The pain overdraft fees cause poor people is truly hard to comprehend unless you've been there. It's incredibly evil.
You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account, putting your balance at -$9. Now you have to pay $35/day until you get enough money to cover the overdraft fees. You end up paying $100+ for a $9 forced loan.
The bank could have just declined the charge and let you deal with it, but even though you have overdraft "protection" turned off, they've decided to classify this transaction as an on-going contractual relationship, letting the charge through so as not to "inconvenience" you. Bankers are inventive at skirting the law.
They know exactly what they're doing. They're rich bankers robbing poor people.
I won't be satisified until Bank of America, Wells Fargo, and all these other evil American banks pay back every single dime to their victims.
Until then, no one should even consider helping these evil banks when there are good ones available. USAA is great.
There are a couple of times in my life when I was quite poor (for someone living in a G8 country...) The biggest thing I learned was to use cash. Cash is awesome because you can see how much you have and you can't spend more than you have. Even now that I am relatively well off, I have my habitual routine of getting cash at the beginning of the week and spending only that for the week. In fact, I make sure that there is always a bit left over at the end of the week (because there are always surprises).
The thing that is frustrating for me in western countries is that using cash is becoming more and more difficult. The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.
In the UK, I used to use my Oyster card (a pre-paid travel card for public transit in London). I could basically use it like cash. You put in whatever money you want at the beginning of the week and then you can use it without worrying about over spending. If you ever travel in London, be aware that the payment system is buggy as hell and they will over charge you badly. With the Oyster card it's great because I can notice that my balance is lower than it should be, go online and get a refund (seriously ... it happened at least 3 times a week for me!!!) But now they are pushing using your bank card as a payment mechanism. They have access to all of your money and you have many less ways of detecting when they have overdrawn (or penalized you for the failure of their equipment to register your badging in).
Again... these companies know exactly what they are doing.
As an aside... I often wonder what happened to the laws about accepting legal tender. There are a number of times that I've been refused service because I wanted to pay cash (hotels and car rentals being the biggest culprits). Is this actually legal?
Civil forfeiture laws in the US. I don't feel safe carrying a reasonable amount of cash. Here the police can just rob me, and now I'm guilty until proven innocent.
In DC it costs up to $2500 for the right to challenge a police seizure in court, it's complex, expensive and it can take years.
You are way more likely to get stuck up by a mugger (aka the real cash risk). But 2500 is insane. Is it really that much? Or does that include attorneys fees.
There were an estimated 345,031 robberies in the US in 2013, of which 42.5%, or about 146,000, were street/highway robberies (muggings) [1].
For the 13 years between Sept. 2001 and Sept. 2014, the Washington Post analyzed records from the DOJ and found 61,998 civil forfeiture cases "that were not made at businesses and that occurred without warrants or indictments". This is around 4,770 per year. [2]
Neither of these are broken down by location, race, etc. so your particular circumstances may vary, but at the aggregate level, you're about 30 times more likely to be mugged than to have assets seized at a traffic stop.
Yeah, and I don't mean to defend civil forfeiture at all. It's a very troubling practice. But it is interesting to see how far off we can be at evaluating the risk of various things happening.
I think that we can skip the middle layer wetware and just elect cash president. With the (multi) billion campaign season that comes - who is in charge will be just a formality.
Side note - how amazingly high ROI you got with donations to politicians - for a couple of hundred of million - you get people that oversee and direct the 3-4 trillion dollar federal budget (scale to state level too).
Even if it's (asset forfeiture) a statistically rare event, we have to worry about it because it is a deeply corruptive practice. Asset forfeiture goes against much of the philosophical underpinnings of this nation.
Being legal tender means that something must be accepted as payment for a debt; it does not mean that it must be accepted as payment when no debt exists. For example, if you go to a restaurant that serves you before giving you your check then they are required to accept cash. However, they are allowed (possibly depending on jurisdiction) to insist on being payed by card prior to serving you.
There's very little incentive to accept card only. Cash, unlike credit or debit cards, doesn't carry an interchange fee, which means the full amount is going to the business, instead of losing some money to interchange.
> The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.
This has more to do with the hotel's liability. If you steal from the hotel or damage the room, they will apply those extra charges to your credit card. Even if your credit can't cover the costs, your verified credit card information tells them that you didn't provide a false name, and they have someone to chase after to recoup the charges.
I live in Japan now. In Japan they take a photocopy of some ID containing your address for that purpose.
My understanding is that the reason hotels want a credit card is that they pre-charge it with a deposit and then refund it when they check the room. You never see the pre-charge transactions so you don't know about it.
I have successfully negotiated with some hotels to take cash by offering them a cash deposit. Some hotels refuse to do it, though. I don't even have a credit card any more (mostly out of choice, but also because Japanese banks tend not to give credit cards to non-permanent residents), so the next time I travel in the west (soon) is going to be an adventure...
> so the next time I travel in the west (soon) is going to be an adventure...
Well, there are pre-paid credit cards. You could always try those, but IIRC some hotels refuse to take them.
It's also easier for the hotel to just charge extra to the credit card than to track down the person and possibly send the debt to collections. I've personally witnessed (while working for a hotel/casino) people get charged for things that they took from the room (robes, towels, etc) on the day that they checked out. At that point, the hotel already has the money, and dealing with the charges is the customer's problem. If they just took down information, then they have to spend time chasing down the customer to get them to pay the extra bill. From what I know of Japanese culture, delinquent customers are probably not as much of a problem as they are in (e.g.) the US.
While I can understand how much harder it is for hotel patrons without credit cards, hopefully you can also see it from the hotel's perspective when dealing with "bad faith" customers.
Banks certainly issue credit cards to non-PR foreigners. I got one as a student. My initial limit was very low, though (100,000yen~=1000usd then).
I know people who got refused cards by multiple banks before succeeding. But it's not nearly as hard as getting a home loan, which usually does require PR.
I wonder if there would be an interest in a virtual credit card (NFC smartphone) showing you how much money you can spend for, say, the rest of the week. You would be able to configure your desired spending limit. The virtual credit card app would automatically be able to update the amount of money spent whenever recurrent charges are processed automatically. The idea is that whenever you pull your smartphone to pay, you always see exactly how much you have spent so far. As opposed to the situation today where nobody logs in multiple times daily on their bank/credit card website to check how much they have spent.
Here in HK and Shenzhen we have similar thing called Octopus card where you can use it on almost anything other than buying house or cars or "high-class" shopping. An even better part is that almost all octopus card scanner has a display for the amount just charged so you can dispute right away. To encourage people to use them, there're even discount stands on the street. A "discount stand" is basically a machine that you can scan your card and get $2 off your next purchase. Yes, that's its only functionality and you don't have to input email or any BS, just scan it. That's my favorite part of HK.
USAA also batches their debts and payments differently than other banks, to help their members minimizes any fees incurred. Their customer service saying is "assume positive intent" and they have amazing service. I will probably be a customer for life.
For awhile Bank of America did the exact opposite, ordering transactions each day from largest to smallest to maximize the number of overdraft fees. Fortunately that truly evil practice was put to an end when they lost a $410 million class action lawsuit.
I worked at a company that developed hardware (check scanning) and software for banks. _Every_ bank wanted the feature that batches transactions on accounts from largest to smallest, to maximize the overdraft fees. That was in 1994 so it has been going on for a long time.
The other day I took a picture of a check that I received, with their phone app. They credited the check to my account immediately. Not "pending," it was in there with no unusual note. I assume it would have been on me in some way if the check bounced, but still.
That's standard practice with USAA. My first few checks had a pending status but after that (100s of checks later) they all posted immediately. Same thing happened when I signed up my wife. It's a selling point of USAA.
My paycheck also posts immediately, I get "paid" Thursday while everyone else I work with gets it Friday.
USAA is, indeed, an exceptional bank. Hard to get in, though, unless you have served in the military or have a parent that did. My father was quite surprised when I asked him to sign up for a website account (not bank account) so I could use that to join.
You see, USAA was one of the first banks to have an Android check deposit app. Years before B of A.
Oh it's better. I've seen a poster on a commercial bank in the US which advertised a usurious loan (I forget the exact rate but it was up there with pay-day loans) that was only in Spanish while all its other products were advertised in English.
Never never never bank with the big national banks like Chase, BoA, etc. Find a local bank or credit union, they are generally much more reasonable with their fees and penalties and often have free overdraft privileges (with some caveats -- understand those!).
Never set up automatic payments directly from your bank account. Pay your bills manually, once or twice a month whatever fits best with your cash flow.
