Friday, July 15, 2005

Trapped Into Overdraft?

Today my coworker was logging into his checking and savings accounts at his bank. (I was looking for a reason; he was wanting to point something out to me.) I saw something pretty interesting, actually.

The following picture shows his checking account balance at the initial splash screen:

Seems pretty innocuous, right? Or maybe not. The following is what he sees when he goes a step further, clicking into the history / transaction section:

See the difference of over $300? That's the bank's "overdraft protection" in action. They're such nice folks that they go ahead and factor that "protection" into the first balance their customers see when they log in. Of course, if the "protection" gets used, a banking fee of some sort is assessed.


My checking accounts are held at credit unions, and neither of them do this. Both offer overdraft protection — but both also show my balances as they actually exist. It's this way on every screen.

So is it just me, or is my coworker's bank's practice slightly wormy? Seems like a rather nondescript way of luring naive customers into overdraft usage, if you ask me.

— Posted by Michael @ 1:01 PM


The practice is not slightly wormy at all. I think more accurate terms to use would be things like "fraud". Present a false balance to induce a customer into using a service for which you charge a fee. Hmmm... sounds like fraud to me. I think it even might qualify as a RICO violation, but I'd have to research it a little.

I can think of another term that is also appropriate: "class action lawsuit".

I assume he's found a new bank by now?


Nope. It's his current banking institution.

I told him that if it were mine, I'd be gone. If the bank does that on their splash screen, I reason, what are they doing behind the scenes that you can't see so easily?


What's the name of his bank? Others need to realize if the same thing is happening to them.



I have left my old bank for that very reason. I think it's fraud to tell people they have more in their account than they actually have, and then charge them to use it.

Anonymous Anonymous
, at 6:11 PM, July 15, 2005  

That is ridiculous. I'm surprised that a bank would do that. (and I think banks are pure evil, but it still seems crazy) I don't suppose it's based in some third world country......


Everybody Loves Your Money


Hmmm...I have always been annoyed at the practive, but I never really thought about it. I just automatically subtract $1000 from the balance. But I understand how this could be construed as a form "Guerilla Marketing."

Anonymous Anonymous
, at 6:37 PM, July 15, 2005  

Have your friend walk up to the bank branch, ask to talk to the branch manager, and grill him as to why they do that. Put the guy on the spot and see what he says. Make a huge deal about it and see if they change their practice.

Leaving the bank is definitely a consideration but you also want to help out other folks who weren't as aware as your friend so they aren't getting the shaft too. And it would make for an interesting follow-up post. :)


I think this is going to become fairly common practice.

I remember sometime in late 2003 or early 2004 I was getting cash from the ATM (this was before I went to the envelope system and stopped using ATMs) and saw that my receipt showed that two balances: one was $1000 higher than the other. Since they had recently started showing upcoming debits and credits online and I was expecting a deposit, I figured it was the upcoming deposit. I've since learned it was overdraft protection. No I didn't take the bait and try to withdraw that much.

The thing that steamed me about it is that it was labeled with some un-identifiable acronym that didn't remotely look like "overdraft protection." It also disturbed me that it showed up on a ATM receipt. That seems to imply that it would allow a customer to withdraw more funds than available. I thought the purpose of an ATM was that it does not allow a person to withdraw more than the balance of the account, but the available balance was the sum of the real balance and the overdraft protection.

I wonder how many people have been hit with a fee when they made a withdrawal that was covered by the "available" balance?


The terminology "Balance" is usually synonomous with the amount of cash available in the account.

Even though I don't agree with them using that as a terminology, it's still somewhat correct. It is the balance of money that one can technically spend. It doesn't clarify if it's an asset or a liability though.


Financial Maturity Blog


Bank online, rates are better and they don't rip you off like brick and mortar banks do. is my bank. Large free ATM network as well.


By that logic they should setup a loan for you and put that amount into your balance as well, they have enough information to know whether or not they want to extend you a short term high interest loan of $500 in case you need it right?


I vote "wormy" ... still would love to know the name of the bank...


Another vote for the bank name! None of my 7 banks do this...

Also, can't you decline the overdraft protection?


My bank often has a differring available balance than current balance. Normally it reflects charges/withdrawals/deposits that will be posted that day. Could it be that is what his bank was doing?

Anonymous Anonymous
, at 2:42 PM, August 16, 2005  

Banks are so vile. Yes, this is totally scummy.

I currently bank with Bank of America. They have their own slimy tactics -- whenever I log out, they offer me something else they can charge me for. The button layout always changes, so people not paying attention might click accept. The only button that's a large gif is the accept button; "no thanks" and "show me later" are small text links. And "no thanks" doesn't do much -- they show me the same offer in a few days. This happens every single time I log out.

I. Hate. Banks.


Only one bank I know does this. That's ING Direct's Electric Orange Account. However, they do make a distinction about what is your balance vs the total with the 'overdraft protection'.

** Comments Closed on this Post **

Thoughts on my personal finances, goals, experiences, motivations, and accomplishments (or lack thereof).

My financial life began turning around when I took responsibility for it.
— Dave Ramsey


Start (2005-12): ~$21,900
Currently: $0
[About Our Debt Paydown]


Savings Goal: $15,000
Currently: ~$15,115
[About Our Liquid Savings Goal]