Why you can’t trust your online bank account balance in the smartphone age

Before heading to Lowe’s on a Sunday, Sheryl Rudder checked her bank account balance online. He said $ 600, she recalls. It was more than enough to pay for the wood she needed to repair her barn. But when she swiped her debit card upon check out, she was turned down for insufficient funds.

“They said I was under, but I couldn’t see it,” says Rudder, 62, who stood at the cash register for 30 minutes in embarrassment as she was on the phone haggling with Wells Fargo.

During this unpleasant experience, a Wells customer service representative informed her that all pending transactions were not visible and that instead of relying on her balance online, she should track her balance in a way. independent, especially with regard to the invoices and checks she wrote.

That’s right: While banks aggressively market their online banking and ability to accept check deposits through a smartphone app, they still say that if you want to know your true available funds, you need to balance your checkbook. (You know, that paper ledger, with the faux leather cover you stuck somewhere in the back of a desk drawer.)

Call it the online trap. It has never been easier to check your bank account balance. Millennials do it all the time on their smartphones. The display creates a seemingly false feeling among customers that they know exactly what their available balances are – after all, that swipe of your debit card a few minutes ago may very well appear online. The not-so-small problem: What is displayed might not be a great source for judging whether you will be affected by overdraft fees or even whether trades will be declined.

“Consumers need to understand that the balance you see is not necessarily your actual available balance, as there are so many moving parts,” says Mark Ranta, head of digital banking solutions at

ACI in the world
, which provides payment systems for financial institutions.

As Rudder and others have learned the hard way, it’s a gamble to try and predict when things will happen to your account. Rudder, a retired financial aid officer who lives in rural Northern California, was running out of money and made sure to check his balance at least once a day to avoid overdraft fees. She knew she had written a check recently but hadn’t seen it online yet; She also planned to make a deposit the next day. “I thought everything would come out in the wash,” she said.

Not necessarily. “For people who rely on timing, it’s getting harder and harder to play the game,” says Jerry Silver, director of global banking research at IDC Financial Insights, a financial research firm.

It has everything to do with how banks deal with a tangle of transactions. According to a 2015 study by Pew Charitable Trusts, around half of banks always intentionally reorganize transactions, which means they reorganize payments, processing them from large to small, maximizing the overdraft fees they pay. can charge. (Let’s say you have $ 1000 in your account and you wrote one check for $ 900 and five for $ 100. By processing the $ 900 first, they make sure that four of the five checks for $ 100 will be bounced. If they processed the $ 100 checks first, you would only have one overdraft fee, for the $ 900 check.)

To be fair, it’s not just the banks trying to maximize fees that are creating the problem. They also have to deal with a mishmash of payment infrastructure, which dictates how and how quickly different transactions are processed.

“We are moving from a paper-based banking world that has existed for hundreds of years to a digital banking world that is still in its infancy,” says Ranta, who adds that real-time processing is still a long way off.

This transition has been tough for consumers. Confusion over available balance is now the number one complaint consumers have when it comes to overdraft fees, followed by the timing (and sequence) in which debits and credits are processed, according to the Center for Responsible Lending.

It’s not hard to see why. Some transactions, like the groceries you pay with your debit card, arrive immediately in your account and are usually deducted from your available balance before they are even fully processed. There are some bizarre things that can happen, however. If you go to the gas station, for example, and buy a $ 2 packet of gum, a $ 50 hold may be put on your account. This is because the gas station is reserving enough in your account to refuel an SUV. Fair? Nope. But it’s legal and not many consumers have any idea what’s going on.

The biggest troublemakers are ACH checks and payments, like the ones you authorize for your monthly gym membership or phone plan. This is partly because they take the longest time to reach your account. They are also usually processed overnight along with a batch of other transactions – remember that each bank has different cut-off times for what is included and also different rules for the order in which things are processed – this which means the money can disappear from your account when you don’t. I don’t see it coming.

Unsurprisingly, this uncertainty of balance benefits banks, helping them to rake in huge overdraft fees (to the tune of $ 32.5 billion in 2015, according to Moebs Services, an economic research firm).

“It’s very confusing,” says Rebecca Borne, an attorney at the Center for Responsible Lending, specializing in overdraft fees. “And the incentive that banks have to keep people confused is extraordinarily great.”

Granted, a lot of people overdraft and clearly recognize that it’s because they didn’t have enough money in their account. There are also those who keep a cushion of money and never noticed the daily fluctuations in their balance. Yet, the bank account balance information is still expected to be up to date. Being hit by a surprise overdraft fee can be particularly frustrating and costly for people who live paycheck to paycheck and keep a close eye on their balance.

A TD Bank customer complained to the Consumer Financial Protection Bureau that he was hit with overdraft fees when his bank account “has never been underfunded.” Another person from Iowa has repeatedly pointed out “when the funds are there”, but

BB&T
still charged him overdraft fees. A woman from Virginia complained that she checked her SunTrust balance before making a few small purchases such as ice cream for the kids and parking at the airport. The balance showed she had enough to cover purchases, even though it was close. Yet over the weekend she was hit with several overdraft charges. A customer service rep said she discovered her account, even though everything she saw online led her to believe she maintained a positive balance. (The banks have all declined to comment on individual cases.)

Banks are not ignoring customer dissatisfaction. Go to the SunTrust website and the very first question in their FAQ section is: “Why was I charged a fee when I had enough money in my account?” Regions Bank has put together an 11-page guide to help consumers understand their balances and avoid overdraft fees, and suggests customers keep their own records. Wells Fargo urges customers to “faithfully” follow their transactions so that they are “in charge” of their finances, and provides step-by-step instructions included alongside a photo of a man with pencil and paper.

An 11-page guide? Are they kidding? We called the American Bankers Association, which represents banks, to ask if they could give us some simple rules for how transactions are handled to help consumers avoid unpleasant surprises. “This is an extremely complicated question,” replied the ABA spokesperson. “There is no one answer.”

Things get even more complicated for frequent overdrafts. For example, while a bank can make a cashed check available to most people within two days, it can take longer to clear if your account is in bad shape. This makes it even more difficult to determine your true available balance.

Banks can also categorically refuse to process transactions that would overdraw your account. Rudder’s experience was that when she was not vigilant, Wells Fargo would approve a purchase and then take an overdraft fee. But at Lowe’s checkout, the bank refused the transaction. (Her ex-husband had to come and pay for the lumber.) A Wells Fargo spokesperson declined to comment on customer-specific information and said a card can be declined for a number of reasons, including whether one client had too many overdrafts. .

In addition to the obvious financial cost of overdrafts – these fees average $ 35 per person – you also risk losing your bank account. If you try to get another one, you might find that your name has been added to some sort of blacklist, like Chexsystems. More than a million people say they have been excluded from the traditional financial system mainly because of fees, according to the FDIC.

Rudder, who has been a Wells Fargo customer for nearly three decades, has yet to lose her bank account. In fact, they waived some of its fees. Yet his apparent inability to keep tabs on his money is causing him to lose sleep, not to mention his confidence in banking in the 21st century.

“At this age, they say you can’t trust what you see,” says Rudder. “My question, then, is why is anyone using online banking? “