Complaint Review: Wachovia Bank - Charlotte North Carolina

I am aware of what "core processing" is and how it is vital to any bank's bottom line. Although most banks using core processing vendors are smaller community based banks, there are several large banks which also outsource this task to third party vendors. It is my belief as vendor software becomes more easily integrated with the bank's own, it will become more prevalent. It is simply a financially viable option for any business to outsource services to a vendor that can perform the services at a lower cost. My reference to the opinion letter was simply to show that the practice exists, not to imply that Wachovia or all banks use these services. Nevertheless, in house or outsourced core processing aside, banks continue to post high to low solely to profit from additional fee income. Despite all the rebuttals to my posts, it is yet to be shown that this is not the motivation of the bank. If a bank can pay four transactions from a current balance and either reject (collecting an NSF fee) or pay the fifth (overdraft loan - collecting loan fee) the bank STILL profits from the account. On the obverse, intentionally paying high to low to collect 5 fees opposed to one is solely for profit maximization. Yes, again I will agree, it is the account holders responsibility to know the balance. However, it is the bank's responsibility to serve their customer in the best possible manner; not to see them as a "cash cow". My fight is not against a specific bank, but all banks practicing overdraft courtesy lending. If they wish to offer the service via application and/or warn the customer of the fee in the case of ATM/Pin based debit transaction, and the customer accepts - then it is fine. It is my belief the practice is hidden in fine print and legalese in account terms and that combined with the creative posting order is solely for profit generation. I don't care if banks make a profit - it is HOW they do so that disturbs me. These practices are little better than payday lending. You haven't seen me post on a payday lending thread - Why? Because payday lenders are VERY CLEAR as to what their practices are, what the interest/fees will be UP FRONT. A borrower knows clearly that $200.00 today costs $260.00 next payday. Few account holders know that the $20.00 cash from an ATM machine will cost $48.00 total if they are ONE PENNY overdrawn by the transaction. Why are the banks afraid to warn the customer???

The letter in question is talking about a service commonly called "Bounce Protection" which is different from overdrafts being allowed by the bank. Bounce Protection, sometimes called "Occasional Overdraft Privilege Service" or OOPS is a service offered through the bank by a third party, not the bank itself. In these cases, the third party pays the overdraft and charges a fee. This is typically a service offered by smaller banks which otherwise would have too great a risk exposure if they were to cover overdrafts. Larger banks (Citi, Chase, Bofa, Wachovia, etc) do not use third parties to cover overdrafts, they cover it themselves since they can afford to cover more overdrafts thanks to economies of scale. In cases where a smaller bank offers Bounce Protection then it is soliciting this service from its customers, which does lead to the concerns noted in the letter with regards to disclosure. However, larger banks explicitly state information about their posting structure and their fee structure within the deposit agreements which are distributed when the account is opened. So, in summary, Bounce Protection (which is a third party program) does present some Truth in Lending (reg Z) concerns partially due to the way these third party programs are marketed which could be seen as encouraging their use. The allowance of overdrafts by larger banks which don't use third parties is an accepted practice by the OCC and the Fed, and to refer to them as "courtesy overdraft loans" is plainly disingenuous since there is absolutely no question that these practices are "lending" as defined by Reg Z. Additionally, the practice of a bank allowing an overdraft is not something that is marketed to a customer, nor is overdrafting an account encouraged by banks as a service. If you can show how Wachovia encouraged Barry to overdraw his account at least 27 times, then I'll reverse my position. For more information, there is a study of the interpretive letter you referenced in your last post at the Philadelphia Fed website. If you search google for Interpretive Letter #914, it is the second result.

