Citibank to pay small checks first

Posted April 4 at 12:43 p.m.

Citibank said it will start clearing smaller consumer checks first, offering a reprieve for those who cut it close and sometimes get hit with multiple overdraft fees.

As standard practice, banks process checks from largest to smallest, which means that if a large check overdraws an account, then each smaller check will too — resulting in multiple overdraft charges, at nearly $30 a pop.

Citi’s new policy of processing checks from smallest to largest will be effective July 25, 2011, although consumer customers will be notified this week, the bank said.

“It’s a very consumer friendly policy,“ said Chris Viale, CEO of Cambridge Credit Counseling, a nonprofit consumer advocacy group. “With things being so tough for consumers out there and people living paycheck to paycheck you have to imagine this is going to be helpful for a large number of consumers.“

None of the other major banks plan to follow Citi.

A spokesman for Wells Fargo said its of clearing larger checks first ensures that expenses like mortgage or car payments, which are often the most important, are cashed first.

Chase said there were no plans to change the way checks are prioritized. Bank of America was not immediately available for comment.

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  1. RMLimo69 April 4 at 1:05 pm

    Personally I would be happy to see the large overdraft fees come back in exchange for return to “free” checking and other services. If you overdraw your account, you have actually committed a crime so I dont have much sympathy for you.

  2. exbanker April 4 at 1:06 pm

    How about crediting cash deposits before debits on a daily basis instead of posting all debits before credits? The net effect is the bank keeps a one day float on your cash deposits under current policies even though they claim there’s no hold.

  3. borehamwood April 4 at 1:33 pm

    How about banks just process deposits and debits in the order they’re received? Instead, the banks have invested in software to force more overdrafts on customer accounts. If this were any other business doing these kinds of shenanigans, somebody would go to to jail.

  4. LMAO April 4 at 1:34 pm

    Citibank is laughable. Instead of charging you a fee for a small overdraft, they’ll bounce your car payment or mortgage and ruin your credit. How they can say this is “better” for the consumer it a joke. “EXBANKER” has it right.

  5. Brian April 4 at 1:37 pm

    Free checking still exists, you just have to get away from dealing with the likes of Chase, BoA, Wells Fargo, and Citibank. My credit union doesn’t change me anything for account maintenance and doesn’t require a minimum balance. Deposits are credited immediately unless you deposit more than $500 in an ATM they don’t own. And I can use almost any other Credit Union’s ATM for no charge because they have an agreement with each other. Why anyone continues to do business with these vipers is beyond me.

  6. southloop April 4 at 1:40 pm

    I think this is pretty hilarious, Citi Group is trying to save face when they have often times been the most ridiculous bank along with Bank of America during these crazy times. Since I have switched to Chase there processing is by far the best and cash deposits are always available the instant they are made, even at ATM’s. They by far have the best technology in the business and it is getting even better! The reason they have no plans to change their processing is because there is nothing wrong with it…. keep up the good work Mr. Dimon and stay firm with the “fortress” balance sheet. As a customer and an investor.. I appreciate it!

  7. JR April 4 at 1:53 pm

    Since when do people still write checks? Ever hear of a debit card?

  8. 007 April 4 at 2:00 pm

    I agree with RMLimo69. I don’t write checks when I don’t have the money *in* the account. It’s not rocket science. But because we as a society can’t hold people to standards of conduct, EVERYONE pays.

  9. 007 April 4 at 2:03 pm

    Yup, JR. I also heard about things like what happened at Aldi where people were swiping debit card info and hacking into your checking account (happened to a coworker of mine). I’ll pass, stay with my points-earning credit card, and pay the balance monthly by check, thank you.

  10. Rocco April 4 at 3:37 pm

    Exbanker has it right – how about they prioritize such that DEPOSITS are credited to the account BEFORE debits are taken away. I was recently hit with an OD fee because I had deposited cash (which my account said was now “available balance”), and then used my check card…but when the day’s transactions were processed, PNC processed all the debits BEFORE the credit, so even though I ended up with a positive amount for the day (even without the OD amount), according to their “prioritization” I had insufficient funds even though their accounting software online indicated that the funds were available. Just another way for banks to profit without effort.

  11. Lorenzo April 4 at 3:44 pm

    As a former community banker and bank consultant, processing checks high to low may be standard for large banks, but not at community banks (though some do). As a consultant when I would tell clients that this process was unethical (in my set of values) I would get a silent smile.

    The most neutral method is to process in check order.

    On the other side, writing checks without sufficient funds is bad for your credit, can be a criminal offense (though usually just carelessness) and the customer should be charged. The Bank’s costs are higher to process OD check, but there should be a limit on the daily maximum OD charges.

    My issue with Citi’s approach is that this will provide incentive for customers to sign up for OD protection products. Perhaps Citi’s way to offset the loss of OD fees.

  12. chicagotransplant April 4 at 3:51 pm

    One of my friends has Chase. She used an out of network ATM and was charged $2.75 by the ATM and another $2 by Chase. Ridiculous.

    I have a small credit union. They haven’t charged me for anything, I ‘bounced’ a check once – forgot to move money around. But I have a savings account linked to my checking, they pulled the $ from my savings so it wasn’t truly bounced. I was thankful, cause it was my rent payment, and expected a fee. Never got one. I was shocked. I’m staying with this place.

  13. tap April 4 at 3:53 pm

    Banks are businesses and in it for the profit. You know CitiBank asked the other banks if they would do the same way before they announced to the customer. You see the other banks are in the fees for profit. Citi bank hopes that if they are the only bank looking out for the “customer” that this will get more people to switch to their bank. Its all about the dollar no matter how they make it in the end!!

