How banks manipulate your transactions to extract maximum overdraft fees

WiseBread has a story about Jeff Ledford, a fellow who overdrew his Bank of America checking account by $10 and was hit with $175 in overdraft fees. As WiseBread points out, that amounts to a 1,750 percent penalty.

In order to extract as much money out of Ledford and other loyal customers, banks manipulate the time order of withdrawals — processing the largest transaction first — to get customers' accounts into the red as quickly as possible so they can issue more overdraft fees.

When a CBS News affiliate asked Rod Brown, a representative of the California Bankers Association, about this sneaky trick, Brown gave a lame excuse: "Consumer research indicates that those larger transactions are of greater importance to the consumer." That makes no sense, of course. The real reason they do it is because it's not against the law for them to rip off customers that way.

Incidentally, after reading this story, I went out and collected my mail from the mailbox. One letter was junk mail from Bank of America that said, "Bank of America: Your Lender for Life." Was that a promise, or a threat?

Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.