The bank could have just declined the charge and let you deal with it
Wells Fargo will charge you $35 even if they decline the charge. So they don't pay because you don't have enough money, and on top of that they charge you for not paying.
I wish USAA would open their net a little bit to extended families. My brother is a doctor in the US Navy, but that supposedly wasn't 'close' enough of a family relation for me to qualify to do business with them.
Navy Federal CU and Pentagon Federal CU are both awesome and it's a $25 membership in an affiliated charity to get a membership.
The really elite one to get would be Tower Federal CU (the NSA's credit union); there is an affiliated nonprofit, which I joined, but then when I applied to open an account, I was declined. Oh well.
Basically a values thing that they are dedicated to military personnel and their families. Some of their products are open to everyone (IIRC), but most are limited to military, spouses, and immediate family.
From Wikipedia:
USAA was founded in 1922 by a group of U.S. Army officers to self-insure one another when they were unable to secure auto insurance because of the perception that they, as military officers, were a high-risk group.
Actually, USAA is a bank. At least the bank part of them is a bank. They're also an insurance company, an investment company, and a few other things. But the banking part is a bank.
From their site's front page: USAA means United Services Automobile Association and its insurance, banking, investment and other companies. Banks Member FDIC. https://www.usaa.com
Online banks like Capital One 360 don't charge overdraft fees and have fast check settlement. I can't comment on transaction ordering or anything - also, it might be hard to find an ATM that will do cash deposits.
And not only is there no account fee, but the checking account pays a pitiable amount of interest.
> even though you have overdraft "protection" turned off
If you've explicitly opted to turn off overdraft protection, then the bank should honour that and let the payment through. The bank has no idea how vital that charge is for you. The problem is in the ridiculously onerous penalty.
There are also good banks that, unlike USAA, most people can actually join with minimum hassle. CapOne360 and Ally have both done me very well, no connections needed.
*> You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account,
I don't want to be rude but I wonder what set of circumstances leads a poor person to subscribe to a relatively superfluous service (unless you're a pro photographer?) in the first place.
Could happen from anything. I've also been poor, and one thing that sent me over the edge was a check that someone waited months to cash. Thought I had $200 in my account, and made a payment with debit card, only to go under $0. What's worse, I wasn't notified, and made a couple more charges, all at exorbitant rates, until I realized what had happen.
As always, it's best to interpret others' comments in the most generous way possible, rather than jumping to the conclusion that the poor person must have been spending too much money to pull himself up by his bootstraps.
> I've also been poor, and one thing that sent me over the edge was a check that someone waited months to cash. Thought I had $200 in my account, and made a payment with debit card, only to go under $0.
While this isn't something that is directly taught (a checking account ought to come with detailed guidance), if you write checks, you should use your checkbook to track your actual effective balance separate from how much the bank thinks you have. If you write a check, no matter how long ago, you don't have that money anymore, so you can't spend it.
People often don't bother updating a check register each time they write a check, but if you have any serious threat of running out of funds in your account, you need to take the time to balance it to know how much you have.
(Also a great reason to never use personal checks at all.)
But the lack of any guidance in this regard, while supplying many ways to ask for your "current balance" (a complete fabrication once you've written any checks) is certainly one more way banks do nothing to prevent you from falling into a costly trap. I was lucky enough to receive very careful explanations of how a checking account really works when I was young.
Good point, but when they are charging 2300% APR, they could afford to give you a call or email you after the first overdraft. They are acting predatory and we shouldn't make excuses for them. All financial relationships in a capitalist system should be mutually beneficial.
> As always, it's best to interpret others' comments in the most generous way possible, rather than jumping to the conclusion that the poor person must have been spending too much money to pull himself up by his bootstraps.
Honestly, I didn't jump to any conclusions -- perhaps you're not interpreting my question in the most generous way?
I mostly agree with you (99%) except the part about 'Rich bankers robbing poor people'. The bankers devising this are not rich - they are very much middle class MBAs who are struggling to meet ends meet, what with high cost of property in good school districts, etc.
It the same guys who develop devilishly complicated cell phone plans, cable tv plans, drug packets that are 8oz big but contain 4 pills that would fit in a 1oz packet, etc. There must be an MBA school course 'How to screw over people with IQ lower than 90'.
What i'm saying is that it's not a rich vs poor but rather intelligent vs less so (or just people who fail to pay sufficient attention).
> They know exactly what they're doing. They're rich bankers robbing poor people.
I can understand thinking that the "correct" thing to do here is to simply not allow a transaction when there aren't sufficient funds, but this language goes overboard. It's not robbing a person because they were unable to keep track of how much money they own and adjust accordingly.
No. Emphatically, no. It IS robbery. Have you ever been a poor person? Have you ever been overwhelmed with depression and the panic of a lost job, a few dozen bills you probably can't pay, the shame of asking friends and relatives for help, and in so doing, risking your relationships with those people and your own self-esteem?
What you're missing here is that poor people KNOW that they are poor and right on the edge. They are already making a lot of adjustments that you probably can't even conceive of. They have a daily, hourly even, intellectual load from financial panic that more privileged people cannot even imagine.
The banks are the guilty party, here. They know that some of their customers are near the edge and in trouble, and they are strategically choosing to exploit them. Period, paragraph.
This is a fallacy. If you were to claim AGW occurs or that outer space is a vacuum, it would be a fallacy for me to say "have you ever been planet-sized body warming due to excess CO2?" Of course not, but one can still reason about such things.
If you are claiming that the poor are incapable of taking responsibility for their choices, recognize that there is a term for this: incompetent. Are you claiming the poor are incompetent and unable to make choices like the rest of us?
@yummyfajitas - I often appreciate the clear thinking you can bring to a discussion, but I just as often see you reduce human beings to logic machines in ways that are unfair to both them and your intellect...
There is a large and growing body of research around the limitations and capabilities of human decision making that shows just how/when these gaps appear. At a very basic level, poor (and otherwise distracted/overwhelmed) people suffer from decision fatigue [1]. There is much more going on, however, and I'm sure you'd find the studies fascinating, given your penchant for data-driven analysis. I cannot recommend Daniel Kahneman's Thinking, Fast and Slow for starters...
> No. Emphatically, no. It IS robbery. Have you ever been a poor person?
Yes, I overdrew my account when I was in college and had $50 to my name. It was my mistake, I made a purchase unsure of how much money I had.
I also used to work for a bank that gave out RALs so I'm perfectly aware of the unethical behavior that happens in banking. So call it unethical, call it what it is. Using inaccurate alarmist language does not help the matter.
As a college student, I am assuming that you didn't have much money, but also likely had rather limited expenses. To the family with children that has $50 to their name, a rent payment, childcare expenses, etc, most of which they can barely afford already, an unexpected overdraft can be the trigger that sends them off a financial cliff.
Poor people often make very bad financial decisions. But so do rich and middle class people. The difference is that the poor people have no one to turn to for help. Exploiting that may not fit the statutory definition of robbery, but it meets it in every other way I can think of.
You can't regulate away bad decisions, but you can regulate away the consequences (by shifting them onto the wider population). Not that I support this, as I believe it unfairly penalises people who make good decisions, but it's certainly possible.
Large banks will do things like structure charges so as to extract the maximum amount of overdraft charges. For example:
You have $40 in your account. You spend $20, then $12,
then $5, then $120. One would logically conclude that at the
end of the day, the bank will resolve these *in order* and
you will have a single overdraft fee. Large banks *cough*
Bank of America *cough* will explicitly structure those charges
to resolve like this: $120, $20, $12, $5. Now you have 3
overdraft fees ($35 a pop when I was with BoA) instead of a
single overdraft fee.
Do you not see anything morally and ethically wrong with this?
The even crazier thing about your example, is that they have different offerings for their high net worth" clients, and with those offerings, the structuring is usually much more in the favor of the client than what someone walking in off the street will get.
Essentially, a poor person will be charged higher fees than a rich person.
They don't have to because most people know that powerful institutions tend to act in bad faith in order to extract as much gain as they can from the vulnerable.
Banks make keeping track of the money in your account intentionally difficult. You can't just check your balance and assume that you can spend what's there.
Instead, your balance includes only processed transactions, whereas your account also has a list of pending transactions that can hit your balance at any time. Pending transactions can also disappear from your account, only to come back as a confirmed transaction. In effect, you can't be sure of exactly what's in your account unless you manually keep track of every charge you've made.
Banks do more than this to make overdrafts difficult to deal with. For example, Bank of America intentionally processes your transactions from largest to smallest, ensuring you'll git hit with the maximum number of overdraft fees.
e.g: if you have $10 in your account, and you make a $3 purchase, a $4 purchase, and a $12 purchase, they'll run the charges in the order of $12, $4, and $3, hitting you with three fees instead of one.
tl;dr: banks love overdraft fees and do whatever they can get away with to hit you with them.
