New bank regulations...

[Sum Dum Gai]

Heard a piece on NPR yesterday about some upcoming banking changes. I guess one of the things brought up by the consumer protection agency was that banks should process checks in order from smallest to largest, to keep from racking up overdraft fees. Banks currently do it largest to smallest. I can totally see the rationale for it. However, what one of the banking guys mentioned was that it makes it far more likely that if something does bounce it'll be your car or rent/mortgage payment, which can cause a big hit to your credit score. While paying a $25 overdraft fee for each of three or four small transactions totally sucks, taking a 50-75 point hit to your credit score because your mortgage payment gets rejected due to being $20 short, while three or four small transactions totalling $30 got through right before doesn't sound much better.

What do you guys think about the change?

[Savoir Faire-Demogague in NJ]

Not much to think about. Many of us here warned of the dangers in the legislation passed a few years ago that many were hailing as a boon for consumer protection.

[Sum Dum Gai]

People who habitually overdraw their accounts probably have crappy credit scores anyway, so paying overdraft fees on fewer transactions is probably the better deal for them. For those of us who rarely if ever overdraw our accounts, I'd much rather it happen on a $30 charge putting gas in the car, or some other small thing that won't get reported to a credit bureau, then have it happen on my mortgage payment. Seems like yet another change designed to help people who are financially irresponsible, with the possibility of hurting people who are responsible.

[Savoir Faire-Demogague in NJ]

Seems like yet another change designed to help people who are financially irresponsible, with the possibility of hurting people who are responsible.


But what about the c-h-i-l-d-r-e-n? The poor will have to chose between eating and heating..... 10s of thousands will be dying in the streets...

[Deleted]

I saw that Citi is going to go to this model. The article I read said that the automatic overdraft (with its fees, etc.) is alive and well. The previous reform did not apply to checks and debits, only ATMs. So the change was not as significant as we all imagine.

There was never a guarantee that they would pay the overdrafted items, anyway. There was only a guarantee that you would incur overdraft charges regardless. Now at least there will be less charges and actually the possibility of fewer bounced checks.

[Savoir Faire-Demogague in NJ]

There was never a guarantee that they would pay the overdrafted items, anyway. There was only a guarantee that you would incur overdraft charges regardless. Now at least there will be less charges and actually the possibility of fewer bounced checks.


Suppose one's check to the IRS for taxes due when filing gets bounced? Or, perhaps the check to the local tax assessor for property taxes?

[Deleted]

There was always the chance that they wouldn't cover it. The argument isn't really that they drafted the largest one first, which ALWAYS got paid. They drafted the largest one first so they could charge for it plus any small ones. Now they have to put the small ones through first. They can refuse to honor any of them.

[Deleted]

This message has been deleted.

Doublepost.

[cytoglycerine]

I still don't understand why banks need to re-order transactions at all in the first place. My bank processes & posts transactions to my account in the order in which they occured...What a novel idea...

[Deleted]

Cytoglycerine, are your paper transactions time stamped? The article I read was talking about checks and automatic debits, which often come in as batches. Debit card transactions are different; they are time stamped.

[Savoir Faire-Demogague in NJ]

I still don't understand why banks need to re-order transactions at all in the first place. My bank processes & posts transactions to my account in the order in which they occured...What a novel idea...


Checks you write on different days, will come into your bank for processing and payment in nearly random order. Depending on the size of your bank, they could be handling millions of paper checks per day. You bank has no idea which check was presented for payment first or second or third..etc. They all come in and are batched. Processing largest to smallest favors the customer.

[cytoglycerine]

Apr 5, 2011 18:07:06 GMT -5 @southernsusana said:

Cytoglycerine, are your paper transactions time stamped? The article I read was talking about checks and automatic debits, which often come in as batches. Debit card transactions are different; they are time stamped.

To be honest, I don't think I make any paper transactions at all. I write a cheque to my mom once in a blue moon, but that's it - Everything else is electronic.


I do remember from my days processing and later reviewing/authorizing corporate bank reconciliations (2004-2009) that multiple cheques clearing over night are posted to the bank account in no particular order. They aren't arranged by amount or by cheque number, which insinuates that they are posted to the accounts as they are entered into the system by overnight bank employees.

[achelois]

I don't care either way.

