Wells Fargo overdraft fees can be high. On its popular Everyday Checking account, overdraft fees are:
- $35 for a basic overdraft. That can be charged up to 4 times a day, so you could be hit with $150 in overdraft fees if you go overdraft on 4 items in a day.
- $12.50 to transfer funds from savings to cover an overdraft. That’s for every single time a transaction puts your checking account over, so you could be hit multiple times with this charge.
- $35 if you use your debit or ATM card and overdraft. Wells Fargo offers a ‘Debit Card Overdraft Service’ which isn’t much of a service at all. It simply lets you overdraw your account with your debit card, and get socked with fees. You’re better off turning it off and having your transactions declined when you don’t have enough money in your account.
There’s no grace period for overdrafts, but if you are overdrawn less than $5 at the end of the banking day, no fees will be assessed.
And if you want a refund, unfortunately there’s no official policy to get one. Your best bet is to nicely call customer service or visit your branch and see if they can assist. Your better bet is to find an online bank with no overdraft fees and take your business there.
Recently, Wells Fargo lost its appeal to overturn a verdict requiring the bank to compensate customers $203 million for manipulating transaction posting in order to increase the amount of overdraft fees that they charged.
In 2001, Wells Fargo changed the order in which they posted transactions. Rather than posting transactions in the order in which they happen (which would seem obvious), they would batch post them from “high-to-low.” Essentially, they were posting transactions in the order they wanted them happen, rather than the order they actually happened.
Here is an example of how that can impact you. Imagine you start the day with $100 in your bank account. Then:
- At 9AM you spend $10 at a coffee shop (new balance $90)
- At 12PM you spend $25 on lunch (new balance $65)
- At 5PM you spend $30 at the bar, and (new balance $35)
- At 8PM you spend $50 at a restaurant (new balance -$15. You are overdraft)
If you processed the transactions in the order that they were posted, then you would have one overdraft transaction, costing you $35 (the typical overdraft fee).
Wells Fargo was not happy with making only one overdraft fee. So, they changed the rules. Instead of posting them in order, they waiting until the end of the day, and then posted the transactions from the highest to the lowest. Here is what that means. Your start with $100, and then:
- Post the $50 restaurant transaction (new balance $50)
- Post the $30 bar transaction (new balance $20)
- Post the $25 lunch transaction (Overdraft #1, -$5 balance)
- Post the $10 lunch transaction (Overdraft #2, -$15 balance)
Once you reorder the transactions, you increase the number of overdraft transactions. In the re-ordered example, you are now going to pay two overdraft fees, which would be a $70 charge (instead of $35).
When I explain this process to people, most people can’t even imagine that this could be legal. But it is legal. In fact, nearly 50 percent of banks still process transactions in this way.
In 2001, Wells Fargo clearly made this change to increase revenue. And customers clearly did not understand it. (In fact, it is such a crazy way to post transactions that it takes a bit of time to explain.) The lawsuit is not about the legality of high-to-low processing (which is legal). It is about false and misleading statements that cost people a lot of money.
Wells Fargo has been appealing. They don’t think it is misleading, and they don’t want to reimburse the fees that they charged. And they will likely continue to appeal. I find that the most distressing part of this case (and others like it). If banks continue to defend this practice, and the way the explained it to customers, publicly, then I have severe concerns about their ability to service customers.
Do you think you were a victim of this?
To find out the current status and how to claim, visit http://www.bank-overdraft.com. At this website, you can see exactly what you need to do
If you still have questions or concerns, you can and should make a complaint directly to the Consumer Financial Protection Bureau.
How to deal with a bank that thinks reordering is fair
Overdrafts, even without the devious cheating of transaction reordering, are some of the most expensive and extortionate ways to borrow short-term money in the country. A payday lender charges $15 to $20 for every $100 that you borrow. At the worst bank in the country (Citizens), you will pay $83 to borrow $100.
There is good news: new internet-only (branch-free) banks are looking to shake up the entire fee structure. Because they don’t have branches, they have much lower costs. And they pass that savings along to consumers by paying higher interest rates on savings accounts and eliminating virtually all fees.
You can find the best checking account for your needs in our checking account marketplace. And some of our favorites include:
- Axos Bank Rewards Checking, which charges no monthly fee, reimburses all ATM fees, offers a free transfer from savings to checking, and has no overdraft of NSF fees.
- Ally Bank, which charges no monthly fee, reimburses all ATM fees, and will automatically transfer money from a high-rate savings account to your checking account for free to cover an overdraft. If you have no money, then you will never be charged more than $9 per day in overdraft fees
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