> e.g: if you have $10 in your account, and you make a $3 purchase, a $4 purchase, and a $12 purchase, they'll run the charges in the order of $12, $4, and $3, hitting you with three fees instead of one.
Even better, if you have $10 and also a $500 paycheck hitting your account that night, which is to say that the bank KNOWS there is no overdraft and that you have the money in the account, they'll process them in this order: -$12 (fee), -$4 (fee), -$3 (fee), +$500 (most eaten by the fees).
And some programmer programmed that for them. Intentionally.
I believe there is now a national banking regulation in effect that requires all credits in a day to be processed against your balance before all debits. So in your second situation, at least, you would no longer be hit with fees.
They also transact debits before credits, so if you realize you made a purchase that will overdraw you, you can't deposit money right away to avoid an overcharge. I've gotten hit with low balance fees for that with PNC. Yeah, no, not overcharge. They didn't like that I very briefly had $5 less than $2000 in the account.
They call it "maintenance". Like an account at $1995 needs some screws tightened or something. This isn't the 1920s. There isn't some clerk somewhere checking ledger sheets. It's all digital. It doesn't matter what value is in there. It's just a bit pattern.
In other "you have got to be fucking kidding me" moments, I once got charged a late payment fee on a loan that said I owed $0 that month because I had been making payments ahead for several months prior. Had a rainy day, needed some extra cash, figured since it said "you owe nothing this month" that meant I owed nothing that month. Apparently, buried deep in the promissory note, there is a term whereby I was required to pay a certain minimum every month, regardless of what the statement said.
They then used this as an excuse to jack up my interest rate. Aren't student loans grand?
> Banks do more than this to make overdrafts difficult to deal with. For example, Bank of America intentionally processes your transactions from largest to smallest, ensuring you'll git hit with the maximum number of overdraft fees.
e.g: if you have $10 in your account, and you make a $3 purchase, a $4 purchase, and a $12 purchase, they'll run the charges in the order of $12, $4, and $3, hitting you with three fees instead of one.
I remember hearing about this a while ago, is that still going on? I thought some sort of regulation came into effect that prevented that, and that's why I was just then hearing about it.
If the customer had set up the overdraft "loan" feature, then sure, I'd agree with you. But they didn't. How is it sane (and legal) to automatically loan someone money to pay something, without their permission, when you can set whatever repayment terms you want? Declining for insufficient funds is the only correct thing to do in that case. And yes, banks will usually charge a fee for that, too, but at least it'll only be a one-time fee.
They're not asking for a loan, they're asking to withdraw their own money that they put in the bank. The bank deliberately chooses to turn this into a loan if they accidentally ask for more than is currently there.
Suppose I drive to a bar, have three beers, and drive home. I don't bother to check my BAC; I just assume I'm below the legal limit and can drive safely. On the way, I accidentally run over a budding young Progressivist on the street, who then dies. When the sheriff shows up, he finds that my BAC is 0.09 -- just over the limit!
Surely, you will agree that any penalty I am assessed for this should be minimal. After all, I did not intend to kill anyone. I did not think I was drunk. Sure, I didn't bother to check, or to assume the worst and take a couple hours' break before driving. But it was an accident. I didn't know that I was over the limit. Maybe I hadn't even read the law, and didn't know what the limit was, or what the penalties would be for exceeding it. Obviously, any big, mean, nasty "justice" system that would impose a heavy penalty on me for this act is evil and unethical.
Except, in your analogy, you are being force-fed alcohol by your landlord, car insurance laws, gas stations, any children you have, public dress laws, ISP, electric company, phone company, and the biological need for food.
This puts your default BAC at somewhere between .06 and 0.085 at any given moment. Now if you go over 0.09, do you think maybe that might happen on accident?
Nonsense. Nothing obligates you to use your checking account for the vast majority of ordinary purchases. And for those that you generally cannot avoid (usually only the rent), nothing requires that you fail to record the amount you spent and track the amount remaining. If you aren't sure of your records or don't care to keep them, use cash for everything else.
People with far less education than today's Americans have been successfully balancing checkbooks for over a century. My great-grandfather was a dirt-poor coal miner with a fourth-grade education and he never had any trouble avoiding overdrafts. And yes, he had -- and used -- a checking account for most of his life. Ignorance and carelessness are just excuses; they do not absolve you of your responsibilities.
My money is in my checking account. That's where it is. I can't use money from somewhere else. I could put it on a card, but then I still have to pay the card at the end of the month, don't I?
In fact, I just recently over-drafted my rent. Do you know why? Because my phone company auto-charges to my account. All I had to do was forget what day this happened, and not coordinate the exact day that my landlord cashed the check. (PS: it was my landlord who charged the overdraft fee. I have a decent bank.)
You're taking too narrow of a view here -- this isn't about responsibilities. Of course I'm responsible for my over-drafts. But I should not be at risk for them in the first place. And that's what this is about: RISK. The severity of a problem multiplied by the probability it will occur. Overdraft fees do not minimize risk, and thus they are not rationally justifiable. They disproportionately transfer risk from the bank to the customers. (That is, for every unit of risk the bank saves for themselves using over-draft fees, they deliver more than one unit of risk to their customers.)
If your landlord's bounced check fee is larger than $35, you'd have been better off with overdraft protection.
Incidentally, there is a great way to reduce this risk; manually pay your bills. I don't have any automatic charges larger than $10. You chose higher risk for higher convenience. It's a little silly to claim that the choice you made is not rationally justifiable - how do we know you were irrational then rather than now?
I pay rent on a storage garage and the owners have a policy: either use automatic payments or pay $15 extra per month.
That kind of thing is not my choice. It's lose-lose. And if I could afford a bigger place, or had the money to move that stuff, I wouldn't be renting storage.
Anyway, it would be far more risky to try to move out. And then, if I end up with a shitty roommate who steals from me, you'd probably tell me that this is my fault too. That I should have used my infinite time to make perfect decisions at every step.
You pay extra to be poor. Whether you choose it or not. It is not worthwhile for you to believe otherwise just because you have some ideological preference.
Since this thread isn't about police misconduct, let's assume not. If you insist, feel free to assume it was an older straight white male rumored to vote Republican bouncing around under my wheels.
About five years ago I worked at Wells Fargo as a teller while in college. During that time Congress passed a law prohibiting debit transactions from going through if there weren't enough funds in the account. Shortly after that we were told to start telling our customers about a new service called Debit Card Overdraft Service which was marketed as a "convenience" for customers when they were in a bind.
When I asked my branch manager about this service in person, he said he was told by his manager that the company was going to lose billions of dollars due to the new law and that this service was meant to alleviate those losses. I filed an ethical complaint since I believed that it violated one of their Team Member Codes of Ethics regarding "encouraging reckless financial behavior". It pissed off my manager, which pissed off his boss, and then I had a round table meeting with them. My manager then claimed that he never said anything about losing money, and that the new service was unrelated to the new laws passed in Congress. Since I couldn't prove he said those things I decided to drop it, but he told me I no longer had to advertise the service.
It still irks me that there was absolutely nothing I could do about the situation. After I quit some of my co workers told me that they were told that the service was used to make up for lost revenue also, but they were afraid of speaking up since they didn't want to lose their jobs. I had less to lose because I was a college student studying CS.
I was working at a credit union during the same time, and I found the immediate change in rhetoric really disheartening.
Overnight the line for overdrafting your account went from, "You're being financially irresponsible by not properly balancing your account - you deserve the fee" to "Overdraft Protection is like an umbrella - nobody expects it to rain, but if it does it's nice to have protection.
I was shocked at how much fighting there in the industry to carve out transaction types from the opt-in behavior.
I'm surprised and somewhat disheartened to here that there are credit unions which follow this practice. Doesn't seem to really fit with their charter.
How does writing it down make any difference, unless there was a corroborating witness during the conversation? It seems like it would still be he said she said. Is it just a case of writing it down being more unlikely for the memory of the words to be distorted by time passing?
For some weird reason, keeping a journal of stuff as its happening (eg your neighbours making noises) seems to hold up better legally than just stating these things verbally.
One theory: I guess because the journal commits you to one story. One consistent story is easy to shoot down, eg your neighbour claims and proves they were on holiday when your journal speaks of lots of noise.
Evidence that is easy to shoot down, but doesn't actually get shot down, is more believable afterwards.