The letter in question is talking about a service commonly called "Bounce Protection" which is different from overdrafts being allowed by the bank. Bounce Protection, sometimes called "Occasional Overdraft Privilege Service" or OOPS is a service offered through the bank by a third party, not the bank itself. In these cases, the third party pays the overdraft and charges a fee. This is typically a service offered by smaller banks which otherwise would have too great a risk exposure if they were to cover overdrafts. Larger banks (Citi, Chase, Bofa, Wachovia, etc) do not use third parties to cover overdrafts, they cover it themselves since they can afford to cover more overdrafts thanks to economies of scale. In cases where a smaller bank offers Bounce Protection then it is soliciting this service from its customers, which does lead to the concerns noted in the letter with regards to disclosure. However, larger banks explicitly state information about their posting structure and their fee structure within the deposit agreements which are distributed when the account is opened. So, in summary, Bounce Protection (which is a third party program) does present some Truth in Lending (reg Z) concerns partially due to the way these third party programs are marketed which could be seen as encouraging their use. The allowance of overdrafts by larger banks which don't use third parties is an accepted practice by the OCC and the Fed, and to refer to them as "courtesy overdraft loans" is plainly disingenuous since there is absolutely no question that these practices are "lending" as defined by Reg Z. Additionally, the practice of a bank allowing an overdraft is not something that is marketed to a customer, nor is overdrafting an account encouraged by banks as a service. If you can show how Wachovia encouraged Barry to overdraw his account at least 27 times, then I'll reverse my position. For more information, there is a study of the interpretive letter you referenced in your last post at the Philadelphia Fed website. If you search google for Interpretive Letter #914, it is the second result.

The letter in question is talking about a service commonly called "Bounce Protection" which is different from overdrafts being allowed by the bank. Bounce Protection, sometimes called "Occasional Overdraft Privilege Service" or OOPS is a service offered through the bank by a third party, not the bank itself. In these cases, the third party pays the overdraft and charges a fee. This is typically a service offered by smaller banks which otherwise would have too great a risk exposure if they were to cover overdrafts. Larger banks (Citi, Chase, Bofa, Wachovia, etc) do not use third parties to cover overdrafts, they cover it themselves since they can afford to cover more overdrafts thanks to economies of scale. In cases where a smaller bank offers Bounce Protection then it is soliciting this service from its customers, which does lead to the concerns noted in the letter with regards to disclosure. However, larger banks explicitly state information about their posting structure and their fee structure within the deposit agreements which are distributed when the account is opened. So, in summary, Bounce Protection (which is a third party program) does present some Truth in Lending (reg Z) concerns partially due to the way these third party programs are marketed which could be seen as encouraging their use. The allowance of overdrafts by larger banks which don't use third parties is an accepted practice by the OCC and the Fed, and to refer to them as "courtesy overdraft loans" is plainly disingenuous since there is absolutely no question that these practices are "lending" as defined by Reg Z. Additionally, the practice of a bank allowing an overdraft is not something that is marketed to a customer, nor is overdrafting an account encouraged by banks as a service. If you can show how Wachovia encouraged Barry to overdraw his account at least 27 times, then I'll reverse my position. For more information, there is a study of the interpretive letter you referenced in your last post at the Philadelphia Fed website. If you search google for Interpretive Letter #914, it is the second result.

The letter in question is talking about a service commonly called "Bounce Protection" which is different from overdrafts being allowed by the bank. Bounce Protection, sometimes called "Occasional Overdraft Privilege Service" or OOPS is a service offered through the bank by a third party, not the bank itself. In these cases, the third party pays the overdraft and charges a fee. This is typically a service offered by smaller banks which otherwise would have too great a risk exposure if they were to cover overdrafts. Larger banks (Citi, Chase, Bofa, Wachovia, etc) do not use third parties to cover overdrafts, they cover it themselves since they can afford to cover more overdrafts thanks to economies of scale. In cases where a smaller bank offers Bounce Protection then it is soliciting this service from its customers, which does lead to the concerns noted in the letter with regards to disclosure. However, larger banks explicitly state information about their posting structure and their fee structure within the deposit agreements which are distributed when the account is opened. So, in summary, Bounce Protection (which is a third party program) does present some Truth in Lending (reg Z) concerns partially due to the way these third party programs are marketed which could be seen as encouraging their use. The allowance of overdrafts by larger banks which don't use third parties is an accepted practice by the OCC and the Fed, and to refer to them as "courtesy overdraft loans" is plainly disingenuous since there is absolutely no question that these practices are "lending" as defined by Reg Z. Additionally, the practice of a bank allowing an overdraft is not something that is marketed to a customer, nor is overdrafting an account encouraged by banks as a service. If you can show how Wachovia encouraged Barry to overdraw his account at least 27 times, then I'll reverse my position. For more information, there is a study of the interpretive letter you referenced in your last post at the Philadelphia Fed website. If you search google for Interpretive Letter #914, it is the second result.

