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.
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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.
The lawsuits resulted in the banks paying more than $1.1 billion in settlements. Among them was TD Bank, which agreed to pay $62 million.
Today, TD Bank is still reordering transactions and informs customers about the practice in the fine print of its checking account agreements.
“Their position is ‘If we disclose it, we can get away with whatever the hell we want,’ ” said Mark Mangan, a TD Bank customer from Bloomfield, N.J., who has been hit with as much as $140 in overdraft fees in a single day.
When asked about its reordering of customer transactions, TD Bank said in statement that it planned to end the practice as soon as April.
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Regulations, passed in 2010, require banks to give customers a choice of whether to incur overdraft fees or have a transaction declined.
But many customers end up confused by how overdrafts work. In their marketing materials, for example, banks present the choice of whether to sign up for overdraft as an offer of “overdraft protection” — a feature many customers thought would automatically deny transactions and shield them from incurring the fees at all. * * *
The evidence on the failure of disclosure just keeps coming.