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B of A case illustrates the finer points of shopping for a checking account

June 14, 2011

| MoneyRates.com Senior Financial Analyst, CFA

The Bank of America has settled a class action over the sorting of checking account overdraft fees. Perhaps the best thing customers can get out of this is some tips on the finer points of shopping for checking accounts.

A $410 million dollar settlement may sound like a huge win for the bank's customers, but once the lawyers take their percentage and the settlement is spread out over a huge base of plaintiffs, the amount going into customers' pockets will not be very impressive - especially not when compared to the size of overdraft fees.

However, the real takeaway here is what it adds to the list of things to think about when shopping for a checking account.

The finer points of shopping for a checking account

The Bank of America case stems from accusations that it manipulated the processing order of checks and debit card charges in order to maximize overdraft fees. By processing larger transactions first - a technique known as high-to-low processing - a bank can cause a greater number of transactions to occur after an account has been overdrafted. This results in more overdraft fees.

Some banks recently have scrambled to reform their order processing practices, but this remains a point to be aware of when choosing a checking account. Especially if you tend to overdraft your account, be aware of your bank's order processing practices.

According to American Banker, the Bank of America case could have ramifications throughout the industry, but especially among banks that don't have arbitration clauses in their customer contracts - clauses which require that disputes be brought to arbitration rather than settled in court. This points out another subtle point about shopping for a checking account - if you believe in your right to redress your grievances in court, opt for a bank which does not have an arbitration clause in its contracts.

Subtleties such as processing order and arbitration clauses may not be the first thing to come to mind when you think of a checking account, but they do illustrate how much bank customers have been forced to learn over the past few years.

Your responses to ‘B of A case illustrates the finer points of shopping for a checking account’

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25 August 2011 at 3:32 am

Some banks have used the "High to Low" check processing proecedure for apx 17+ years, using rationalization that consumers would prefer to have their larger checks paid first (e.g. mortgage/ rent payments, car payments, etc.) in order to avoid more severe consequences.

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