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Big banks have been gaming your overdraft fees to charge you more money

Wells Fargo branch (Photo by Jeffrey MacMillan/The Washington Post)

In case you didn't know, banks can maximize the number of fees you pay for overdrawing your account by processing transactions from largest to smallest, rather than in the order they occur. This so-called reordering can drain your account quickly and trigger multiple overdraft fees as small payments clear.

Half of the country's big banks play this game, but one has decided to stop: Wells Fargo.

Starting in August, the bank will process customers' checks in the order in which they are received, as it already does with debit card purchases and ATM withdrawals. If multiple transactions come in at the same time, then Wells Fargo will process the lowest dollar amount first, said company spokeswoman Richele Messick.

"This change will simplify the communication of our posting order to customers since we will have a single process that is used in all of our banking states," she said, in an email.

For years, banks hailed "high-to-low" processing as a customer service that ensured important payments--mortgages or car notes--were handled first. People, however, usually keep track of their spending in the order of the payments they make, not expecting to have a bill paid three days ago cleared before one paid the prior week.

There was little transparency in reordering until a series of consumer lawsuits against banks for wrongful overdraft charges four years ago brought the practice to light. Those cases led to some substantial changes in the ways banks handled overdraft charges, as did federal regulations in 2010, which forced banks to ask consumers to opt into overdraft services.

After Bank of America ponied up $410 million in 2011 to resolve an overdraft case, the bank ended the practice altogether. JPMorgan Chase stopped charging overdraft fees for transactions under $5 shortly after agreeing to pay $110 million to settle a case in 2012.

In the case of Wells Fargo, the bank is still appealing a 2010 judgement that required it to return $203 million to customers in a class-action suit over overdraft fees. Yet the bank did change its account posting practices for debit card transactions.

Just about all of the banks that contended with overdraft lawsuits tweaked their posting practices in some form, but few institutions have banned reordering outright. Pew Charitable Trusts released a study in April that showed banks are gradually abandoning the practice. Of the 44 big banks reviewed by researchers, 51 percent did not engaged in high-to-low reordering, compared to 46 percent in 2013.

"There is a movement away from reordering of transactions," said Pew's director of safe checking project, Susan Weinstock. "It makes sense because we're getting rid of hidden fees that make consumers decide to leave the banking system altogether."

Pew is among the nonprofits pressing the Consumer Financial Protection Bureau to write rules to require all banks to end high-to-low reordering. The bureau has said it is studying the issue as part of a broader review of overdraft.

If you're curious about how your bank processes transactions, check out the disclosure guide on your bank's website for an explanation.