Clearing the air on check-clearing

Closeup of check

It's a common end-of-the-month scenario: You write three small checks throughout the day (latte, lunch, cat food) and save your rent check for last, knowing you'll have to race it to the bank with your paycheck.

But to your disgust, your bank clears your rent check first, then dings you for overdraft fees on the three small checks you wrote earlier.

Coincidence? Hardly.

For years, major banks have been manipulating the order in which they clear checks to optimize the profits they earn largely on the backs of students, the working poor and others living without the benefit of an overflowing bank balance. Banks also manipulate the order in which they clear different transaction types: checks, debit card, ACH auto pay.

Fortunately, it doesn't wash anymore. Pressure by consumer groups and a landmark court case finally convinced regulators to call a halt to this routine gouging.

While a 2010 report by the Consumer Federation of America helped raise awareness of clearing order abuse, it took a $200 million federal court judgment against Wells Fargo in California to really rock the Fed's inbox. Pulling no punches, the court called clearing order manipulation "a trap" whose only motive is "gouging and profiteering."

The FDIC already has taken proactive measures, drawing up preliminary guidelines for the banks it oversees to clear checks in either order received or by check number. Consumer Fed wants to end high-low clearing, the processing of debit card and ATM transactions to maximize fees and any other sleight-of-hand that results in out-of-pockets for consumers.

The issue is expected to be high on the appetizer menu for the new Consumer Financial Protection Bureau to sink its shiny new teeth into when it officially opens for business on July 21.

Hope Elizabeth Warren and crew are hungry.

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