If you’re like most smart consumers, you try your best to balance your checkbook so that you can avoid going into overdraft. What you may or may not know is that some banks participate in a practice known as “stacking,” which could cost you more money if you ever happen to overdraft.
This is when transactions are processed by the bank out of order, so that the largest payment is processed first, followed by smaller ones, often resulting in multiple overdraft fees. Stacking, also known as “reordering,” is a money maker for banks. According to economic research firm Moebs Services, overdrafts resulted in $32 billion of revenues for banks and credit unions last year.
Consumer information site Consumerist explains stacking with this example:
“Say you’ve got $400 in your checking account and your bank has a policy of charging $35 each time you overdraft your account. Then, losing track of your bank balance, you write four checks totaling $450 — the first for $75, the second for $50, a third for $25, and the final one for $300. If the bank processes those checks in the order they were written, then you only face a single $35 overdraft fee, as you don’t overdraft your account until that $300 check is processed. But if the bank reorders them from largest to smallest, then it can collect $70 in fees.”
Thankfully, this August, Wells Fargo will process customers’ checks in the order they are received. If multiple transactions come in at the same time, the bank says it will process the lowest dollar amount first.
The Washington Post reports that some banks claimed processing payments from highest to lowest was their way to make sure that a customer’s important payments (such as a mortgage) were attended to first.