Overspending on Debit Cards Is a Boon for Banks

The New York Times ^ | 08 Sep 2009 | RON LIEBER and ANDREW MARTIN

[Fido969]

So you feel the charges should just be denied?

They should be knowingly entered into under a negotiated agreement.

This cr@p about changing the rules every 6 months with a unilateral "customer account agreement" that no one can understand is a bunch of baloney.

[ravingnutter]

Too late...I am a 23-year goobermint contractor ; )

[ravingnutter]

Years ago in the Air Force I had a young troop that worked for me that got into trouble for bad checks. he truly believewd that as long as he had checks to write then it was perfectly ok and expected by his bank for him to just keep writing them.

That is actually a joke I use when I am writing out the last check in the book. I tell the cashier "Well, darn...looks like I am out of money now", LOL!

[ravingnutter]

I understand about the abuse by the bank and it is wrong, but having enough in your checking account to cover checks written falls under personal responsibility. As for “mistakes” I always keep an extra $50 in the account that I don’t figure into the budget...problem solved.

[rawhide]

Sorry, little sorrow from me. He needs to manage his money better and stay away from debit cards, and use credit cards only.

[ravingnutter]

Well, then he apparently didn't read the agreement when he signed up for the account. I just checked and that is clearly spelled out in the FAQ section of the BoA website:

A delay may occur under the following circumstances:

You deposit checks totaling more than $5,000 in one day.
You re-deposit a check that has been returned unpaid.
We believe a check you deposit won't be paid.
You've overdrawn your account repeatedly in the last six months.
There is an emergency such as an equipment failure.

How much you want to bet it was reason #4? Direct deposit might be an option, works for me. If not, then get overdraft protection, simple as that. It is called being responsible and if he hasn't learned that by now, he should stick to cash transactions.

[cynwoody]

Now the gas station only authorizes your card at $1.

That's a new one to me.

The practice at gas pumps is to authorize for a fixed amount, $50 or $100, when you swipe. When you finish pumping, they cancel the authorization and put through the exact charge. The idea, obviously, is to keep you from pumping $30 worth of gas and then getting declined. If the bank approves an authorization of $50, then it's promising not to decline a charge of $30.

I heard that a problem arose last year during the period of high gas prices, because SUV owners with big tanks were routinely exceeding the authorization amounts. Not having a big SUV, I'm not sure what the solution was — probably either pausing the pump when the limit is reached and reauthorizing for a higher amount, or raising the authorization amount for everybody (thus raising the likelihood of a decline for Prius owners near their credit limit). I suspect it was to raise the authorization amount, since that's just a parameter, whereas reauthorizing probably would require a POS software change.

As for stuff like lattes and groceries, those transactions go through the system in a single interaction resulting in an approval or a decline and lasting one or two seconds. It's where there's a time delay between knowing there's going to be a charge and the amount of the charge that things get complicated. Examples include pumping gas, renting cars, staying at hotels, and even paying a check at a table service restaurant. In the latter case, you hand them your card, and they put in an authorization for the check amount plus an estimated tip. Then they bring back your card, and you write in the actual tip and sign the slip, after which they put through the actual charge.

[WOBBLY BOB]

The Banking Queen will cover all our butts. literally-he’d like to.

[EBH]

Nope that is not true. Under pending charges in my account gas purchases appear as only $1 until the station puts it through. The cap if from the gas station, not the bank.

[cynwoody]

Interesting. I never knew there was that much of a delay.

According to this article by Chase Paymentech, there are three cases: PIN debit, signature debit, and credit cards.

PIN debit happens online. The bank learns the final amount of the transaction as soon as it is concluded. Any authorization hold is released immediately. PIN debit transactions take place over a separate and more modern network.

With signature debit and credit cards, an authorization hold is placed on the account and lasts until the bank receives the actual amount of the transaction, which may not happen for 48 or 72 hours.

With a debit card, the limit is the amount of your bank balance. However, you probably have several credit cards, each with a limit significantly exceeding your bank balance at any point in time. So, you are much less likely to run into this sort of trouble using credit cards than debit.

Conclusion: Use credit cards only. But if you must use a debit card, use it in PIN mode, not signature mode.

[norton]

Understood.
And it would be nice if a bank were to step up to having at least contributed to the error.
But my point is that if someone is skating on a hundred dollar check that might bounce, maybe they shouldn't have a checking account?
If someone else is working for a firm that might bounce a five hundred dollar paycheck, maybe they should either look for another job or accustom themselves to occasional disappointment.

(Case in point; an acquaintance who periodically directs people to deposit in a new account because the old one(s) are overdrawn. Oddly enough, he gets the new accounts and people still make the deposits.)