Predatory posting order

Have there been any instances whereby the FDIC has made banks go back and refund customers for certain OD fees because the bank was using a posting order that maximized OD income?

Is this a likely scenario or would they just write it up and force the bank to change the posting order going forward?

There may be some confusion on a different point.

The FDIC has softened its stance on "requiring" reimbursement of overdraft fees when banks ran Reg E opt-ins, but did not actually offer an overdraft service. They still ask for reimbursement, but do not demand it.

That has no effect on the regulators' somewhat uniform opinion that manipulating the order of payment to maximize fee income is an unfair and deceptive practice on its face. If the bank gets what it deserves it would be ordered to do an extensive "look back" calculation, required to reimburse its customers, and the agency would feed the story to the local media. A financial penalty imposed under state or federal law might also be in the offing.

Banks that continue to do this are simply asking for it...

I heard one banker put it this way -- "Just because the UCC [in her state] gives us the RIGHT to pay items in any order doesn't make it RIGHT for us to take advantage of the law to manipulate payment order to victimize customers."

FYI, We saw the hand-writing on the regulatory wall and decided a couple years ago (or more) to change the posting order to check serial number, which is the order in which the client wrote the checks. Been thru an FDIC review and no problems with that.

And yet, if people took personal responsibility for their check writing/authorizations, payment order should not matter...

I can't argue with the statement, but decrying the trend away from personal responsibility won't make government and regulatory paternalism go away.

No argument there... just lamenting a bit.

One of my tasks years ago was to send out the finger waving letters when someone overdrew their account... one, two and three strikes, and they were out! Not that that extreme was better, but just missing the times when everyone involved used some common sense, and ODs were truly a mistake versus a perceived right.

From the official commentary to the UCC:

7. As between one item and another no priority rule is stated. This is justified because of the impossibility of stating a rule that would be fair in all cases, having in mind the almost infinite number of combinations of large and small checks in relation to the available balance on hand in the drawer’s account; the possible methods of receipt; and other variables. Further, the drawer has drawn all the checks. The drawer should have funds available to meet all of them and has no basis for urging that one should be paid before another…

That sounds supportive of the idea that consumers should be held responsible. However, when it was written, the implication was that it was not up to the bank to look at payee names and "correctly" choose between multiple items presented against insufficient funds using the same criteria the drawer would have.

The language was written by people who never dreamed that banks would manipulate the order of payment to maximize fees. That is understandable because the morals of the marketplace were higher then.

And, as more than one bank has learned to its chagrin, not all states adopted that "official" commentary. Some did not adopt any of the commentary; others adopted (and adapted) the commentary offered by the Commissioners on Uniform State Laws; at least one (California) adopted legislative comments that replaced the proposed commentary, and pointedly stated that banks are expected not to manipulate the payment order to maximize the fees paid by their customers.