I own two Daiwa spinning models the Lt 2500 and fuego 3000 and both of these reels have the same issue. Neither reel can pick up slack on the spool. If I reel in the tiniest bit of slack the line will spool bellow the spool and wrap around housing. I noticed this issue when trying to fish flukes and small jerkbaits. I've never seen anyone else mention this before and none of my other spinning reels have this issue. I've tried various line types and sizes to no avail. Has anyone else had this issue or know why it happens? 

Have you tried manual bail technique?  

Rather than casting out and closing the bail with crank-auto-bail close.  

 

Keep your free hand close to the spool, feather the line with your fingertips, very much like thumbing a baitcaster at end of cast.  Use the same hand to close the bail manually.  Turn slightly with the rod to take up slack before you retrieve.  

 

Any time I loan a spinning outfit to a friend, I go over this.  

They will end up with the line behind the spool.  

Then we'll go over it again, and this time it takes.  

 

Using proper manual bail technique, the spool can be completely full.  

 

Manual bail technique solves every complaint about spinning tackle - wind knots, runaway line in the wind, line twist.  

Maybe the spool is a little over filled throwing extra slack into the line. The answer is going to be limiting the slack. There’s nothing mechanical to cause that. Try reeling the slack as you make it, like walking the dog. 

Even Mitchell figured this out in the '70s, and made 440 Ottomatic - the only Mitchell that will manual bail.  

It's actually kinda cool, touch the bail with your rod index finger and it opens, do it again, and it closes.