Citibank says it will change the way it processes customers’ checks, a move that could result in fewer fees for bounced checks for account holders.
Customers are being notified this week in their bank statement mailings that as of July 25, the bank will process checks in order of “low to high”—that is, it will pay checks in order of smallest dollar amount to the largest. Currently, Citibank — as do most banks — pays checks in order of highest dollar amount to the lowest. The thinking has been that big checks are often covering important bills like mortgage or car payments.
The method, though, tends to maximize fees for bounced checks and has long been criticized by consumer advocates. Cece Stewart, Citibank’s president of consumer and commercial banking, writing in a company memo this week, gave the example of a customer with $100 in a checking account who wrote three checks, for $90, $35 and $25. Currently, the bank would pay the $90 check first, leaving insufficient funds to cover the second two, resulting in two fees of $34 each — $68 total.
Under the new system, the bank will process the $25 and $35 checks first. The $90 check would still bounce, but the customer would face just one $34 fee.
“We think this is the right thing to do and we believe we are the first major bank to do it,” Ms. Stewart wrote.
The Center for Responsible Lending says on its Web site that the change makes Citibank “unusually active among our nation’s largest banks in voluntarily reforming” its overdraft practices. “We think it’s a really big deal,” says Rebecca Borne, a senior policy analyst at the center. “Finally, a large bank has acknowledged what we think is the reality, that low to high is best for customers.”
Citibank has never charged overdraft fees for debit card transactions or A.T.M. withdrawals, according to Ms. Stewart. Rather, the bank simply declines those transactions if an account balance is too low.
Wells Fargo and Bank of America currently pay checks from high to low, but have bowed to consumer concerns by reducing the maximum number of overdraft fees to four a day from 10. Both banks charge $35 for each overdraft, so that’s still a potentially hefty $140 a day.
Since customers write fewer checks these days, however, paper checks are often less of a concern than fees charged when debit card purchases push accounts past their limits. Someone sitting in a coffee shop for a few hours, paying for snacks and refills, could potentially do some real damage if the balance dips too low. Last summer, Bank of America began declining debit card transactions if they exceeded the account’s funds, instead of letting them go through and then charging a fee.
Wells Fargo currently gives customers the option — required by federal regulators — of having debit transactions declined or having them go through, with a fee, if their balance is too low. (Even if the customer has given permission to be charged overdraft fees, thought, the bank still won’t impose more than four.)
Wells Fargo says it will make changes later this spring to the way it processes some payments. Currently, all categories of deductions are processed at the end of the day and paid in high-to-low order.
But as of May 16, the bank will take a hybrid approach. Paper checks and automatic deductions — like preauthorized monthly student loan payments — will still be paid from high to low. But the bank will process A.T.M. withdrawals, debit card purchases and online bills chronologically, in the order received. (JPMorgan Chase has followed a similar approach for about a year, a spokesman said). If for some reason a specific transaction time isn’t available, a Wells Fargo spokeswoman, Richele Messick, said, the bank will process such debits in order of low to high. “These changes are going to help simplify processes and benefit customers,” Ms. Messick said.
What do you think? Would you rather see one standard for charging overdraft fees, or do you prefer letting banks set their own policies?
Article source: http://feeds.nytimes.com/click.phdo?i=014292f8c366f6cb725c5ec4059338c2