As for my reasearch, I have noted the facts I reported on many banking industry websites. The Federal Reserve shares many of my opinions on this, despite your belief. From: Office of the Comptroller of the Currency Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation National Credit Union Administration Joint Guidance on Overdraft Protection Programs February 18,2005 (Specific points cut and pasted) "While the specific details of overdraft protection programs vary from institution to institution, and also vary over time, those currently offered by institutions incorporate some or all of the following characteristics: Institutions inform consumers that overdraft protection is a feature of their accounts and promote the use of the service. Institutions also may inform consumers of their aggregate dollar limit under the overdraft protection program. Coverage is automatic for consumers who meet the institution's criteria (e.g., account has been open a certain number of days; deposits are made regularly). Typically, the institution performs no credit underwriting. Overdrafts generally are paid up to the aggregate limit set by the institution for the specific class of accounts, typically $100 to $500. Many program disclosures state that payment of an overdraft is discretionary on the part of the institution, and may disclaim any legal obligation of the institution to pay any overdraft. The service may extend to check transactions as well as other transactions, such as withdrawals at automated teller machines (ATM), transactions using debit cards, pre-authorized automatic debits from a consumer's account, telephone-initiated funds transfers, and on-line banking transactions A flat fee is charged each time the service is triggered and an overdraft item is paid. Commonly a fee in the same amount would be charged even if the overdraft item was not paid A daily fee also may apply for each day the account remains overdrawn. Some institutions offer closed-end loans to consumers who do not bring their accounts to a positive balance within a specified time period. These repayment plans allow consumers to repay their overdrafts and fees in installments. Concerns Aspects of the marketing, disclosure, and implementation of some overdraft protection programs, intended essentially as short-term credit facilities, are of concern to the Agencies. For example, some institutions have promoted this credit service in a manner that leads consumers to believe that it is a line of credit by informing consumers that their account includes an overdraft protection limit of a specified dollar amount WITHOUT CLEARLY DISCLOSING THE TERMS AND CONDITIONS OF THE SERVICE (I capitalized for emphasis), including how fees reduce overdraft protection dollar limits, and how the service differs from a line of credit. Furthermore, institutions may not clearly disclose that the program may cover instances when consumers overdraw their accounts by means other than check, such as at ATMs and point-of-sale (POS) terminals. Some institutions may include overdraft protection amounts in the sum that they disclose as the consumer's account balance (for example, at an ATM) without clearly distinguishing the funds that are available for withdrawal without overdrawing the account. Where the institution knows that the transaction will trigger an overdraft fee, such as at a proprietary ATM, institutions also may not alert the consumer prior to the completion of the transaction to allow the consumer to cancel the transaction before the fee is triggered." So much for your theory on full disclosure, it seems the Federal Reserve believes it is not a common practice. From: Interpretive Letter #914 August 3, 2001 September 2001 15 USC 1691 12 CFR 215 12 CFR 226 SBJ CONS This is an excerpt from the OCC General counsel in response to an inquiry for a program evaluation. The program was being offered to banks by a processing vendor. "The Program is designed to increase fee income by encouraging customers to write NSF checks. Although the Program may be valuable to customers who might inadvertently or infrequently write an NSF check, banks participating in the Program will, in essence, attempt to entice their customers to write NSF checks more frequently and on purpose in order to generate fee income. This use of the Program could promote poor fiscal responsibility on the part of some consumers" These quotes are posted in support of my point that this practice is criminal and does indeed entice consumers to become indebted solely for the profit of the bank. I won't debate the other specifics, as I have done them at length in other threads.

