Welcome to my musings on whatever topic catches my eye, plus stories, recipes, handyman tips, welding, photography, and what have you. Oh, and analog/digital hardware design, and software. Please comment on the blog post so everyone who visits can see your comments.

The Bank Overdraft Scam

Back in the good old days before so-called “overdraft protection”, if a large check arrived that would overdraw your checking account, it was simply returned NSF (Non-Sufficient Funds) and a fee of $10 or $15 was deducted from your balance. But the rest of your funds in the account remained there, able to cover smaller checks or charges that arrived. Nowadays with “overdraft protection” if a large check arrives, it gets paid, a $35 fee is charged, and your account gets driven negative, and now, every single additional check or charge that arrives is guaranteed to “overdraw” and trigger another $35 fee. Each little three dollar charge get’s hit with another $35.

But I still haven’t gotten to the nasty scam part. Back in the old-days, checks and charges were handled during nightly processing in the order in which they arrived or in random order. But now, with the “overdraft protection” scheme in place, the order in which checks and charges are processed suddenly matters a lot. A new “game” is possible for the bank. So banks these days keep a temporary ledger in their computers that records transactions as they occur during the day. This temporary ledger is what you see when you do online banking. But then during the night when the computers reconcile all the accounts, the temporary ledger is ignored and all of your transactions for the day are re-executed in the real ledger. The transactions are not handled in the order they occurred during that day, instead they are sorted by dollar amount and the largest transaction is entered first, then the next largest, and so on. This is done in to maximize the number of overdraft fees that might occur.

For example, let’s say on the morning of a particular day I have a balance of $150. During the day I use a debit card to buy a snack for $5, gas for $30, lunch for $10. During the day, if I checked my balance with online banking, my balance would have gone from 150 to 145, to 115, to 105. When I get home that afternoon I know that the three debit card transactions for the snack, gas, and lunch are done, safe, paid, right? Wrong!

Let’s say that during this same day two checks also arrive at the bank to be paid, one for $12 and one for $140. Uh oh, the $140 check is going to bounce, right? Wrong. The checks will get processed at midnight but so will all your previous transactions that day. All five transactions will be re-processed into the main ledger at midnight and not in the order of occurrence but in order of decreasing dollar amount. First comes the check for $140, which clears fine because your balance was still $150, driving the balance to $10, then the $30 debit card transaction, driving the account to $-20, plus the $35 overdraft fee to $-55. Then the 12, the 10, and the 5, each of which invokes another $35 fee. The next day my $150 positive account balance has become overdrawn by $187. Congratulations, you’ve just been hit with the bank scam.

Back in 2004 this happened to me with Suntrust Bank in Florida. A $40 check I had overlooked triggered a chain reaction resulting in $175 in bank fees. I called customer service and asked them to remove the so-called “overdraft protection” and simply bounce any future checks that would overdraw. Nope, can’t do it. The “overdraft protection” feature, which they tout as a great favor to their customers, is mandatory and cannot be disabled.

And if you think my story is bad, read some of these experiences with Citizen’s Bank:


This is a big gravy train the banks have going here. No wonder they show record profits. But in my opinion it meets the definition of fraud: “A deception deliberately practiced in order to secure unfair or unlawful gain.” Even worse, this practice harms the poorest members of society the most since they are the most likely to overdraw their accounts.


  1. Heather

    Don’t get me started on Washington Mutual. Fraud, scam, all of it, in about 3 different ways from one transaction!

  2. Phil

    That’s just lovely. I think everyone I know who is not upper middle class and above has been burned by this.

    Thanks for dropping in and commenting!

  3. Strobe

    Support H.R. 946, the Consumer Overdraft Fair Practices Act.

  4. Phil

    Excellent. Thanks for the info, strobe. I thought Congress might step into this business but was not sure. I sort of got the impression that the overdraft scam was a form of retaliation of the banks against the Check 21 law that stopped them from keeping so many billions aloft in float and investing it.