This is a quote from Michael Lewis' The Big Short, I'll never forget it:
Obsessing over Household [Finance Corporation], he attended a lunch organized by a big Wall Street firm. The guest speaker was Herb Sandler, the CEO of a giant savings and loan called Golden West Financial Corporation. “Someone asked him if he believed in the free checking model,” recalls Eisman. “And he said, ‘Turn off your tape recorders.’ Everyone turned off their tape recorders. And he explained that they avoided free checking because it was really a tax on poor people — in the form of fines for overdrawing their checking accounts. And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.”
Eisman asked, “Are any regulators interested in this?”
“No,” said Sandler.
“That’s when I decided the system was really, ‘Fuck the poor.’”
> form of fines for overdrawing their checking accounts.
Why in the world shouldn't you be fined for overdrawing your checking account? A checking account is not a loan, am I wrong in thinking this quote is B.S.?
Because the bank should just deny the charge to the account instead, and have no fine. You are right that a checking account is not a loan--so the bank should not treat it as if it is!
I'm not really in the know, but I'd guess "back in the day" it legitimately cost somebody something to deal with a cheque with a value greater than the balance of the account. Nowadays, it should be the same $0.0001 worth of computing/networking power which is already spent if it's a good cheque. I'd welcome corrections from someone who knows more, but I figure modern fees are just a way for the bank to extract money from people too harried to fight back. Perhaps some of it is legitimately used to subsidize general account maintenance, and maybe the banks are passing on a real cost specifically charged by a clearinghouse for bad debits -- but somewhere down the line, the bulk of it has to be lining someone's pocket.
If someone were attempting thousands of bad charges in a month, maybe they "deserve punishment" for abusing the system. What the fees do now is just taking money from people who already have little, and/or just lost track of their balance and made a small mistake that would have no bearing on anyone else if the bank didn't fine for it.
Exactly what kind of choice is it if banks aggressively pursue strategies to make it impossible to determine if you have sufficient funds in your account? "You have a choice to go through Door A or Door B. One door will brutally kill you, the other has pizza and ice cream." There! Aren't you happy? You have a choice!
Because the distinction between being a victim and being a willful participant in a malevolent scheme is an important one. Recognizing that makes it easier to diagnose why things aren't as ideal as we wish they were.
What is the purpose of a fine? Before we discuss further why one shouldn't be fined, can we make sure we agree on why one should?
Off the top of my head, I see "dissuading behavior that negatively impacts the bank", and that doesn't seem to justify a fine in this case, but maybe you're thinking of a rationale for a fine that I and maybe others are not thinking of.
> Off the top of my head, I see "dissuading behavior that negatively impacts the bank", and that doesn't seem to justify a fine in this case, but maybe you're thinking of a rationale for a fine that I and maybe others are not thinking of.
Great! Someone that wants to participate in reason and not just boisterous proclamations. I'm down.
So yeah, I agree with your definition and it applies in this case because the bank is negatively affected by having to shift money from other accounts to cover your overdraw.
1. Why can't the bank refuse to process the charge?
2. This seems to be failing, in practice, at dissuading people and making them pay attention to keep a positive balance. At least according to a couple of comments here, there are people who are repeatedly hit by overdraft fees. Is there something better that can be done do solve the actual problem, which is banks having to come up with money to cover these tiny loans?
3. Is there a more proactive way to solve this, such as notifying people (phone, text, push notification, whatever) that their balance is low and they have a recurring charge coming up? Wouldn't that be better for the bank, so that the problem wouldn't happen in the first place?
Oh, you're under the illusion that a for-profit business' primary responsibility is to maximize the value they provide to their customers? Sorry but that's not the way the world works. Now that could possibly be the case if we lived in a country where banks were allowed to compete on things like "treating the customer right" but we don't live in such a country; we live in the one where ever more annoying fees is the only game in town.
But none of this is relevant from your (and my) point of view; ours is really simple. We're completely aware of the murky rules that apply when your account gets close to $0 and the best solution is to not use the account in that case.
No, I believe nothing of the sort and now I'm curious what part of my post conveyed that, so I can write in a less sloppy manner in the future. Sorry!
Judging solely from the point of view of the bank, and conditioned on the assumption that fees are to dissuade customers from behavior that hurts the bank, it's in the bank's interest:
1. To find a way for that behavior not to hurt it in the first place.
2. To actually, successfully dissuade behavior, so that the bank is hurt less.
3. To warn people right when they're about to hurt the bank, so they don't.
That matches the three questions I had.
If fees are themselves for the bank's profit, then yes, sure. But then we can just admit that the bank is charging fees to people who maintain low balances (= "poor people", to first order) for profit purposes, right? That seems clearly within the margin of rhetoric that "tax on poor people" is a fine description.
No, it's the same system that allows the lottery to exist. It's not "fuck the poor", it's "fuck the stupid" (alternatively, "fuck the bad-at-math"). If there's a high correlation, I don't think anyone is going to be terribly surprised, as uncomfortable as that may be.
I have been poor. I have also been the opposite. I have also been a bank employee, and a professional investor who studied security analysis by looking at banks. The feds have rightly come down on banks via recent regs about how to charge overdraft fees, because banks did in fact used to play bullshit games with how they charged fees. A lot of that has been fixed. But the uncomfortable truth is that the people who repeatedly fall victim to these fees these days are simply irresponsible. You might as well complain about the high price of parking/speeding tickets - every opportunity in the world is there to avoid it.
I'm sure this will get about 50 downvotes but whatever.
There is a cognitive overhead to managing every predatory relationship. The poor have to deal with many, many predatory relationships all the fucking time. People make mistakes and extremely powerful people and institutions exploit them as much as they can when they do.
Good on you for being able to say that you were poor, in the past tense. I'm glad. I don't think people are stupid just because they stay poor. When you call people stupid because they suffer and can't catch their breath or get their affairs in order because human institutions are structured in the most hostile, alienating, predatory way they can get away with, you start seeing stupidity wherever you ought to see compassion and empathy.
You're right that the poor face many asymmetric relationships day-in and day-out. Whether I would describe it all as "predatory" I would disagree.
Again, I think this is a very, very uncomfortable topic to have an honest conversation about, but I think people often mix up causation and correlation on this general topic. Let's stop kidding ourselves about it - many, many poor people are poor because they lack the basic building blocks for success that we take for granted: god-given intelligence, a strong work ethic, long-term thinking, careful considering for non-trivial decisions, an upbringing that values education, etc. I'm NOT saying all, but definitely many. So to the extent people and organizations are trying to in some way take advantage of "poor" people, this isn't really accurate - they are trying to take advantage of people who don't make good decisions. Heck, if you were trying to sucker someone for money, wouldn't you (ignoring everything else) go after someone with lots of money? People can't "catch their breath" or "get their affairs in order" not because of systemic oppression, but because they simply don't have the basic life skills to do it in the first place...that's probably a large part of why they're poor. There's also just a lot of inertia with this stuff, but we're getting way off topic. I read an interesting book about this years ago called The Persistence of Poverty, which I would recommend.
None of this is to say I am not empathetic or have any compassion. The blatantly predatory behaviors are deplorable and should be stopped and if applicable, the people involved should face whatever punishment is allowable. But adults need to be treated like adults at some point.
Sounds like victim blaming. To an extent you're right, but the situation is not at all this black and white (like anything in reality).
Take for example just the fact that it's easy to lose track of your current savings especially without ready access to the internet, a common situation for the low income.
Yes, it's is 100% victim blaming, because for god's sake, at what point do we expect grown adults to take some friggin responsibility for themselves?? Puh-lease, spare me the "easy to lose track" garbage. It's never been easier to keep track of one's finances, and that's before even considering an internet connection. If your budget is that tight, maybe, just maybe, actually closely tracking your bank account should be a priority, no??? One would think. God knows that's how I was when I had almost nothing to my name.
I don't like the banks playing games with this stuff and I'm glad most (but not all) of their bs got stopped. But my god, when are we going to hold adults accountable for just basic life skills instead of insulting and coddling them? Ever??
You're obnoxious, but you're right. I've suffered more than my fair share of overdraft fees, and every one of them was my own fault. It didn't help that my bank's online banking system was a filthy liar with a long-standing bug that caused it to display an incorrect balance (for up to a day or more) when there was an incoming transaction that wasn't pre-auth or posted -- but ultimately that just meant that I had to start writing down all of my charges and deposits, so that's what I did.
Overdraft fees are onerous, banks absolutely do exploit their poorer customers for extra revenue, several of the larger banks are next in line for most-hated organizations in America behind AT&T and Comcast, and the structure of fees across a wide array of services are all biased against the poor. But, none of that changes the truth that most overdraft fees could be avoided if the poor were more diligent about their finances.