I might as well respond. "1. Why does Wachovia allow a debit card to be used as a credit card that can rack up hundreds of dollars in fees for just a few transactions? And why aren't customers notified of this?" Wachovia allows the card to be used as a credit transaction rather than a debit transaction becuse that is what the banking industry is moving towards. Additionally, the use of the credit option on your checkcard allows for another revenue stream for the bank since they are paid a fee by the merchant every time you use the credit option instead of the debit option. You are notified of how this works, since you receive a cardholder agreement when the bank opens your checkcard. If you get an ATM card only instead of a checkcard, then only your deposit agreement applies. When you use the card with the credit option, your transaction is processed through the Visa Debit Processing system. The merchant obtains an authorization against your account balance, but your bank only keeps those funds on hold for so long. Offhand, I don't know what Wachovia's authorization hold policy is, but let's say it's 2 days for sake of argument. What this means is that when you make a transaction, if the merchant fails to batch out their terminal and submit their receipts within 2 days then the funds become available again within your account. If you're not keeping track with a check register, then you may unintentionally spend this money at your discretion. When the merchant does come to collect the funds, the bank CANNOT refuse the transaction at that point because the merchant obtained authorization at point-of-sale. Now, the result of this is that if a few larger transactions are delayed by the merchant or the merchant's bank, then they may not hit your account before the authorization hold falls off. Without a check register, it is very difficult to truly know what you've spent and what you haven't. "2. Why is Wachovia unwilling to negotiate a middle-ground penalty that makes us both reasonably whole, without forcing me into default with subsequent creditors?" Since Wachovia has a posted fee structure, and a deposit agreement which you failed to uphold, why should it be interested in waiving these fees at this point. If there were a bank error involved, or there was a claims situation on the account, then some of the fees would be reversible. But if it's simply a case where you spent too much money thinking the bank would stop you when you hit 0, this amounts to negligence on your part. The only way Wachovia will reverse fees (unless you get in touch with a manager who is *really* willing to bend the rules) will be if you default on the account and it goes into recovery. At that point they may be willing to accept a settlement, but you'll also be reported to chexsystems. Think of this debt the same way you would a credit card debt. If your credit card is delinquent the bank will still try to collect the whole balance. But when it gets charged off, then the bank will basically try to get what it can because it will be at risk of not getting anything if it doesn't settle for a partial amount.. "Like I said, I can write my contracts with lots of small fees that might enrich me in the short term, but creates long-term mistrust with my clients. Frankly, I do think Wachovia sees me only as a cash source that I must defend myself from, not a client whose finacial success is really in Wachovia's long-term interest. I'm just a guy trying to balance my books. Wachovia is the professional who (I would think) would want to avoid such a scorched-earth policy." And for the many hundreds of thousands of bank customers who don't overdraw their accounts, this policy creates no mistrust. In fact, it's a benefit to those customers since they don't have to pay monthly maintenance fees. Honestly, given the choice, the bank will choose the goodwill of responsible customers who maintain their balances properly over the mistrust of those who fail to do so. "I was also considering small-business loans down the road for my web-development firm, but I think this has ruined my chances with Wachovia or any other bank. Of course, I wouldn't take any kind of loan from Wachovia at this point." That's the glory of the free-market. You don't like what Wachovia has done, you are free to take your business elsewhere. But don't be surprised when most banks have similar penalties and procedures as what you've observed at Wachovia. Now, for Aafes... "The embarrassment excuse is pure tripe. The bank does this for one reason, and one reason only - it is pure profit. Banks collect over 10 billion dollars a year in non interest fee income - a very large percentage from these "courtesy overdraft" loans." You've never really explained why you feel it is wrong for banks to make a profit, and why customers who overdraw their account shouldn't be penalized. I know you've suggested the solution on other threads of reordering postings smallest to highest, and reducing OD fees to next to nothing, and then cancelling the accounts of people who do overdraw. But then how are people who overdraw disincented from continuing this practice since they can just pay off their balance and take their business elsewhere? In addition, you've suggested instating maintenance fees on all accounts. You've never really explained why responsible account holders should be penalized by having to subsidize the irresponsible behaviors of a small percentage of customers. "The average fee is $28.50 