Things have been tight for Trina Lee, an Arizona-based nursing assistant, since she got laid off two years ago and suffered some medical problems that have kept her from working full time.
So, she meticulously watches her bank balance, which is often close to zero.
Feeling temporarily flush because she has prepaid most of her bills and figured income from child support and a part-time job were coming in, she splurged on a $65 meal with her mom and brother, knowing that this could overdraft her checking account.
Debit card transactions such as this require a signature and usually take a couple of days to clear, so Lee monitored every purchase after that, copying her daily bank account activity into a computer file each night to make sure she wasn't stepping over the line.
The night before her son's support payment was due, she breathed a sigh of relief. At 10:45, the dinner charge still hadn't posted and wasn't listed as pending.
After subtracting every pending payment, she had 16 cents in her checking account. She went to bed imagining that she'd dodged an overdraft because she would get $156 in the morning.
But before crediting her account for the child support payment, Chase Bank put through the dinner charge and "reordered" every pending transaction, turning one potential overdraft into four.
The overdraft charges of $35 each then triggered two additional overdraft charges for small debit transactions Lee did that day, before she'd realized her account had gone into the red.
In total, Chase levied $210 in overdraft charges -- $175 more than Lee imagined possible.
"I accept responsibility for one overdraft," said Lee, a 29-year-old mother of two. "But they created the rest of these. It's really frustrating."
Bank spokesman Greg Hassell said Chase would not reverse these charges because "Ms. Lee intentionally overdrafted her account, knowing she had insufficient funds for all her purchases."
The fact that Chase in effect created five of the overdrafts by changing the order of her transactions, deducting the biggest items first, is policy, Hassell said.
That policy is common among big banks, industry experts say.
Bankers justify the practice by saying it ensures that big, important transactions, such as mortgage payments, have less a chance of bouncing.
Critics, however, say that argument doesn't hold water because the banks pay all the transactions regardless. In that case, changing the posting order simply magnifies the effect of a single overdraft by turning it into several, just as it did with Lee.
Indeed, an FDIC study found that policies such as this had caused overdraft fees to quadruple in two years, ringing up some $24 billion in revenue for the banking industry in 2008.
Industry consultant Michael Moebs estimates that overdraft charges have continued to soar and are likely to account for some $38.5 billion in revenue this year, with roughly 90 percent of those fees being paid by just 10 percent of bank customers.
Worse, the FDIC study found that most bank customers had no inkling they could suffer an overdraft charge because they'd been automatically enrolled in an overdraft program without their consent or knowledge.
So, millions of bank customers used debit cards for small purchases, assuming the swipe would be rejected if they didn't have sufficient funds.
They learned later that a $2 coffee cost $37 with the $35 overdraft fee, a practice so common that many experts say using a debit card has become dangerous.
Starting in July, banks will need permission before enrolling customers in overdraft programs, according to the Federal Reserve.
Senate Banking Committee Chairman Chris Dodd, D-Conn., and Rep. Carolyn Maloney, D-N.Y., have also introduced legislation demanding that banks stop systematically "modifying posting order" and post transactions chronologically.
The overdraft legislation, which has been stalled by health care reform and other financial regulations, also would require that fees bear some relationship to the cost of processing an overdraft and limit the number of overdraft fees a bank could charge to a single consumer in any given month or year.
"To actively reorder checks to cause a tidal wave of overdrafts is unconscionable," said Ginna Green, a spokeswoman for the Center for Responsible Lending, which has been pushing for the legislation. "This is exactly why we still need legislation."
In the meantime, several banks -- including Chase -- have announced they will voluntarily revamp their policies.
Chase's new policy, spokesman Hassell said, will eliminate changing posting order -- the crux of Lee's complaint.
It will also reduce the maximum number of overdraft fees the bank would charge in a day, reducing it to three per customer from six, and it will eliminate fees for overdrafts of $5 or less.
Any of those changes would have helped Lee. Chase's policies have an amorphous starting date -- "in the first few months of 2010," according to Hassell. And the legislation is expected to be voted on early this year.
