During its earnings conference call with analysts recently, Wells Fargo & Co (NYSE:WFC) made a not-so-public announcement: The bank has begun processing customers' checks in the order in which they are received, rather than from the highest dollar amount to the lowest.
Actually, the statement was a response to a question from Chris Mutascio, a Keefe, Bruyette & Woods analyst who asked about a letter he received earlier this year as a customer of Wells Fargo. He asked if the effect of changing transaction processing protocol to "first received" from highest to lowest would impact the bank's fee structure.
CEO John Stumpf's answer was, basically, "No." He mentioned that the bank already used the order of receipt system for processing debit card transactions, and was now doing the same with checks. Tellingly, Mutascio commented, "I thought that already happened. I guess I was wrong."
Lawsuits, and change
Mutascio isn't the only consumer still in a muddle over how overdraft fees work, and in what order their checks, ATM, and debit card transactions are processed. In June, the Pew Charitable Trusts released a poll showing that more than half of consumers who experienced overdraft chargers say they don't remember "opting in" for overdraft protection, despite new laws requiring such consumer acquiescence before charges can be levied.
Customer rebellion against overdraft charges culminated in lawsuits against many of the largest banks, and several have paid dearly to settle these claims. Bank of America (NYSE:BAC) agreed to pay $410 million back in 2011, and JPMorgan Chase ponied up $110 million in early 2012. Following these settlements, Bank of America stopped charging overdrafts entirely, and JPMorgan announced that it would no longer charge overdraft fees for transactions under $5.
Wells Fargo continued to kick and scream, however, and fought a $203 million judgment against it in 2010, which was vacated, but then reinstated. Last spring, the bank was again ordered to pay the fine over debit card transaction manipulation, but Wells said it would appeal.
Many banks still reorder transactions, to the detriment of consumers
Despite these hefty fines, many banks still engage in some of this type of behavior. This past spring, the Pew Trusts took a hard look at how many still change the order of transactions in order to incur the highest number of overdraft fees.
Of the largest U.S. banks, only Citigroup does not participate in high-to-low transaction ordering. In fact, Citi had the best score of any of the large banks on the issue of overdrafts and transparency.
Bank of America stopped its debit card shenanigans years ago, but still orders checks from highest to lowest. While its debit card processing change has doubtless saved many from onerous overdraft fees, the bank does not have a minimum amount – such as JPMorgan's $5 limit – below which an overdraft fee will not occur.
Wells does have a threshold amount under which it won't assess an overdraft fee, and also does not levy extended overdraft fees – an extra fee incurred by not paying the first fee in a timely manner.
Now, apparently, it has also stopped reordering debit transactions, as well as processing checks from highest amount to lowest – raising its Best Practices profile, according to the Pew Trusts, by quite a bit. While this is a change to be lauded, it was so stealthily done that most people very likely missed it. At a time when the bank is increasing its debit card exposure, it was a savvy move, indeed.