and many banks charge additional daily fees after a set time period if the account is not brought into a positive balance. These additional fees average $5.50 a day. The Federal Reserve has stated an opinion that this "courtesy lending" is exempt from required loan disclosure as other loans are. The banks call it a "courtesy loan", why should they be exempt." A search for "Federal Reserve courtesy loans" on google brings up no relevant results other than your posts on this site, and Free Speech Radio News page (which is where I'm guessing you got your arguments, since they're basically identical). It's clear that the Federal Reserve does not refer to allowing overdrafts as "courtesy loans." I've never heard any bank referring to them as such either. Could you please point to somewhere where the Fed or any bank has referred to allowed overdrafts as a courtesy loan? "The practice is pure ripoff and I have posted in several threads here, backing my comments up with research. I maintain the opinion, that were a consumer notified of the fee that was being charged when making a pin based debit transaction which exceeded available funds they would simply decline the transaction. If an ATM or debit terminal were to display a message stating words to the effect of "This transaction is being approved as a courtesy overdraft loan. A fee of $XX.XX will be charged in addition to the transaction amount. Do you wish to continue? Yes/No." In almost ALL cases, especially those of minor debit transactions, almost every consumer would select NO." Your "research" consists of statements regarding how much it costs a bank to process a transaction and how fees have gone up over the years, and how highest to lowest posting maximizes fees. This isn't exactly hard hitting investigative journalism, but rather common knowledge. I've also responded several times with a thorough explanation of how these fees can easily occur when a customer fails to keep a register (as I have above), yet you're curiously silent about my points. You continue to bang the drum over PIN based transactions causing OD fees, yet I'm sure you realize that the vast majority of OD fees occur on credit based (checkcard) transactions. Your proposal of giving the customer the option at point of sale whether or not to accept the overdraft when using their PIN doesn't address the fees caused by non-PIN based transactions, which again make up the vast majority of fees. Additionally, if I'm making a PIN based transaction and I'm not given the disclosure because the funds are available as a result of an authorization hold falling off my account the previous night, and then I'm charged fees on the PIN based transaction when it posts that night along with all my checkcard items from the previous days, then where does that leave the bank in terms of compliance with your proposed regulation? I have a proposal. How about we put a disclosure in front of all point of sale transactions asking the customer if they're aware of their balance. Maybe we could preprint it on checks too. "I don't believe a single reasonable person would choose to pay $28.50 additional for a $20.00 transaction simply to avoid "embarrassment."" Of course most reasonable people wouldn't. Yet you would think a reasonable person upon receiving their first one or two overdrafts would change their spending habits and keep track of their balance. "Yes, I can envision a scenario where this would be a valid option. If you wrote rent, utility, car payment etc. checks and due to accounting errors did not have a sufficient balance; if the bank were to pay the transactions from SMALLEST to LARGEST, most would have no reservations about paying one or two fees due to not having a sufficient balance. Most people, at one point or another forget to record a transaction or make a mathematical mistake. Most would appreciate not being "embarrassed" by having necessary payments like those indicated above returned unpaid. Most people, however, do NOT wish to pay an exorbitant fee for several small transactions for things they likely only want, rather than need." Yes, but if they posted smallest to largest, and their rent check bounced, I'm sure they would be less than thrilled and wondering why their bank paid for their coffee that morning but not their rent. "To the original poster. You will likely now see several rebuttals from Michelle and Stile. They work in the financial industry and believe these practices are appropriate "penalties" for those who are in their opinion too inept to keep a checkbook register. Be prepared." Aafes, this isn't a question of my opinion or Michelle's opinion, or the opinion of any other poster who has ever defended a bank's policy. It is a statement of fact. Barry plainly stated that he wasn't paying attention to his balance when he was spending for his wedding. He received "over $800 in overdraft fees." If we assume $30 per fee, then this is equivalent to at least 27 overdrawn transactions. And most banks max their fees out at 5 per day, so it could be many more than 27 overdrawn transactions. Would you *really* defend this as account usage in accordance with Barry's deposit agreement? Now, please note, I'm not making a value judgement, I'm referring back to the agreement that Barry and Wachovia entered into in good faith which Barry has now violated. Wachovia is entitled under the terms of that agreement to charge Barry these fees. To put it simply, he has made his bed, and now he must lie in it.

