Citigroup Latest To Say It Will Process Checks From Smallest To Largest

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NEW YORK-In a move hailed by consumer advocates, Citigroup last week said it plans to process consumers' smallest checks first, resulting in fewer overdraft fees. The company will still process other payment types high-to-low, however.

Wells Fargo & Co. is preparing to drop high-to-low processing of debit, ATM, and other "must-pay" transactions in favor of chronologically ordering payments, though it will continue to process checks and ACH payments from high to low.

JPMorgan Chase & Co. switched to chronologically processing payments last year. Bank of America Corp. maintains high-to-low processing but doesn't let customers rack up overdraft fees on debit transactions at all.

The splintering policies suggest the industry is still grappling with how to answer public and regulatory criticisms of overdraft fees. Those concerns led to the requirement, beginning last year, that banks get consumers to opt in for overdraft coverage.

Consumer advocates have long assailed high-to-low processing as manipulative and predatory.

"Processing the smallest transactions first should lessen the number of transactions that incur an overdraft fee," said Jean Anne Fox, Director of Consumer Protection for the Consumer Federation of America. "That's real progress."

Likely To Cut Revenue

The move will almost certainly cost Citigroup revenue, though the company's limited retail presence in 13 states means the dollar impact will be smaller than it would have been for the bank's competitors.

In a memo to staff, CeCe Stewart, the head of Citi's North American retail bank, claimed nonfinancial motiviations drove the bank's decision. "We think this is the right thing to do and we believe we are the first major bank to do it," she wrote in the note, which outlined how Citi would limit a hypothetical customer's overdraft losses.

Citi will start using its new processing methods in July.

Asked about processing and overdraft matters, Wells Fargo told CU Journal's sister publication American Banker that it too is changing its methods.

Among customer payments that the bank cannot refuse to cover-such as ATM withdrawals, debit payments, and automatic bill payments-Wells will order payments chronologically, or from low-to-high when a transaction did not have a time stamp.

When handling checks or ACH payments for overdrafted accounts, however, Wells will still process them from high to low.

Given that must-pay transactions will be paid regardless of overdraft issues, Wells spokesperson Richelle Messick said, ordering bills from small to large will save customers money. But when it comes to payments that Wells might decline, she said, the bank believes it is in a customer's interest to have the largest bills paid first.

"Processing customers' transactions high to low gives priority to larger transactions, which tend to be customers' high priority payments," she said.

Because bounced checks on major items can result in numerous other fees and inconveniences, "paying these transactions into overdraft is often a lower cost option than returning these transactions unpaid," she said.

While it would be possible to order approved payments in a way that would reduce overdraft fees, Wells told American Banker that doing so would be too much of a burden on its processing systems.

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