The ‘80s band, Simply Red, sang that “money’s too tight to mention” – which is as true now as it was 30 years ago. Especially with the financial knock of the Covid-19 pandemic, every penny counts. This is why, when you are doing your best to stay afloat, you do not expect your bank to rearrange the order of your transactions in a way that racks up your fees.
Is it legal for banks to rearrange the order of your transactions?
Even if you theoretically have enough money in your account to cover upcoming transactions, banks can shuffle the order of those transactions to maximize overdraft fees – also know as Debit Resequencing.
Because many transactions are processed overnight, your available balance may not reflect them. Additionally, most banks have a cut-off time for deposits made at your branch or using an ATM, delaying the reflection of your increased balance. Banks then generally post deposits before withdrawals, which means that you are charged overdraft fees on pending transactions.
Reports show that the three biggest banks in America made more than $6.4 billion from ATM and overdraft fees in 2016 alone, making it a lucrative practice. It is legal too, with over 40% of our banks rearranging transactions.
Debit Resequencing / Overdraft fees lawsuit
While it may be legal, it is not ethical which is why various organizations have recommended that the policy be prohibited. The Consumer Financial Protection Bureau has been investigating these practices, but until they declare them illegal, your best recourse is to engage with overdraft fees attorneys.
Thanks to lawsuits filed against banks and credit unions questioning the deceptive nature of reordering transactions, many financial institutions have entered into settlements with consumers on a case-by-case basis.
If your bank or credit union has subjected you to unfair overdraft fees or deceptive practices you may be entitled to take legal action.