December 28, 2007

(Columbia, SC) - Here's my New Year's Day prediction: A good lawyer will eventually, successfully sue every bank that uses the same internet debiting information procedure used by major American banks and, probably, your bank. They will do it using the Federal Bank Fraud statute and an appeal to morality.

Here's why: (there are some big words here, but stick with it - it's worth it)

Due to the "failure" algorithm which adjusts and implements NSF (insufficient funds) amounts, there will be no way for a bank to prove it is not debiting the fee for profit. When the algorithm is subpoenaed and examined, it will be discovered that the credit lags debit which defies actual temporal reality. And a receipt may not reflect an inaccurate time of deposit. In the 70's, a famous federal case ruled that a deposit accepted is a deposit made. An NSF, it can be argued, cannot be generated in this instance without the implication of action for profit. (Any customer can build a body of evidence to prove this just by recording the internet ledger as a PDF file - it should be valid - recently, an internet receipt was ruled "legal" if that receipt was embedded in a time-stamped PDF format.)

Here's a simple example:   You put $100 into your checking account and depend on seeing it because the bank said you could. Instead of going in as an actual debit (increase), you see something like "processing $100" - it doesn't show up on the ledger until the next day - even if you deposited cash (this in itself may be against federal banking law, but who's got the bucks to fight a turn of legal phrase? - the banks are counting on this).

Another simple example:   You have $100 in your account and you want to use your "check" card. You spend $50 and it shows up right away with $50 dollars left in your account. You then spend $20, $10, and $5 the next day. You go to look at your balance (what's left) and instead of saying you only have $15 left, it says you have $65!!! How come? The lame excuse given by the bank is that they haven't received the paperwork and they did you a favor by showing it in the first place. If you are depending on the bank's interpretation of your account, you are in deep trouble. If you do not keep a separate ledger for yourself - which defeats the purpose of using the bank's online ledger, which they ENCOURAGE you to do - you will logically think that you have access to far more money than you have. Nevertheless, this deception is completely legal, thanks to ignorant legislators, many of whom are related to these same bankers.

Here's the crucial point in tech speak: When a debit is dropped from the ledger the next day - this happens when the actual "paper" paperwork has not arrived at the bank to substantiate the debit - it creates an UNREAL BALANCE in the customer's account, because it almost always will show up again when the paperwork arrives. (The bank is counting on this.) This causes those, who use the internet service to determine their balance, to think that there is more in their account than actually exists and so, do not add enough money to their account, thinking there was a bank error in their favor. And since the notification of an insufficient amount of money in their account will not appear until after the customer is able to make a deposit, ("our books balance at midnight") a forced NSF charge can then be made. By the time (overnight) the lack of funds and NSF charge become apparent, the ledger makes it look as if it's all the customer's fault, arranging the previous day's credits (decrease) in ascending or descending order. This invariably causes what is known as "the cascade effect" - NSF charges for each infraction which, if taken chronologically would only be one or two infractions, becomes six or seven. With over $30 per infraction, most clients have to pay $100-$300 in NSF fees which continue to cause credits and so, deficits in the account.

Whether it is true or not, the unbelievably large number of occurrences, in so many accounts every day, can be shown by a good lawyer to be far too frequent for a bank to argue to a jury that they're NOT doing it for profit. As each bank presents its testimony, it might just become patently clear to a jury that NSFs created in this way are substantial profit-centers, and thus, the temptation for a bank to create NSF's for the lucrative fees they produce will most probably be ruled overwhelming.

I'm suggesting that in order to avoid this eventual financial discomfort (being sued to death), your bank should change their internet deposit algorithm so that once a debit has been posted, it remains, until such time as the actual deposit paperwork fails to appear after a few days (a true posting "failure"). At that point, the bank can put an asterisk and a note to let you know. While this would, indeed, remove a substantial profit center from the bank's P&L statement, it would also remove the bank from possible terminal federal prosecution, which will eventually befall all banks which do business over the internet in this manner.

It will do no good to argue that the amount should have been placed into the account prior to creating the debit. The bank has already assured its customers that they are watching their money for them. While what the bank is doing - it will be successfully argued - by putting the debit onto the ledger, then removing it, and then placing it back on again to force an NSF, may be legal in the strictest sense of the word, it can be equally argued that the practice is immoral. There is no jury on God's earth who will see it the way the banks do, and the system could be headed for a train wreck of epic proportions.

Please understand, I don't hate banks. I'm only trying to help your bank save possible millions of dollars in recompense, fines, and lawyers' fees, and increase the user-friendliness of the banking algorithm for customers. It will also save all of us taxpayers lots of money which would be taken from us in a universal federal bank bail-out, following possibly ruinous civil rulings. And another thing: while what the banks are doing is LEGAL, it is IMMORAL to trumpet the efficiency and accuracy of an internet ledger system and then to apparently play tricks on the customers for profit.

A small amount of care at this point will reap a huge benefit down the road for everyone.

- Dick Anderson