Citibank will soon start clearing customer checks in a way that minimizes the potential for multiple overdraft charges.
The bank said it will process checks starting with the smallest amounts first as of July 25. Most banks process larger checks first, a practice consumer advocates say increases the potential for multiple overdraft violations on checking accounts.
Overdraft programs continue to draw criticism from consumer watchdogs. A 2010 regulation requires banks to obtain consent from customers before enrolling them in overdraft protection for debit transactions. But banks can still automatically enroll customers in overdraft protection for checks and automatic payments, a loophole that rankles consumer advocates.
"If the point is to minimize overdraft fees, banks should extend the opt-in setup to checks, too,” said Ruth Susswein of Consumer Action. Still, she said, Citi’s decision to do away with high-to-low check-clearing is a step in the right direction.
Banks say high-to-low check processing helps consumers because larger checks tend to be for mortgages and other high-priority payments. But consumer advocates say the practice is a way for banks to rake in more overdraft charges, which are often as much as $39 per violation. The fee is $34 at Citi.
In a bank memo obtained by the Associated Press, consumer and commercial banking president Cece Stewart states the change is a response to customer feedback. In explaining how the change will work, she cites the example of a customer who has $100 in an account. If the customer writes checks for $90, $35 and $25, Citi would currently clear the $90 check first, meaning the two smaller checks would result in overdraft charges.
Under the new process, however, the smaller checks would be cleared first and the customer would only incur one overdraft penalty fee for the larger check.
It’s a small victory for consumers, however. In the past year, banks have raised monthly fees, imposed stricter minimum-balance requirements, and taken away rewards programs to brace for a sharp decline in revenue from checking accounts.
As part of the financial overhaul last year, the Federal Reserve proposed a cap on the fees banks can collect from merchants whenever customers swipe their debit cards. Banks say the Fed’s current proposal could slash the $16 billion they collect each year by up to 90 percent.
Late last year, a revamp of checking accounts at Citi resulted in higher monthly fees for many customers. Bank of America is testing new fees on checking accounts that are expected to be rolled out next year. Chase, PNC Bank and Wells Fargo recently said they would end or curb rewards programs for debit cards. Citi still offers debit rewards. But like other banks, it is probably considering additional changes in the months ahead that may not be so welcome by consumers. (AP)