[qofcc]

I think avoiding the fees would be better. I would have to expect that if someone withdrew their account it was because they thought they had enough in there and came up short, not because they wrote checks that they knew they couldn't cover, so if the overdraft was too much they might incur a late fee on the mortgage or car loan, but it shouldn't put them in a 30 day late category and have it reported to the credit bureau. They don't report you for being less than 30 days late and sometimes you get a few days grace period before there's a late fee.

[Deleted]

Apr 5, 2011 18:18:49 GMT -5 achelois said:

I don't care either way.

Really, this is one where the banks can never win. They clear the big check and then bounce 5 small ones and they're accused of doing it to be greedy. They clear the 5 small ones and bounce the mortgage check, people complain about that.

If you don't bounce checks, who cares?

[Politically_Incorrect12]

I can see both sides. I remember when I was always broke and got charged an overdraft fee one month. Yes, I know people will say I shouldn't have had my account running that close, but I did and sometimes when you don't make much cash, you still need to eat. The charges actually wouldn't have happened, except my one year of free checking at the time ran out that month and I was charged $8 for having under $500 in my account (or whatever the minimum balance was at the time before free checking became more common). So a total of, I want to say it was multiple transactions which totaled under $4 for all of them, cost me $80 in overdraft fees. So I was already broke and then I had to readjust to having $80 less the next month. Most people who are running that close are probably more concerned about being charged multiple times for small transactions. It is easier to come up with $20 overdraft fee and whatever extra you need to cover that one big check than it is to come up with $80 in overdraft fees on top of the small amounts that bounced.

[Deleted]

Thanks for sharing, Politically_Incorrect12. Some posters on here have lost their ability to empathize with those who live a little close to the edge. If it's not about them ("just keep an extra $500 in your account"), then it's not important.

I don't overdraft, I don't pay credit card interest, and I don't do payday loans. But that doesn't mean that the sharks should be allowed to make the sky the limit just because I'm a little better organized and perhaps a little smarter.

Besides, situations do change. People are being foreclosed upon who would never have thought it would happen to them.

A little karma for you Politically_Incorrect . . .

[The J]

Apr 5, 2011 18:02:25 GMT -5 @southernsusana said:

There was always the chance that they wouldn't cover it. The argument isn't really that they drafted the largest one first, which ALWAYS got paid. They drafted the largest one first so they could charge for it plus any small ones. Now they have to put the small ones through first. They can refuse to honor any of them.

They can't refuse to honor a check if there's money in the bank. Let's say you have $1,000 in the bank and you write three checks: mortgage ($900), groceries ($200) and clothes ($150).

Under the current system, your mortgage payment will go through -- they have to honor the check because you have the money in the account -- and the other two will bounce, causing you two fees.

Under the new system, your groceries and clothes will go through -- they have to honor those checks because you have the money in the account -- and the mortgage will bounce, causing you one fee, plus whatever late fee your mortgage company charges, plus a possible ding on your credit score.

[Deleted]

Apr 5, 2011 17:29:17 GMT -5 Sum Dum Gai said:

However, what one of the banking guys mentioned was that it makes it far more likely that if something does bounce it'll be your car or rent/mortgage payment, which can cause a big hit to your credit score. While paying a $25 overdraft fee for each of three or four small transactions totally sucks, taking a 50-75 point hit to your credit score because your mortgage payment gets rejected due to being $20 short, while three or four small transactions totalling $30 got through right before doesn't sound much better.

I think that his that is a bullshit reason.

[TD2K]

The banks don't process checks from large to small because they are concerned about bouncing more important financial bills, they do it because it increases their fees.

[bean29]

I think the issue of your mortgage check bouncing and therefore affecting your credit score is BS. I pay three mortgages each month. My house, two rentals and a commercial property. All are set to pay 5-7 days early. All have a grace period before and additional penalty is assessed.

My understanding is that the 0-30 days late category on your credit report has very little effect on your score and almost no-one bothers to report this category. Also I was told that bounced checks have virtually no effect on your score.

I bounced an electronic payment in October of 2010. I accidentally set up an 8,000.00 payment to the IRS to pull from the wrong checking account. I had the money in the bank...I just forgot which account EFTPS was set up to pull from. I paid a bounced check fee of I think $20.00 to the IRS and a 20-30 fee to the bank. I have not had any reason to look at my credit report, but I will do it soon. I am sure we still have a score of at least 750 ish.