Key Bank USA Complaint - Abusive Overdraft Policies
REDMOND, WASHINGTON -- I found the My3cents.com Web site while searching for information about overdraft policies employed by Key Bank. As I read many of the posted reviews I found that what I have encountered as a bank customer was strikingly similar to many other depositor’s experience. That realization was at once both troubling and encouraging. It was troubling because I did not realize how wide spread abusive funds availability policies were; it was encouraging because I understood that I was not alone on this issue. That realization was also infuriating when one considers bank customers are currently being charged by banks on two fronts: first as customer who are charged egregious fees and second as taxpayers to bail out the very banks who are charging them as depositors.
When reviewing the issues I also concluded that characterizing those who have experienced the negative and often expensive effects of abusive funds availability and overdraft policy as irresponsible miscreants who cannot balance their check book is patently false. If fact, many who have had negative experiences with abusive overdraft fees are victims of overdraft policies crafted to allow banks to ignore deposit credits while first running all check and debit card charges in order of greatest to least. This maximizes overdraft events and related overdraft fees.
The processing order practices appear to be allowed by exceptions in Federal Reserve Board Regulation CC. Once a customer has a history of overdrafts, that regulation apparently allows banks to ignore required funds availability requirements, which often creates future cascades of unanticipated and unwarranted overdraft events. It also appears that customers are not informed by the bank that their accounts are being processed under different rules that create increasing opportunity for the bank to maximize fees charged. I believe that this practice creates a separate class of bank customers who do not enjoy the benefits of deposit recognition other depositors enjoy.
Having been a financial analyst for the past thirty years and a consumer advocate for fifteen, I began additional research. The results were quite encouraging. A few of the positive facts that I discovered are as follows:
1. In November 2008 the Federal Deposit Insurance Corporation (FDIC) published an extensive report concerning automated bank overdraft programs. The report describes many of the problems that customers have reported in My3cents.com reviews. The report also makes it clear that such bank practices are widespread and potentially effect up to 74 percent of all bank accounts. Finally, the FDIC report also discloses that under current bank policies overdraft fees charged to customers can amount to thousands of percent APR on the amount paid by the bank.
2. In December 2008 a policy analyst group published a report that disclosed total overdraft fees charged by banks were $37 billion per year but net profit of the banks during a recent year was only $19 billion. This raises an important political issue: How can we as taxpayers be bailing financial institutions with hundreds of billions of our money, when those same apparently institutions cannot operate as a profitable going concern without gouging customers through abusive fees?
3. In March 2009 House Bill 1456 was sponsored during the 111th Congress. That bill would specifically prohibit order of processing debits and manipulating recognition of deposits to maximize overdraft events and fees. If found that congressional bill to be encouraging for two reasons: first, it recognizes that complaints registered by customers about overdraft charges are entirely legitimate; and second, if passed into law the bill would prohibit many of the current bank practices that result in unwarranted and abusive overdraft charges.
I still feel the sting of hundreds of dollars at a time being taken from my account by abusive bank practices. At the same time, however, I am also hopeful that oversight reports by FDIC and proposed legislative reform by Congress can change those practices in the future. To that end I encourage folks to continue sharing their experiences in public forums.