the expense of poorer customers

Chismillionaire is all for open markets but this seems devious and a desperate overreach. An algorithm explicitly designed to take advantage of those not savvy enough to know better. Chismillionaire suggests moving to a lower fee bank or credit union where fees are lower and transactions post in chronological order to minimize the likelihood or bounce fees which can be up to $38 per surcharge!
	HOW BANKS PROCESS TRANSACTIONS Large banks are more likely to clear checks from large to small dollar amounts, often triggering more overdraft fees. Asset size Pct. of banks clearing checks large to small Less than $250 million 20.7% $250 million to less than $1 billion 25.8% More than $1 billion 53.7% All banks 24.7% Source: FDIC survey of 1,171 banks it regulates; 289 banks responded to question about check clearing and dollar amounts

By Kathy Chu, USA TODAY

Overdraft fees are boosting banks' profits at the expense of consumers, especially young and low-income people, finds a new Federal Deposit Insurance Corp. study.

The 18-month survey found that most banks automatically enroll consumers in overdraft programs — some don't allow them to opt out — and then cover overdrawn transactions for a per-item fee of up to $38.

The survey excludes many of the largest banks in the nation, because it covers only FDIC-regulated banks. Still, it's the largest study of overdraft programs by a bank regulator and helps "fill an important universe of information that has not been available to policymakers," says Andrew Gray, agency spokesman.

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In recent years, consumer groups have received an increasing amount of complaints about overdraft fees. The Federal Reserve has proposed a rule, which it expects to finalize by year's end, that requires banks to give customers the ability to "opt out" of overdraft programs.

But advocates say the rule doesn't go far enough because banks don't have to obtain explicit permission from customers to pay their checks and debit card transactions. A bill by Rep. Carolyn Maloney, D-N.Y., would require banks to sign up consumers for this service.

The FDIC's survey found:

•Most banks that automatically enroll consumers allow them to overdraw by check, ATM or debit card purchases. About half of all overdrafts occur at ATMs or via debit card transactions, which tend to be for smaller dollar amounts.

•Banks surveyed earned $1.97 billion in overdraft-related fees in 2006, representing 74% of their overall $2.66 billion in service charges on deposit accounts. In total, overdraft-related fees bring in $17.5 billion each year to banks and credit unions, estimates advocacy group Center for Responsible Lending.

•Large banks are more likely to process transactions from largest to smallest dollar amount, often triggering more fees.

•Young and low-income consumers are disproportionately affected by overdraft fees. "The most vulnerable consumers are getting hit with these fees," says Chi Chi Wu of the National Consumer Law Center.

Nessa Feddis, senior counsel at the American Bankers Association, says that overdraft fees are avoidable. The FDIC's survey — which showed that only a quarter of consumers pay overdraft fees — confirms ABA's findings, Feddis notes.

Yet Michael Moebs, a bank consultant, says his research shows that nearly half of consumers pay overdraft fees each year.