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.