  14. Jefferson April 4 at 4:12 pm

    It actually makes sense to take the largest first as they are typically the most important.

  15. WestLoopGirl April 4 at 4:40 pm

    Now I may have a reason to move from one big bank to another. >.<

  16. Harlon Katz April 4 at 5:00 pm

    @LMAO – they are changing because of demands from “consumer” groups. Citibank, as well as others, said that they ordered from largest to smallest to help avoid the situation you mentioned and they were skewered as being anti-consumer. I guess these same groups must NOW saw Citibank is now “pro-consumer” as they are now doing what the groups want.

  17. Lorenzo April 4 at 5:14 pm

    The service chicagotransplant has is the ideal product to prevent ODs. Not all bank’s offer it, but find one that does. Typically no fee or a small fee.

    CUs pay no Federal Income Taxes. That’s how they can afford to give services away. They are great for consumers, bad for US taxpayers and do little for business customers.

    Anyone who supports the pay high checks first either doesn’t understand the costs or is a closet banker.

  18. subiaco10 April 4 at 7:48 pm

    Under the proposed rule those who bounce bigger payments, mortgages auto etc will take a hit on their FICO score..

    Does story strike anyone else are perverse; here we have one of the Wall Street firms (along with B of A GS etc) that proved to world they are incapable of managing their own financial matters yet they are judging those who balied them out…..

    Taken from the transcripts of Mussolini trials……. “Privatizing profits while socializing the losses is economic fascism.”

  19. Tawanda The Avenger April 5 at 8:21 a.m.

    Banks have the ability to clear check deposits electronically, so why the need for holds except for a few hours at the most.
    The banks have made gazillions off of the float game and are not about to end this profitable practice.

  20. JR April 5 at 9:41 a.m.

    @007 – There is no difference in using my Debit card vs. your Credit card – my bank will return the funds if I file a fraud alert. And my debit card earns miles just like your CC card. What I am saying is writing checks “old technology”, time consuming, and a pain in my arse whenever I have to wait for the old lady in front of me at the check out line. Also, by using debit cards, it tells the merchant right away if you have funds or not, while a check doesn’t (only in your mind, perhaps). I write 2 checks a month: 1 to pay the water bill (my village only accepts M/C, not VISA) and another to my kid’s school lunch.

  21. 007 April 5 at 10:06 a.m.

    @JR, if your debit card gets hacked, while your bank may make things right, for the time being, your money is gone and you may get hit with OD fees. With a credit card you have float, and time to correct the problem before the cycle closes. And it’s on the CC company, not your account. But whatever floats your boat.

  22. Straight_talk April 5 at 12:44 pm

    The idea that a reason for processing checks from biggest to smallest is to make sure “important” things like mortgages are covered is ridiculous.

    1) Typically ALL checks in a daily batch are covered REGARDLESS of the order they are processed in. Lets do an example: the balance is $100 and two checks come in and both are covered: one for $101 and the other for $25. If you process the $101 first there will be 2 bounce fees, if the $25 check is processed first there is only one fee. The consumer would only get a “benefit”, if the bank could ONLY cover one of the two and had to CHOOSE which one (and then correctly chose the most important one). But typically (like 99% of the time) ALL checks in a daily batch are covered, and the “biggest first” rule typically does nothing but give the bank extra fee income. The key thing is this: does the bank need/intend to CHOOSE which from a batch to cover and which to NOT cover: only then could there be a benefit to the consumer by CHOOSING the biggest.

    If the bank was really concerned with the consumer’s welfare they would arrange the checks from SMALLEST to LARGEST if all were going to be covered, and ONLY in the case where a CHOICE had to be made, cover the biggest first. Well maybe….read on.

    2) The notion that the biggest check is the “most important” to the consumer is suspect. What is “most important” is subjective and varies depending on circumstances. And it’s really none of the banks business, it’s the individual consumer’s business. Maybe a struggling person is 3 months behind on the electric bill and it’s about to be cut off but the check to cover that is not the biggest in the daily batch. Maybe a small check is a deposit for some very important purchase. Do any of the banks try to determine the nature of a check (such as is it for a mortgage or rent, or electricity) and take that into account when arranging the order? Of course not! Because this “biggest first” policy has nothing to do with protecting consumers and has everything to do with generating fee income for the banks.

    In cases of fraud or identity theft the perpetrator typically writes out pretty big check(s) (or other big debits). Given the “biggest first” policy of most banks these would be the FIRST ONES HONORED. Not very consumer friendly.

    Additionally, why not credit deposits first then look at checks and other debits. If the objective was consumer protection (as the banks absurdly claim) that is what they would do.

    I actually wrote some of the software to do this kind of processing at a large bank so I know just how corrupt and rigged the whole game is. Everything is done to “maximize fee income” and s*c&^%%%ew the consumer. Especially those consumers who are hurting and on the edge already. Not that banks care about that – such people are just easy fodder for looting.

    I agree with Lorenzo, the fair way to do it is to process in check number order. That way the consumer can write out his most important checks first and that will influence which get covered first. Also banks should credit deposits FIRST prior to processing checks.

    But none of these changes will be widespread without a lot of pressure and hard work on the part of consumer advocates.

    Remember that most bank accounts these days are in large public banks who exist fundamentally to make money for their shareholders. They do not exist for the benefit of their account holders, their mission is to make money for their shareholders.