Bank Customers Can Be Hurt by Increasing Transaction Speed

NEW YORK ( LowCards) -- Banks are offering improved transaction speeds, but are moving so fast they may trip up consumers who aren't careful.

Take BBVA Compass, which is notifying customers that it is implementing a faster transaction process in August.

ATM withdrawals and debit card purchases by signature or PIN will post immediately. Online bill payments, automatic debits and checks drawn from your account will post throughout the day. The new processing goes into effect on August 6.

Faster transaction processing means quicker updates to your balance and this will affect the way you manage your account, especially during times when money is tight. This faster processing can increase the chances of insufficient funds and overdraft fees because of the unfortunate timing of a deposit or a withdrawal. Deposits may be processed immediately but the funds may not be available right away for withdrawal. It is up to the consumer to know how much is available in the account before you make any purchase.

BBVA Compass is switching from batch processing, which receives transactions throughout the day, and then enters them into accounts at the end of each business day.

The BBVA Compass notice included a guide to explain the posting changes and the possible effects on consumers. The fine print describes the bank's authority over posting order and order of payment.

The bank will have "sole discretion to determine the order that we process and post credit, debits, and holds to your account. The order and/or the manner in which we process and post credits, debits, and holds may vary by the product, service, account type, or type of transaction. You also authorize that we are allowed to pay or authorize some credits, debits and holds, and decline or return others, in any order we deem appropriate. The order in which we post credits, debits and holds to your account may not be the same as the order in which you make the withdrawals from or deposits to your account."

Banks may still be able to determine the order of processing transactions, but some banks are paying hundreds of millions of dollars to settle lawsuits over claims of manipulated overdraft fees on debit card transactions. The lawsuits claim banks manipulated overdraft fees by posting transactions from highest-to-lowest dollar amount, rather than in the actual order of the transactions.

Last week, U.S. Bank agreed to pay $55 million in a settlement. Other settlements include Bank of America with a $410 million settlement last year, and Citizens Bank with a $137.5 million settlement in April of this year.

Despite recent regulations, overdraft fees continue to be a large source of revenue for banks. In 2011, banks collected $31.6 billion from overdraft fees, according to research firm Moebs Services. In July 2010, the Federal Reserve required banks to receive permission from each checking account customer before the bank provided overdraft protection for ATM and debit card transactions.

The Consumer Financial Protection Bureau is currently investigating the overdraft fees that banks charge on checking accounts.

A faster world driven by ever-improving technology is often seen as being synonymous with progress and is supposed to make the world easier for "us," but in this instance be careful what you wish for: the deposit that will soon be instantaneously registered by the bank's computers doesn't mean the computer is really ready to let you use the funds for your next impulse purchase or overdue bill. In fact, the computer may end up charging you for that mistaken assumption.

--By Bill Hardekopf

Bill Hardekopf is chief executive of LowCards.com, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."

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