Oh please. Everyone should be more diligent about their finances. The difference is that someone with money says "oh damn it, I spent too much. I should buy less stuff next week" and someone without much money gets an overdraft fee.
Maybe the problem with the current system isn't poor people, the problem is just people. It's just that some people don't have any sort of margin of error, so we shouldn't tilt the scales against them too. No need to add to the shit situation they're already in.
Examples? Again, as a former bank employee and someone who's analyzed banks for well over a decade, I know with certainty that you are 100% wrong...but I'm interested in your explanation.
This is one of the financial barriers that severely impacts the ability of poor people to amass monetary wealth, but is invisible to the rich. Before they were overdraft fees, they were Non-Sufficient Funds fees for overdrafting, and these NSF fees still exist for those who can't even get the "overdraft loan".
> Banks originally offered clients this service as a courtesy.
Banks originally opted in at-risk customers. This was before payday loans became popular, and the market is one and the same. If you were short of funds this month, you'll probably be short next month too.
Source: personally being an at-risk customer who was opted in without asking.
Not only opted in without permission, but receiving derisive reactions when requesting to opt out. "You wouldn't want to be embarrassed by having your payment refused would you?" Sure, that's fine, because there's invariably some issue with the store network, or the electronic payment processor that randomly refuses payment anyway. What's the difference?
"Are you sure you don't want this 'protection'?" I'm protecting myself from your fee. That's protection enough.
Furthermore, I worked in IT at a bank for awhile and witnessed many wealthy customers coming through to cash large checks for which they hadn't the funds - a head teller would sign off on the cash, no fees charged, and the customer leaves with the money.
The most egregious example that has happened to me: I had a checking account with a hidden $5 fee if the balance went below $5000 in a given month. I made a big purchase, left the account with about $3 in it and scheduled a transfer from savings for the next day... you know how it played out: $5 fee on the low balance, $50 charge to "borrow" the $2 all taken from the transfer the next day. They call that a "service". ha.
I once had a bank account with $100 in it. I went travelling and didn't access the account for a long time. Eventually, I returned back and found that they had sent me a letter saying that they had close my account for inactivity. The fee for closing the account was $120, which put the account at -$20. They were further charging me a $75 overdraft fee and informed me that my account was in arrears for $95 dollars. I did not pay them, but neither did I get my $100 back.
I think I got lucky. This was a good 30 years ago, so my memory is a bit hazy, but I think what happened was that they deactivated my account, which incurred the charge. Since I didn't technically have an account any more, they couldn't do anything. I suspect that they weren't supposed to actually deactivate the account completely and screwed up. Back then banking systems were a lot less computerised so I think there were probably lots of errors.
I had a similar fee for not having a transaction into my checking account for the month. I visited the branch to contest it. They waived the fee, and I asked the branch manager, "So I just need 'a deposit' each month, right? How about $0.01?" She didn't answer me, but I setup my ADP account at work the next day and BofA's been getting $0.01 into checking every month for years now.
And you know what? I'm pretty sure it costs them more than $0.01 to process that direct deposit. ;)
Couldn't wait until the next day to make the purchase? Couldn't use cash or a credit card instead?
You're an adult. You're obviously literate or you couldn't be posting here. Unless these fees were not disclosed to you (a MAJOR breach of the law if true), you had every opportunity to know that this would occur and to prevent it. Try taking responsibility for your own actions.
You can't imagine a scenario where a responsible adult has had a checking account with a balance over $5000 for many years and has never run in to the charge for dropping below that level, eventually forgetting about that $5 fee? Now if you managed to picture that and believe it's possible for a responsible adult to forget about an obscure fee his bank has never charged him before, try to imagine your home's AC goes out in the middle of August when it's 100 degrees out. Now you're stressed out but you've got enough money in checking to cover the replacement that day, so you call somebody out to replace it and schedule a transfer from savings the same day. Can you maybe see just a little how a mistake like that could happen to a responsible adult? Do you have every possible fee your bank charges committed to memory?
And finally, are you trying to add anything to this discussion or just displaying your self-righteousness?
Sounds like what I assume bankers tell themselves to sleep at night. Ya know - they're adults that should have known better. $50 is a modest fee to charge for teaching them a lesson. They should thank me. If they just got a job and stopped being poor, they wouldn't be in this situation to begin with. Takers.
I doubt very much that they care enough to tell themselves anything, and I'm sure they don't lose any sleep over it. You're making this way too personal; they just want money. They don't care if you learned a lesson, if you're rich or poor, if you're a taker or a maker, or if you feel grateful or hateful. They care about their $50, because those fees are profits and profits keep them in the corner office where they can bilk the shareholders for hundreds of millions while paying squat for dividends. Nothing else.
I did read it. I have no doubt they care a great deal about the $37B. I don't think they care in the slightest whether anyone likes their fees or feels harmed by them, and I certainly don't believe they're losing sleep over that. No doubt if one fee is regulated away, they'll simply replace it with another as they have many times before. RTFC.
I'm a libertarian and support free markets; please stop making us look bad. Reordering transactions to maximize fees is flat-out fraud. It's not anything any reasonable person would expect, even if it is detailed in a 6-point font on page 63 of the "contract".
Ah, so if every bank gives a 1000 page boilerplate "contract", and they all entail usurious fees, it's just the person's problem because they should have known?
Well, fuck that logic. All the banks are acting in a cartel with these. And banking is effectively required. Many workplaces require direct deposit, which guess what..... require a bank account.
Banking should be boring, simple, and hassle free. Contracts should be simple and readable, and not filled with dense legalese and caveats that say "tl;dr: we can change anything we like whenever we like. oh and we post it underneath a rock".
> Ah, so if every bank gives a 1000 page boilerplate "contract", and they all entail usurious fees, it's just the person's problem because they should have known?
Yes. If someone hands me a 1000-page contract and asks me to sign it, I'm walking out the door. As any sane person would.
> All the banks are acting in a cartel with these.
Well, (a) numerous posters (who otherwise agree with you) seem to disagree on this point and have offered both specific and general recommendations for banks that perhaps are not. And (b), if that's true, you should open your own bank. If you can't, then you should go look into why you can't, because the barriers to entry in this space are 100% artificial; that is, they are creations of the government. Not the market.
> Banking should be boring, simple, and hassle free. Contracts should be simple and readable, and not filled with dense legalese and caveats that say "tl;dr: we can change anything we like whenever we like. oh and we post it underneath a rock".
I agree 100%. I look forward to opening an account at your bank.
And, as part of his adult responsibilities, he's obviously responsible for watching his bank account balance like a hawk. It's not like adults have to do anything else.
Also, you're assuming the "purchase" was something superfluous that could wait.
A different angle. But probably for the same reason. You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? It doesn't help when most people don't have any spending money to contribute because they are drained dry by the banks...
It's important to keep in mind that "overdraft fees" is a complete horseshit of a term. The banks could easily just deny the transaction... there's nothing in the universe that says you have allow your customers account to overdraft. As the link says, these really are not fees, but short-term high-interest loans, extended by the bank to the customer, with an intent little different from other high-interest short-term loan places.
These are LOANS, not FEES, at HIGH INTEREST rates, and they're aimed SPECIFICALLY at the poor, because they're the only ones without other options or recourse, and the least likely to fight the issue when it happens.
In addition, the fact that they label it as "overdraft protection" is thoroughly ridiculous. Overdraft protection should protect me from overdrafts by denying a transaction. Instead, the worst effect of the overdraft, being charged an additional fee, is applied.
I've worked at a credit union for many years. The fees from overdraft charges probably come in second or third behind loan interest income. There are a few community banks / credit unions that don't charge a fee if your overdraft is less than $5 or if you bring the account current within 24 hours. I think this is a step in the right direction.
If you overdrafted at the credit union, we gave you a $500 limit and 30 days to pay it back. For $35 you could borrow $500 for a month. The problem is, people would pay the $500 back and the next day withdrawal it again. They would be caught in a cycle of this, very similar to payday loans, for months or years.
There we so many fee reversals at the credit union I was at the instituted a policy that said any fee reversal had to be approved by the CEO or VP of Retail operations. We were refunding millions of dollars in fees a year. That cut down on the reversals for sure but didn’t help the consumers.
I have an overdraft loan ($500) that just draws (transfers) funds to the checking if I go over. The only thing I pay for is the interest, which is a lot less than an overdraft fee. That's if you can qualify for a loan though, which can be tough if you don’t handle your finances properly.
Bank of America had some pretty bad practices where they would reorder the sequence of debit transactions, largest amounts first, to maximize the number of overdraft transactions: "the bank mixed up the order and delayed the timing of debits and transactions to maximize the possibility customers will overdraft accounts".