The embarrassment excuse is pure tripe. The bank does this for one reason, and one reason only - it is pure profit. Banks collect over 10 billion dollars a year in non interest fee income - a very large percentage from these "courtesy overdraft" loans. The average fee is $28.50 and many banks charge additional daily fees after a set time period if the account is not brought into a positive balance. These additional fees average $5.50 a day. The Federal Reserve has stated an opinion that this "courtesy lending" is exempt from required loan disclosure as other loans are. The banks call it a "courtesy loan", why should they be exempt. The practice is pure ripoff and I have posted in several threads here, backing my comments up with research. I maintain the opinion, that were a consumer notified of the fee that was being charged when making a pin based debit transaction which exceeded available funds they would simply decline the transaction. If an ATM or debit terminal were to display a message stating words to the effect of "This transaction is being approved as a courtesy overdraft loan. A fee of $XX.XX will be charged in addition to the transaction amount. Do you wish to continue? Yes/No." In almost ALL cases, especially those of minor debit transactions, almost every consumer would select NO. I don't believe a single reasonable person would choose to pay $28.50 additional for a $20.00 transaction simply to avoid "embarrassment." Yes, I can envision a scenario where this would be a valid option. If you wrote rent, utility, car payment etc. checks and due to accounting errors did not have a sufficient balance; if the bank were to pay the transactions from SMALLEST to LARGEST, most would have no reservations about paying one or two fees due to not having a sufficient balance. Most people, at one point or another forget to record a transaction or make a mathematical mistake. Most would appreciate not being "embarrassed" by having necessary payments like those indicated above returned unpaid. Most people, however, do NOT wish to pay an exorbitant fee for several small transactions for things they likely only want, rather than need. To the original poster. You will likely now see several rebuttals from Michelle and Stile. They work in the financial industry and believe these practices are appropriate "penalties" for those who are in their opinion too inept to keep a checkbook register. Be prepared.

Thanks for your response. I understand the reason why a bank would let a transaction or two post with a reasonable penalty, but your response doesn't answer my two fundamental questions: 1. Why does Wachovia allow a debit card to be used as a credit card that can rack up hundreds of dollars in fees for just a few transactions? And why aren't customers notified of this? 2. Why is Wachovia unwilling to negotiate a middle-ground penalty that makes us both reasonably whole, without forcing me into default with subsequent creditors? Like I said, I can write my contracts with lots of small fees that might enrich me in the short term, but creates long-term mistrust with my clients. Frankly, I do think Wachovia sees me only as a cash source that I must defend myself from, not a client whose finacial success is really in Wachovia's long-term interest. I'm just a guy trying to balance my books. Wachovia is the professional who (I would think) would want to avoid such a scorched-earth policy. I was also considering small-business loans down the road for my web-development firm, but I think this has ruined my chances with Wachovia or any other bank. Of course, I wouldn't take any kind of loan from Wachovia at this point.

Barry, I see you are very aware of your part in this. Let me explain why banks will allow these transactions... To avoid embarassment - of you. Normally, someone that knows they have $90 will only spend $90 but if they accidentally spend $95 then they get hit with one fee and it ends. "At lest I wasn't embarassed by a credit card rejection in front of my fiance." Also, what about that minor accounting error on your part that could cause your mortgage payment or, god forbid, the deposit for the reception hall for the wedding to be returned? Wouldn't it be better to simply pay a one-time fee and still have that reception hall? Those are the reasons banks do this. It is and always has been the responsibility of the acocunt holder to maintain accurate records. I have been victim of my own shoddy record keeping in the past and I used it as a tool to learn to be more careful and to educate myself on bank/credit union policy and procedure. Since then, I have been NSF/OD free. But it is nice to know that, for a one-time fee, my mortgage payment doesn't get returned causing me embarassment and extra late fees with the mortgage company ... I much prefer to pay that one-time fee to my bank than to go through all that. Good luck in your new marriage!