It was just nine years ago when most of the major banks were teetering on collapse, only to be saved at the last minute by a taxpayer-funded bailout. Then, under the weight of plunging interest rates and punishing new regulations, their continued existence was threatened by razor-thin profit margins.
Without a new source of revenue and safeguard, the major banks supposedly would not be able to survive another downturn. Much to the chagrin of consumers, they found that new source in the form of fees – lots of new fees. Over the next few years, the top three banks – Bank of America, Chase, and Wells Fargo — would become extremely proficient at charging fees, earning more than $6 billion in ATM and overdraft fees in 2016.
One of those banks, Wells Fargo, would become the epitome of excessive fee by manipulating the way transactions are recorded. A system was concocted to maximize the number of overdraft fees it could charge on a single account in a single day. Over the course of a decade, the bank would take in several hundred million dollars of extra revenue using this practice. Here’s what you need to know about Wells Fargo overdraft fees.
Wells Fargo Overdraft Fees
Wells Fargo charges $35 for a basic overdraft, which is fairly standard among the major banks. However, what few people know is they can be charged up to four times each day for a total of $140.
It also charges a $35 overdraft fee when you overdraw your account using your debit card. That is a result of using the bank’s Debit Card Overdraft Service, which covers your payment when you are overdrawn, but then charges a $35 fee for the use of the service. Before recent rule changes, customers were automatically enrolled in the service unless they opted out. Now, customers must opt in to activate the service.
If you use your savings account to cover overdrafts, you are charged $12.50 to transfer funds to your checking account.
If, at the end of the business day, your account deficit is less than $5, you will not incur an overdraft fee.
Same Transactions, Different Order, Different Outcome
Most customers can clearly understand this schedule of overdraft fees and why it is in their best interest to avoid them. However, what they don’t understand is the way the bank posts transactions which can result in multiple overdraft fees. Here’s how it works.
Beginning in 2001, Wells Fargo decided to change the order in which they post transactions. Instead of posting them based on the time they actually occur, they wait until the end of the day and post them as a batch from high to low based on the dollar amount. Here’s how this can impact your checking account.
Consider the following scenario in which you start the day with a $110 balance in your checking account:
8:00AM: Coffee shop – $15 debit purchase ($95 balance)
12:00PM: Lunch restaurant – $25 debit purchase ($70 balance)
5:00PM: ATM withdrawal – $40 ($30 balance)
6:00PM: Dinner restaurant – $50 (-$20 balance. Overdrawn)
In this scenario, if the transactions are posted in the order they occur, there would be just one overdraft fee for the final transaction. However, if you are a bank and you’re not content with just one overdraft fee, you change the order of the transactions to get a different outcome.
$50 debit purchase – Dinner restaurant ($60 balance)
$40 ATM withdrawal – ($20 balance)
$25 debit purchase – Lunch restaurant (-$5 balance. Overdrawn)
$15 debit purchase – Coffee shop (-$20 balance. Overdrawn)
By reordering the transactions, the bank collects two overdraft fees instead of one.
It Won’t Happen Again Unless You Let It
Incredibly, this practice is perfectly legal. It’s not just Wells Fargo as the practice is commonly used by other major banks. However, what isn’t legal is the way in which Wells Fargo misled its customers, who were required to read the fine print if they want to opt out of the Debit Card Overdraft Service. The courts – a federal court, an appeals court, and the Supreme Court – all found that Wells Fargo deceived its customers in violation of consumer protection laws and ordered it to pay $203 million in restitution to its customers.
Today, if customers want to utilize Wells Fargo’s Debit Card Overdraft Service, they need to opt in; otherwise, when their account is overdrawn, any debit card purchase will be denied, sparing the customer of an additional overdraft fee. You can still be charged for multiple overdrafts in one day if, for instance, you have multiple checks clear that overdraw your account. Although Wells Fargo, or any bank, is not obligated to waive an overdraft fee, they may do so if a customer has demonstrated solid banking habits in the past. You just have to ask.