Their argument for doing is compelling. They figure larger purchases like rent or car payments should go through above smaller ones. It feels like the person doing the reordering was a different person from the one setting charges.
Err, their explicit practice is to send through ALL purchases; that's sort of the point of milking the overdraft cow.
The person doing the reordering is exactly the same one setting the charges. The reordering is done to maximize profit.
"Bob, here are five transactions. You must process them all sequentially. No law regulates the order you must process them in. They were received in order A,B,C,D,E, however you need not process them in that order. Processing them in the order C,D,B,A,E maximizes the profit for us, your employer. What order should you process them in, Bob?"
1. A person has many payments to make, some very large ones, but also some very small ones - and yet the variance in utility of making many of the payments is a lot smaller than the variance in the size of the payments to be made.
2. The utility of a creditor in receiving the majority of their payments is a lot higher than the utility of a creditor in receiving none of their payments.
A person requires BOTH shelter and food.
This month, your payments are:
1. The food payment is $20.
2. The rental payment $1000.
Let's say you have only $1000 for the month, and overdraft is turned off.
If the rental payment goes through, you have zero dollars remaining for food, leaving you hungry for the month, and will starve to death without assistance.
If the food payment goes through, you have $980 left. Send the $980 to the landlord and apologise and promise $20 will be sent the next month. Your landlord won't kick you out.
Ergo, largest payments should not go through above smaller ones, if we want to order in a way for the customer's benefit.
Therefore, taking into account of both parties, utility is maximised when a couple of percent of a large payment is skipped rather than when the entire amount of a small payment is skipped.
From the point of the view of the bank where they are usually the ones receiving the largest payments in mortgages and car loans, they will require a lot more customer support staff if there are lots of instances where people pay only 98% of their payments, because that's not a good reason to foreclose on somebody and at the same time they don't want them to continue skipping 1-2% of their payments.
What the bank is saying: Largest payments should go through above smaller ones, for the benefit of the bank!
If you're in the US, ditch your bank and find a credit union (or failing that, a cooperative bank). They are financially beholden to their customers (what a novel idea!~), so they don't pull this kind of shit.
Ever since dealing with unwanted overdraft shit from Citizens Bank (may they rot in hell), I swore off the adversarial relationship of commercial banks and found a nice credit union. With them, I once overdrafted my account slightly (forgot about an ATM fee or some such), and they ignored it for months. I only found out about it because they casually mentioned it when they called me about something else. No fees whatsoever.
I was bitten by overdraft fees few times, and after much complaining all fees were waived. BUT, every time I insisted on disable all kind of overdraft protections and simply dishonor ACH charge or paper check if balance is not enough. I've been told that even in that situation they will still charge NSF fees if check was authorized (and yes, recurring transactions are authorized.) They also offered to stop specific check. This will cost... same amount as NSF fee. Also, they can freeze account, it will cost... same amount as NSF fee, (and same amount to unfreeze)
"Did you ever get so broke that the banks starts charging you money because you don't have enough money"
"Sir you only have $20? How can you only have $20. -- Look, I am not being broke just to fuck with you, I really just don't have any ... money. I am not trying to be a dick"
"So they charged me. They charged me $15. That's how much it costs to have $20. Here is the fucked up part, now I only have $5. What did I pay the $15 for if I don't get to have my $20!?".
My father was dying and I'd moved home to help him out in his last days. He'd lasted longer than we thought, and so I was very low on money. But he wanted something from the store, and it was cheap, and I went to get it. It went through, but I got a $35 overdraft fee for something like $0.50 over. I was angry, and the woman at Wells Fargo chastised me for not checking my balance by phone before charging anything. Mind you, this was after I told my bank to just decline any charges that would put me over.
I left Wells Fargo that day and have never been back to them or any other big national bank.
If you don’t want your account to come with overdraft services, clearly tell your bank or credit union to decline purchases that exceed the money in your account.
Well, Wells Fargo charges $35.00 overdraft fee. Or if you choose to decline, they charge $35.00 for unaccepted charge. Either ways you'll be paying Wells. Oh well.
When I first moved to the US as a student from Germany I kept most my money in Euro cache and only covered what I needed in the coming weeks because the Euro kept going up pretty quickly. I will never forget how furious I was when I got an overdraft fee. It took my wife quite a while to even explain the concept to be because it seemed so completely nonsensical coming from Germany. In Germany the bank would be set on fire for this by leftists.
Overdraft fees are maddening. I can't even imagine how bad they would be if I were strapped for cash.
I admittedly am not great at managing my accounts, but, it blew my mind that the following situation could (and did happen):
I got paid monthly, let's say it was $5k USD. At the end of the month, I may or may not have enough money in my account, for, say, a day or two.
So, I go to buy a coke at the university shop. No problem, costs me $1.25, but I used my debit card.
Now I get a $35 fee because my account was at $.75
That makes sense right? Given that the bank has significant historical information that I will get paid in less than 48 hours, how am I a risk?
OK, so I bought another soda, later in the day, another $35.
Whoa! $70 for two sodas.
Kill me now.
What's worse... I couldn't set my account to reject these transactions. Either I had to always monitor my account, AND make sure that none of the services I subscribe to ever charge me in this specific time period.
It wasn't until specific laws were passed that I could make my account follow these rules, and this was about 2009, or 2010.
I paid at least $1000 to the bank in overdraft fees over the course of a few years.
In fairness, these are the only fees I paid to the bank, and probably, if this were the cost of banking (less than Spotify!) I probably would have paid them happily.
The problem with these charges is that they were volatile, a surprise, and scraped the bottom of the barrel when I was least capable of handling the charges.
It's maddening, and I feel strongly for those who weren't as well off as me who got fucked over by banks under the scheme, and likely continue to get fucked over because the banks still don't make it easy to set your account up in such a way that you reject overdraft charges.
I'm not saying this isn't true, but the post is on the blog of a short term loans company who have a vested interest in people believing a short term loan would be preferable to an overdraft fee, and there's no cited report or study that suggests banks make most of their money from fees.
"In fact, roughly half of respondents to the ICBA survey say that overdraft fees constitute their most profitable non-depository and non-lending product, despite regulatory changes that have crimped their income potential."
So basically the article is completely wrong when it says:
> The most profitable source of income for banks is not mortgages, credit card fees or mutual funds, but the fees they charge clients for these short-term loans.
As a Brazilian, the whole concept of "overdraft fees" feels truly alien.
I am not aware of any banks that will charge you like that and wouldn't be surprised if it were forbidden by the central bank. Some of them will even charge you nothing even if the account sits in the negative for a set number of days (10 usually). The others will just charge as if it were a loan, by the month's end.
Now, here is the interesting part. You can expect to pay, currently, over 10% per month on any outstanding loans. In the case of a negative balance, charges upwards of 30% are common. So it's not like they aren't robbing people either. They are just doing it in a less visible way.
Wow, this is truly ridiculous. I recently moved to the US (yet to set up a bank account here) and did not know about this. Back in India, if you don't have funds, your transaction is declined. Plain and simple. And no fee for that, either. This is pure unleashed greed. Now I know why bankers are so hated out here. Banks have way too much power, way more than the benefit they provide. This whole system needs to change. Horrible!
And I am sure we are going to find this kind of shit in India soon, because from what I see, we are blindly copying the American way over there. The good, the bad, everything.
>According to an ICBA survey of 200 bankers nationwide, overdraft fees constitute their most profitable non-depository and non-lending product.
Emphasis mine. This is an inflammatory title, not matching the article's or any statements I see made therein.
This statement is buried in there, but if we want the title to at least be accurate, it should be along the lines of "The third most profitable source of income for banks? Overdraft fees - behind their two core services, depository and lending services."
Pre crisis overdrafts used to be cheap. There was just a monthly interest amount (fairly low - IIRC mine was about 12%).
Post crisis, many banks in the UK "simplified" overdraft fees by charging rediculous daily/monthly usage charges and increased interest rates. It really is a massive swindle when being £100 overdrawn for one day can cost between £5 and £40 [1]. You used to just have a monthly interest rate like a credit card, often paying a few pence for going overdrawn for a day.
Of course being British, we just rolled over and took this (I did close all my Natwest accounts after being charged £5 for being £1 overdrawn for one day, but most banks are the same now). The people with the power have large amounts of money in the bank and had no need to complain.
With blllions in PPI being reclaimed (Lloyds alone supposedly have a bill of £13 bn [2]), this isn't a surprise. The banks always win.
