#1:news Overdraft Practices Continue to Gut Bank Accounts and Haunt Customers

auto insurance - #1:news Overdraft Practices Continue to Gut Bank Accounts and Haunt Customers
Months later, Ms. Lemus finally figured out the mystery — or at least part of it. Citibank was taking out the money to pay a loan, with an interest rate of 18 percent, that was devised to cover the shortfall every time Ms. Lemus overdrew her checking account.


The problem was that Ms. Lemus, a home health care worker from Queens, said she never signed up for the line of credit and was unaware that she was borrowing from it every time her account dipped below zero.

In all, Ms. Lemus had amassed $3,400 in debt — a tangle of interest, principal and other fees that have damaged her credit.

Ms. Lemus is one of millions of Americans tripped up by overdraft practices, a murky corner of consumer banking that, despite a lot of hand-wringing in Washington, costly litigation and customer rancor, remains largely untouched by financial regulation.

In a push for transparency since the 2008 financial crisis, regulators require banks to clearly disclose and explain the terms of just about every financial product, including credit cards and mortgages. But overdraft practices still come with hidden costs and confusing terms, bank customers, lawyers and consumer advocates say.

Citibank declined to comment on Ms. Lemus’s situation. In a statement on its practices, a bank spokesman said, “Customers who choose overdraft lines of credit must enroll, and any line of credit balance appears on every monthly statement.” Over all, the spokesman said, “Citibank customers pay in fees a small fraction of what customers of other big banks pay.”

Typically, banks charge customers $35 every time they spend more than the balance in their checking account. Those fees add up, haunting borrowers and cannibalizing already low bank balances. One mistake can push checking accounts into the red, generating multiple fees in a single day.

But other, sometimes harmful practices are proliferating, too, like lines of credit that banks pitch as an alternative way to cover shortfalls in checking accounts but that can end up ensnaring customers like Ms. Lemus in a cycle of debt.

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“It is such an insidious thing,” said Susan Shin, legal director of the New Economy Project, which works with community groups in New York.

It is by no means a new problem. In a series of class-action lawsuits beginning in 2009 against more than a dozen big banks, customers accused banks of hiding a practice known as reordering. The practice, the lawsuits revealed, involved deliberately processing large transactions like mortgage payments first before taking out smaller charges, like a purchase of coffee — even if customers bought the coffee first. By arranging the order of transactions, the banks could maximize the number of overdrafts they charged. At the time, some banks defended the practice, arguing it ensured that large, important bills were covered.