Tuesday, March 27, 2012

One way banks try to trick their customers

It's the little things in life, isn't it? I'm always amused by this little gimmick that BankPlus (like doubtless other banks) uses in its online-banking site. Pull up your account, and you see this:

Balance: $601.94

Available** $2,901.18

Of course, the double-asterisks are significant:
**This balance may include overdraft transfer protection, line of credit funds and/or discretionary overdraft coverage. Additional amounts included in the available balance may not be available for all transactions.
IOW, more funds are "available" but it's not actually your money.

But that's not the tricky part. What's missing here (I've modified the numbers from my own balance today) is a number readily available to the bank: the balance minus pending transactions. The bank knows that (in the present example) $50.76 is pending, but it shows the official ledger balance, not the real-time balance, which should be $50.76 lower.

The goal here is to make the customer think "oh, I have $600 in the bank" when it's actually less, because that increases the chance that the customer will incur the "discretionary overdraft coverage" that makes $36 for the bank every time it happens.

There is no technical reason the bank can't show ledger balance, real-time balance, and "available" balance. And it's not hard to do the math, if you understand how the account works. But quite obviously, BankPlus figures there is money to be made by relying on ignorance. "Balance" to many people means "how much money I have in the bank," and the niceties of pending transactions (themselves a holdover from pre-electronic days - I mean, really, what is "pending" about them?) are likely not stopping to think, "hey, my bank is actually trying to confuse me here."


  1. This accounting method precedes online banking by a couple hundred years, undermining your argument that the purpose is to encourage increased overdrafts.

    I don't discount that the *effect* of the accounting methods could lead to increased overdraft by persons who regularly check their balance online, but...then...those who studiously check their online balance are also likely financially literate enough to either (a) keep a personal transaction ledger (they give you a handy-dandy one with each order of checks or (b) retain sufficient reserves in a withdrawal account that they don't approach overdraft.

    A financially illiterate person checking his online account would be just as likely to overdraft because a rent check had not cleared as he would for the reasons you specified, but that's not the fault of the bank, is it?

  2. This accounting method precedes online banking by a couple hundred years, undermining your argument that the purpose is to encourage increased overdrafts.

    Sorry, I've been unclear. The point is precisely that online banking and real-time transactions make this method out-of-date. And there's no excuse for not saying "ledger balance" instead of just "balance," or including an asterisked note that the "balance" doesn't include pending transactions.

    And we're not talking just people who "studiously check their online balances" - it's exactly the person who doesn't do that who will be misled when he looks it up on his phone or whatever to see how much $$ he has.

    The point being, as I said, that the idea is to mislead a statistically significant amount of the public. It's not illegal, but I think you have to bend over backwards to pretend you don't see what they're up to here.

  3. That's exactly why I added the last sentence. How many financially illiterate people even check their balances on their phones? Isn't such a financially illiterate account holder more likely to overdraw his account because he failed to account for his undeposited rent check than he is because the bank lists a different ledger balance, real time balance, and available balance?

    And...isn't it ultimately the responsibility of the account holder to keep track of his deposits and withdrawals?

  4. Anon, you are enjoying missing my point, so I hate to even try to deprive you of that pleasure.

    Speculation about what a person would do anyway is beside the point.

    Of course it's the account holder's responsibility.

    The fact remains that the bank is posting information, not in the manner easiest to understand, but in a manner that facilitates its goal of maximizing its profits through overdraft fees. I don't think it's illegal, but I'm not willfully blind as to what they're up to. Neither are you, I think.

  5. The bank is posting information that fits the accounting structure that it has used for hundreds of years. I would like to know at what point the banks continuing to use the same accounting system changed from "normal business practice" to "nefarious attempt to deprive financially illiterate people."

    If you can sufficiently make that point clear, maybe I'll buy your argument.

  6. When they started making money off of overdraft fees. That's when. Dick.

  7. What Dick said. Also: when real-time electronic transactions made it feasible, indeed child's play, to provide a real-time balance.

    Your "hundreds of years" shtick rests upon the fact that, for hundreds (?) of years, that was the best banks could do. Not any more, it's not. I have maybe 3 transactions a month via paper check. The rest is electronic. I know perfectly well the bank has that data, because they list the pending transactions.

    There is ONE reason for not including a real-time balance figure, and I've named it. If you can think of another reason, then don't keep it a secret.

  8. Anderson. You owe me for a keyboard. How exactly did you determine "Dick" was the poster's name and not an insult? I'd have thought the period after the word/name would have been a clue. Just curious, mostly.


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