Bank overdraft and NSF fees are definitely odious. It's part of the reason why so many poor people have switched over to prepaid and are opting to pay the $5-$10 monthly fee for those accounts - it comes out to less for many people and at least it's predictable.
These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).
> These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).
Maybe the lesson is that over-regulation and financial repression aren't so good for the people. These guys are going to make money somehow. You can create a system that allows them to do so with minimal harm while providing valuable services or you can take away every stream of revenue except the evil things they haven't thought up yet. America is clearly opting for plan B, and it's working about as well as you'd expect.
This seems like a politically motivated conclusion -- I just can't find any evidence that it's necessarily true.
I really can't see how "over-regulation" is the cause of banks behaving badly -- their core business is ostensibly to charge interest, right? That's still legal and, in the US at least, loans (for school, homes, etc.) are an almost celebrated social rite of passage.
I just can't look at banks knowingly screwing their customers and react with "they need less rules." If anything, this behavior is evidence that banks cannot be trusted to act in the public interest, if only because there are much more substantial financial incentives to act like assholes. Regulation is in place because it's absurd to just say, "oh, they'll be nice, why would anyone be mean to people in exchange for huge sums of money?" It fills in the moral gaps that the market doesn't enforce.
It's pretty obvious that banks do not act in the public interest. I'm not sure why anyone would expect them to. They are for-profit corporations and they will do everything within the law to increase those profits.
The US regulatory strategy with respect to banking is to limit the interest they can charge (often to a level below break-even), limit the set of customers to whom they can make loans, limit the terms on which loans can be made, require them to do business with a particular central bank that does not pay interest, require them to hold a certain amount of capital in forms that you dictate, prohibit them from charging fee A, then when they start charging fee B (legally) instead, prohibit that too.
Under the circumstances, I don't see why anyone should be surprised or upset that they then stop charging fee B and start charging fee C instead.
If you want the government to do something that would actually help people, you should be looking at all the laws that effectively prohibit the use of cash. Or the laws that in many states require doing business (with fees!) with a bank in order to get paid, or to take advantage of public assistance programs. Start by accepting that banks are not charities; they are never going to act the way you would like. What you can do is to give people good options that don't involve banks at all, then let the market sort it out. When you force people into banks, you're setting yourself up for disappointment. You will never be able to regulate away every last way to make a profit, and if you did manage to do so then you would rapidly find yourself without the ability to conduct any transaction -- because you've legislated everything into the banking system (where you can watch it and dictate to everyone in world). It just doesn't work.
That's an interesting angle that I hadn't considered -- I get that it's unreasonable to ask banks to be a public trust AND a public corporation at the same time, but maybe separating the "for-profit business" side of things from the "financial services necessary to just be alive" side would be more productive for everyone. Just never occurred to me, for whatever reason.
Thinking more about it, this seems like a similar problem to one some states are running into with privatized prisons and "public" schools -- corporations are put in charge of public services and are doing a horrifying job in some cases, because their business is oriented toward profit, not "the public good." I'm not saying the companies are acting unreasonably, but maybe some things should just be set aside for something other than profit... firefighters come to mind.
The most profitable source of income for banks is non-interest bearing checking accounts. On an overnight basis, Fed Fund Rate is 0.25% and Overnight USD LIBOR is at 0.133%. However these checking accounts pay nothing to customers. So, whenever customers deposits any amount of money, banks easily earn at a minimum 13bps out of it.
That is free income for the bank.
Other lucrative source of income for banks are interest bearing checking account and savings account as they pay peanuts to customers compared to what they can lend out to the interbank market.
Disclaimer: I work for a bank in the treasury dept
Many times in the past, I've learned the hard way that when you ask the bank to STOP paying any charge that would take the account negative, they say OK but then have enough loopholes that the request is essentially meaningless. They STILL apply the overdraft and there's no way to turn it off! I thought laws were recently passed to prevent this behavior, but I guess not.
This title should be changed, as it is not the title of the article and even more importantly seems to be pure clickbait.
No source is cited for $37 billion in overdraft revenue and even if that number is accurate I'n highly skeptical that it's the most profitable line-item in a $1.26 trillion dollar industry.
Underrated comment. I was just listening to a bitcoin podcast with the Bank to the Future author discussing this. Bit one sided, but really interesting essentially he posits that capitalism is somewhat problematic but still a great way to organize actors in a market, however the ability for banks to create money and the false assumption that they are intermediaries has lead to the problems we're in now.
We could read 100 sob stories, or we could recognize that every single overdraft (other than errors and fraud, which do happen but are rare and these days invariably corrected) is voluntary. Yes, banks will make money any way that they can. Yes, they will happily take your last dollar, or even dollars you don't have and never will. No, they do not give one flying fucking rat's ass about you, your sister, or the homeless Vietnam War veteran who saves orphaned children on weekends and singlehandedly saved the world from nuclear annihilation last week. Twice. They don't care. Not one tiny bit. They're probably bastards.
So why in the name of all that's sane and holy would you give them money by falling into the traps that they set for you? You choose to write checks you don't know for sure are good. You choose to use your debit card instead of cash. You choose to keep poor records of your own accounts. These are choices that you make, or not, despite 13+ years of free public education that includes all the basic skills necessary to avoid this problem. And then you complain that the bankers are making too much money charging you a fee that you agreed to as a direct result of a transaction that you deliberately initiated against your account. You. Not the bankers.
If you can't or don't care to keep good records, you should use your checking account for only the bare minimum of transactions that you know for certain you can keep track of, only when you are absolutely sure you have enough in your account, and use cash for everything else. Basically, if it is at all possible to use cash for something, use cash. If you aren't sure of the terms on your account, get out your paperwork. If you lost it, call the bank and get them to send it to you again; they're required to do so. If you don't like the terms, find someone else; there are over 7,000 commercial banks in the United States.
There are thousands of pages of banking law and regulations devoted to making sure that you are aware of these fees, limiting them, obligating banks to refund or cancel them in certain situations, and on and on. It's your choice to pay them. It's your choice to hand those bastards a bunch of money for lending you literally a few bucks for a few days. Yours. Not theirs.
And they're not even grateful for it. You really oughtta cut those bastards off.
I think there's an aspect of morality that you're missing. There comes a moment when taking advantage of someone's lack of foresight, lack of intelligence, and/or carelessness becomes immoral.
I'm not sure where exactly that line lies, but I think I have a good staring place:
If you've created a system that takes someone's money -- even when that transaction was done with the person's prior permission in some way -- and that person says "Woah, wait a minute, this isn't what I thought I signed up for," that's a hint that you might be on the wrong side of that line.
If millions of people have that reaction, and legislators start making public inquiries into what you're up to, that's a REALLY good sign that you might be on the wrong side of the line.
And the best part is, you're being downvoted for this..
I dunno, apparently a lot of HN thinks that it's impossible to believe that banks are generally run by bastards while simultaneously believing that 99% of these instances are completely voluntary and completely avoidable?
If you keep track of what you're spending your money on, it's not a problem you're gonna have to ever deal with - and I say this as someone that's played this game with Wells Fargo in the past.
But apparently, advocating for people to be responsible for their own actions is a radical and terrible thing nowadays.
It's probably because people usually grow out of the stage of political awareness where one imagines human beings to be atoms that aren't connected to one another. If you think that 'personal responsibility' or whatever allows you to judge someone as stupid, inferior, or deserving of misery, then you will have a bias that makes you see people as individuals cut off from all social and economic context because it gives you the most leverage to rationalize their misfortunes away.
People are all connected and all economic relations are social relations. If you treat everyone without their social context, you're basically saying that every powerful individual or institution can make relations with them a minefield because all that matters is that it's their weaker counterparty's responsibility to avoid all the mines. After all, everyone 'consents' to a 'voluntary' exchange. How could 'voluntary' exchanges be bad???
Your worldview is just a very immature way to rationalize predatory institutions and hostile power structures. Actions cannot be judged as voluntary except in context. The context that people like you and the grandparent tend to take is, at best, one of the law or some insipid moral principles based off of a rancid individualism.
You seem to know an awful lot about my worldview based on nothing more than a statement of the completely true fact that these wounds are almost entirely self-inflicted.
"Minefield"? "Don't spend money you don't have available to spend, otherwise bad things will happen" is a principle that most people are taught as children.
You seem to conflate the ideas of personal responsibility and the idea of deserving whatever gets thrown your way. We can talk about how crappy the idea of overdraft fees are all day long, but at the end of the day, it comes down to "doctor, it hurts when I do this", the response to which is "don't do that, then." The mechanism of the pain might be the result of a bad actor, but it's still your fault for inflicting it in the first place.