  5. pjhwin

    Banks, and overdraft fee’s. I found out the hard way. In my opinion the main reason that overdraft charges occur is the way that the banks computer processes charge transactions, when you use your ATM/debit card (visa or MasterCard) as a charge card. I’ll explain why.
    Let’s say you have 100 dollars in your account and you go to your local Mall and make a purchase for 40 dollars and use your ATM card as a debt card (charge card) against your checking for the transaction, well, you should have 60 left in your account, right? You would think so wouldn’t you? You start with 100 charge 40, 60 left right? The next day you go to the ATM to make a withdrawal it says you have 60 dollars available, right, ok you take out 50,you should have 10 left…. Right? 50 + 40 =90, you started with 100 – 90 = 10 left right?
    Wrong, you just triggered an overdraft when the transactions hit the bank computer that night, according to the banks computer, the 40 that you charged for the purchase the day before was a charge card transaction, even though they deducted the money from your available balance right away, there is still going to be a hold of 40 dollars against your account until the 40 charge transaction clears the banks computer which takes about 3 to 4 days and the hold drops off your account.
    So even though the ATM says you have 60 available, which is what you have left in your account, any withdrawal over 20 will trigger an overdraft charge, until that 40 dollar hold gets cleared and dropped from your account. Why? When the transaction hits the bank computer that night. It sees the 60 that you have, but, it also sees a 40 hold on the account for the charge transaction that hasn’t cleared yet, so effectively until that hold drops from you account the banks computer will automatically kick out an overdraft fee for any withdrawal above 20 dollars.
    That’s right folks when you use your ATM/debt card (visa card/MasterCard) as a charge card the bank is putting a hold for the amount of the charge against your account, even though they have already adjusted your balance for the amount of the transaction …That’s right, THEY HAVE A HOLD ON AN ALREADY ADJUSTED ACCOUNT BALANCE, AND THAT HOLD REMAINS UNTILL THE CHARGE TRANSACTION CLEARS AND THE HOLD DROPSOFF YOUR ACCOUNT.
    I don’t know if your banks computer is set up to figure transactions this way, but I know of 2 that do, I had an account with one of them for years and never had a problem with my account until I got their new ATM/debt MasterCard and started using it as a charge card. That’s when I started to have problems and overdraft charges. I finally figured out what was happening and brought it to their attention, about what was triggering the overdraft charges and got into a long heated discussion with them about it. I got the overdraft charges back, after going over line for line on their computer, and proved that I had the money in there, it was just the way that the computer interpreted the hold against the already adjusted account balance that was causing the problems, It was a very hectic undertaking because one mistaken overdraft charge on the banks part can start a chain reaction of overdraft charges. After everything was said and done, I had to change banks.
    So, to some this up, I’ll bet if you have had problems with overdraft charges and you can’t figure out why they’re happening, It’s because you used your ATM/Debit card as a charge card. Your first clue will be, when the bank official sits down with you to go over your account to try and explain the charges, if you hear them start talking about hold amounts against your account because of charge card transactions that haven’t cleared yet, bend over because your being screwed.
    Never Use Your ATM/Debt card as a Charge Card!

  6. pjhwin

    I have found that when you just use checks and ATM and keep up with your account balance your ok, 1+1=2
    But, when you use the debit card (Visa or MasterCard)that’s when the bank uses their creative accounting, with the holds on your account for the amount of charge transactions. That they already have adjusted your balance for. During that hold period of 3 to 4 days after you make a charge, that’s when your balance is not what it says at the ATM.

  7. pjhwin

    Your also right about the way they figure the order of transactions, they do everything they can do to take your money. Banks get Billions of dollars in overdraft fees each year. Overdrafts are nothing more than short term loans and should be subject to the legal interest rates that can be charged for short term loans.

  8. Phil


    Yep. That’s pretty much the scenario I described, although you don’t have to use your card as a charge card in order to cause the problem. They save up all the transactions during the day and you online balance shows temporary debits. But then in the middle of the night, they throw all that away and start over, and redo the day’s transactions, starting with the largest and working down to the smallest. If you follow the example I give, you can see how changing the order makes a huge difference in the final outcome.

  9. pjhwin

    What gets me is that our Government lets the Banks get away with their creative bookkeeping. The banks are stealing Billions of dollars each year from the people who can least afford it. There are horror stories all over the Internet

  10. Phil

    Yes, it’s a scam. After I got hit with this back in 2004 at Suntrust Bank, I requested that they remove the “wonderful overdraft protection feature” that they touted so loudly but was informed that it’s not an option. It’s mandatory. Haha. That tells you what’s going on right there.

    Furthermore, the re-ordering of transactions, after showing them during the day in the original order, is straight up fraud. It clearly fits the definitions found in the Statute of Frauds found in every state, and yet they get away with it. Why? Well, as George Carlin points out, the owners of the country want it that way.

  11. Anonymous

    To everyone who is having problems with WAMU:

    I have also had some problems and did some research. You can actually report them to the feds and they will investigate. Though it takes a little while – it WILL be helpful if everyone who has a complaint contacts them.

    You should contact:

    San Francisco Regional Office

    Pacific Plaza
    2001 Junipero Serra Boulevard, Suite 650
    Daly City, California 94014-1976
    Telephone: (650) 746-7000
    Fax: (650) 746-7001

    Mail: P.O. Box 7165
    San Francisco, California 94120-7165


    Good luck with your problems in getting them resolved!

