Overdrafting before the money's gone

[jackfaire]

The bank my mom is with will charge overdraft fees if the available balance is negative because of a pending charge that hasn't processed through yet even though the actual account balance is in the positive.

The screwed up part of this is that before that payment posted she deposited money in her account to cover all the charges except for the overdraft fees they created.

This strikes me as a paradox. Her account would not have gone negative except for the overdraft fees. To me this reads as, "We charged you overdraft fees because the overdraft fees overdrew your account incurring overdraft fees."

[Rageaholic]

Is that even legal?

I think your mom needs to change banks.

[jackfaire]

It is as far as I can tell. Also just about every bank that I have seen charges you a penalty for paying out of "unavailable funds".

So if your available balance is short then you get smacked with a fee even if you deposit the money to cover it before the pending charges on your account are actually paid.

The problem with this is that you cannot prove or disprove the funds were available at the time.

[HYHYBT]

Always treat a charge as if it went through instantly, and a deposit as if it didn't happen until you saw the funds show up as available.

[DrFaroohk]

I hate the double standard with banks. If they want their money, they take it before it's even really gone. If you want money, well, that's 3 business days sir.

[jackfaire]

Oh and get this now that the payment finally posted and surprise surprise they took another overdraft fee.

[Boozy]

Always treat a charge as if it went through instantly, and a deposit as if it didn't happen until you saw the funds show up as available.

This is good advice.

I've given up expecting fairness and justice from any bank. Now I play by their rules and I haven't paid any major fees since.

[Ghel]

Speaking as someone who works at a bank, I agree that check clearing and funds availability is confusing. And I'm sure it's even more confusing at a large bank where they place a hold on every deposit.

I work at a small single-branch bank. We only do exception holds. This means that when we receive a deposit, the teller reviews it to see if it's unusual (such as a large check, out of the area, or suspicious in some way). If any of these apply, we can place a hold on the funds, but we have to follow the regulations for holds, which can get very muddled. We notify the customer as soon as we can after the decision is made to place the hold.

What makes the situation difficult is when a customer brings in a large, suspicious check (such as happened recently) and, when we tell her that we have to place a hold on the funds, she tells us that she has already written a check against the deposit before she has made the deposit. Now, by regulation, we can return the check if it attempts to clear before her deposit is collected, but we can't charge her a fee. (If your bank places a hold on every deposit, they CAN charge you a fee for overdrawing your account on uncollected funds.)

It's an imperfect system, but it's better than before the Expidited Funds Availability Act, when banks could place an indefinite hold on deposits, and there was nothing customers could do about it.

[jackfaire]

Ghel. There were no pending deposits when the account overdrafted. A charge was pending waiting to be paid out. While that was on there the available balance was 0.

Then two small charges were made to the account that made the available balance negative. My mom was charged two overdraft fees for that.

Then a cash deposit was made to the account that applied immediatly to the account paying off those two small charges however the overdraft fees stayed.

Up to this point in the process the pending charge is still pending.

Now the available balance is negative not because of any actual charges on the account but because of the combination of overdraft fees and the pending charge.

The pending charge finally posts to the account bringing the actual account bal negative and applies a third overdraft fee.

[Vagabond]

Makes me love my bank. No overdrafting fees. They'll simply tell me 'funds not available'. If I have a problem, I can simply call them up and talk to them about it.

[Peppergirl]

I've given up expecting fairness and justice from any bank. Now I play by their rules and I haven't paid any major fees since.

This.

It sucks, but it's soooo true.