  12. Phil

    Wow, thanks for that info.

  13. Anonymous

    if the banks really wanted to they could completely avoid the overdraft scam. but they don’t want to. for instance, my bank offers a ‘crown account’ which has no overdraft fee if i overdraft it, so long as i have another account set up with the money that they can draw from to cover my over-charges. if they can do that why can’t they just waive the fee in the first place? or place one fee per set or perform any number of accommodating actions that would help the customer.
    fact is: they don’t care about us.
    another fact, banking is such a difficult industry to get into as a new business/entrepreneur that until it is made a little easier and real new competitors are available to open then the industry will never treat it’s customers right because, what other choice do we have? we can’t very well convert all our money into cash and hide it under our beds, now can we?
    i called the number listed above but it was a company, not a government office, if i heard them correctly.
    does any one know a number to a government office to contact about this?
    thanks all.

  14. Anonymous

    Citizens bank just hit me with over 100.00 of overdraft fees. Yesterday I had 725.00 in my account and 3 transactions occured, 1 for 20 , the other for 6 and the other for 795. In order for the company to get 35 bucks for each overdraft they decided to first charge the 795! Now, what? I will have 2 additional overdrafts. What they should have done is process the transactions in the order they were made instead they charge the largest amount so that they can then charge you overdraft fee for the smaller ones. I just called their customer service line and they comfirmed this is what they do! Major scam and not an ethical practice. They don’t look after the customers!

  15. Anonymous

    We need Government to help protect the little guys from these ANIMALS. Is anyone in government reading this???

  16. elacdude

    Anyone know of any banks or credit unions that DONT process transactions like this? I've been looking all over…

  17. Phil

    I doubt there are any that don't do it. If every bank is doing it and it's apparently not illegal, then it would be unthinkable to let competitor banks take advantage of something and you don't. Capitalism is not about ethics or morals, it's about maximizing profit. The same thinking created the mortgage crisis. Bankers knew darned well that what they were doing was extremely risky and unwise, but when all your competitors are doing it and making billions, you can't just sit there and not take advantage of it yourself. If a bank investment organization had tried to take some kind of "ethical stand", their shareholders would have thrown out management and replaced them instantly with people who take advantage of every penny of profit opportunity. That's how capitalism works.

    So no, I can't imagine you'll find any bank that does not do this. From a business standpoint they would be idiots not to do it. And cases like this IS the valid place for government to step in and regulate. Capitalism is the best way to have orderly markets but in cases where entities are predatory or they establish monopolies is where government needs to step in and regulate. The problem today is that business has taken over the government — bought and paid for. So don't hope for improvements.

  18. Anonymous

    evil scum


    devil banks all of them and then us taxpayers bail them out

  19. Anonymous

    I am currently going through the same issues with First Merit Bank. In my case the bank took advantage of funds that were taken from my account and returned the same day because of the store "double-dipping" into my account. The store stated that the funds were released to the bank at the same time. The bank then held onto these funds until my next deposit was made. The bank then backtracked 3 days to any withdrawls made on the account, added their overdraft fees (even though my account showed a positive statement) and removed the hold and released the funds from 1 week earlier back into my account. By the way my account statement now does not show where the money was taken from the store nor does it show the $ credited back to my account. Just some unexplained overdrafts totaling over $200. If you ask me I think the government should audit these banks monthly and punish them for theft and fraud. Any suggestions on what to do in a situation like this??

  20. Anonymous

    Not to mention we are pretty much forced into situations like these because almost every employer mandates that its employees have direct deposit to receive a paycheck. Therefore leaving us no choice but to be victomized and taken advantage of. Some of us don't have the glory of saving $$. We struugle from paycheck to paycheck as it is just to survive. I am pretty much being force into bankruptcy and foreclosure because its okay for a rich bank to steal my hard earned money.

  21. Anonymous

    We just got WACKED by Citizens Bank! Oerdraft protection is NO protection at all…I cant even tell you the amount they took us for it makes me want to cry…What they just did to us is equal to criminal theft….On my way to close my accounts as well as my security box too. If I cant trust them with my money I feel my possesions in my strong box are at risk to..Never to do business with Citizens again They are NOT looking out for you..The Bastards

  22. Anonymous

    So… A guy walks in to a bank and says "i would like to cash this check"
    bank teller goes "i see you have $1.93 in your account"
    guy says "just cash the check"
    teller says "you don't have overdraft protection"
    guy says "so?"
    turns out it is a bank policy to withold your funds until the check clears through the OTHER BANK.
    funny stuff right there.

Leave a Reply

Your email address will not be published. Required fields are marked *

© 2023 Shuttersparks

Theme by Anders NorenUp ↑

Find me on Mastodon