Again, this sort of reasoning allows every institution to open the doors to maximize the chance that vulnerable people fail in order to capitalize on it. There are many, many, many more traps in the world than overdraft fees for vulnerable people to account for.
Governments, banks, employers, etc. are all hostile towards people.
Every detail you have to track in order to not get fucked is a liability The silence on your part on what responsibility our institutions have for the people they serve is deafening. What you don't say tells me as much about your worldview as what you did say. It's all boring as hell, trust me.
One would think a bank account were an instrument for storing and retrieving one's own money. Banks opted in customers to a system that would allow them to extract fees from people who work with low account balances. They exist.
Furthermore, if you look around this post's comments you'll notice that banks do far more than just charge for overdrafting. They specifically optimize for extracting such fees and behave in an adversarial way. It is often difficult to know what balance one actually has unless one does all their accounting by hand. This is a ridiculous cognitive burden that people with ample account balances do not have to work with. Every institution acts adversarially in this way, because institutions operate to maximize their power as much as they can.
It is not ridiculous to think that human institutions should be structured to serve people, not exploit them.
> Are gun manufacturers to blame as some part of power structure when you point it at your foot and pull the trigger? If not, why?
This is a stupid analogy. A better analogy would be, say, if you tried to withdraw money from your bank account, and if you overdraw, instead of rejecting the transaction, the ATM shoots you in the face.
It doesn't even fucking matter. The point is that some humans with a lot of power optimize the extraction of resources from lots of humans with very little power. You think that's ok and that a society structured around humans being hostile and exploitive towards each other is a good thing, and I think that's objectionable.
It is often difficult to know what balance one actually has unless one does all their accounting by hand.
This is absolutely not the fault of anyone but the account holder - even the most honest and pro-consumer bank out there will have issues with this just due to the way finance works.
Example - say you buy a pizza on delivery with your debit card. The card gets "authorized" right then and there (but the money hasn't gone), and your bank will show a difference between ledger balance and available balance. Now assume you wrote a tip on the receipt, and now the discrepancy further grows. Your bank shows you have sort-of balance-pizzaa, but it's actually balance-pizza and an invisible tip until the pizza join runs the batch hours or days later.
The responsible person will know how much money they have, and deduct pizza-tip from their ledger the moment they pay it - no ifs ands or buts.
You think that's ok
Never said that. Again, you seem to think it's impossible to believe that banks are bastards and simultaneously believe that people often act counter to their own best interests.
I don't feel that I'm a weaker counterparty. If I find myself feeling that way in a relationship, I am going to renegotiate its terms or end it.
The problem that you Progressivists have is that you cannot distinguish apparent power from real power. A bank may be evil, but its power over you is illusory. You are still free to terminate your relationship with it at any time. Real power comes only from the ability to use violence, which in the developed world is associated primarily with the government. That you cannot tell the difference between a tax assessed by the government and a fee charged by a commercial entity as part of a voluntary business relationship is the reason for your confusion and frustration. And mine as well.
By the original philosophical definition, I'd probably qualify, though my affinity for the ideas is marginal. I'm not really convinced that our "advances" have improved the human condition. A few have, many others have not, and on the whole I think our species is in worse shape than it was 300 years ago. I'd like to think that an increase in our empirical knowledge would lead to an improved human condition, but empirically that doesn't seem to be happening. It might end up being one of those theories that lends itself to proof by elegance, but when tested just plain doesn't hold up. The string theory of its day, perhaps.
Unfortunately, Progressivism in 21st-century America bears little resemblance to Enlightenment thinking. It is a toxic brew of extremely hardcore Communism (Marx would have been appalled), beyond-stifling political correctness, defeatism, and a vicious temporal smugness that glorifies both ignorance and denigration of anything at all involving the past. Because of course we're so much better than they were. Not just more knowledgeable about the Universe, not just given the benefit of more experience, but better. Anyone who says otherwise is "speaking from privilege" and must be ignored, shouted down, or ideally punished or removed entirely from society (so that it can make more progress, naturally). Better men than I have commented on the astonishing narrowness of the range of ideas and narratives acceptable to these ideologues who demand inclusiveness. This philosophy wouldn't even be worthy of comment were it not occupying the entirety of the Overton Window.
To bring this to bear on the topic at hand, since Progressivists hold that everything that exists today is superior to whatever version of it existed in the past, it must be true that our gigantic bureaucratic regulatory regime is in every way superior to what it replaced (small government, laissez-faire market capitalism, individualism, etc.), we can make further progress by doing more of that. Since our system of laws has become so large and unwieldy that it's essentially impossible to comply with it, we may well make further progress by simply penalizing anything that smacks of success (undeserved, of course). Since our taxes are so much higher than in the past, we can naturally improve our lot in life by raising them further. Since we're better people than previous generations, we know better than they did and may safely ignore the lessons they learned in these matters (the Soviet Union, the 1950s-1970s tax regime, etc). When it comes to government, more is better, always and without exception. Anyone who has money, regardless of how obtained, is to be punished -- not for stealing it, but simply for having it. It's much easier than punishing crime, after all, and since people with money had a lot of power in the past, the future will be better if they have less. Ideally, less than none. Instead of punishing individual behavior, it's easier to just punish people who seem similar to people who were successful in the past (the decadent, evil, exploitative past again). It saves the trouble of finding evidence of wrongdoing, and after all, everything balances out in the end, right?
So we don't need to bother with the rule of law or written contracts; whichever party, historically speaking, was in a position of lesser advantage must prevail in any dispute. Anyone who's less than hopelessly impoverished and disenfranchised must have achieved that exalted position through fraud, theft, or murder; how else could one prosper in that past? And surely anyone who is poor today owes it not to any defect in himself but to the inescapable injustices of that past. Else what progress do we find in the march of history?
So if you're a banker, it doesn't really matter whether you've followed the law. It doesn't matter if you've disclosed your policies properly and timely. It doesn't really matter because you're a banker and the other guy isn't. You're wrong, and you'll always be wrong, and you'll keep being wrong no matter what you do until you give up and die.
Progressivism, in a nutshell, seeks to replace rule by law with rule by victimhood, just as the original version sought to replace rule by sword with rule by law.
Please stop using HN to conduct ideological tirades. You've been crossing into personal attacks, taking discussions into flamewars, and behaving high-handedly. None of this is good conversation.
Everyone with an agenda thinks that they're enlightening the world with their rhetoric ("in the desperate hope that some young people will read this and understand") and imagines themselves surrounded by enemies ("this is one of the most heavily Progressivist boards on the entire Internet") while they of course are simply offering "facts". What's striking is how predictable this pattern is and how little it depends on the content. You could easily, and many do, have the opposite politics and behave the same way and make the same claims about other people. On HN this typically includes self-flattering interpretations of downvotes.
This is little different from preaching on a street corner, haranguing passers-by. When passers-by react badly, it's apparently irresistible to conclude that they're cretins. But really it's just that most of us don't like being preached at. I'm sure many of the people downvoting you agree with at least some of your views. But when you're trying to have an interesting conversation and ideologues show up with megaphones, it's a real bummer. And HN being a public forum, it's not like there's a quieter street corner we can all retreat to.
> I'm not really convinced that our "advances" have improved the human condition
I'm baffled. I can't comment on this, if you really don't believe things like going from a life expectancy of 30 to 80 years improved human condition.
So you just wrote several extended paragraphs of arbitrary philosophical justifications that I don't if someone would really fit in, lest any group homogeneously makes assumptions such as "it must be true that our gigantic bureaucratic regulatory regime is in every way superior to what it replaced".
What we're arguing here is about a specific consumer protection mechanism; you seem to oppose consumer protection in general, in principle. I don't see how that is justifiable, that simple.
By the way, I own a significant amount of shares of several large banks. So technically, I'm a banker, but I sure don't want me to "give up and die".
Not everyone can afford to educate themselves on every consequence of every interaction with a corporation that is actively trying to obscure those consequences. I'm generally not ignorant, and I naively thought last week that if I transferred some money into a checking account on the same day that a payment was taking the balance below zero, I'd end up positive when the transactions were run at the end of the day. I got dinged $35.
See, this is an instance of the bank clearly being a dick, for lack of a better term. The money was there, you were being responsible, you still got dinged. This is wrong.
Now, how much do you want to bet that's not the case on some high-90s percentage of overdrafts?
The comparison to EULAs is specious at best. It's not like it's some legalese small print buried halfway through a lengthy document - they're disclosed separately and prominently, in part, because they're legally forced to.
I think the EULA comparison is valid because in my case, the rules that explain that behavior (perhaps a transfer from another bank may take "1-3 days to be accessible") are also probably written somewhere, but the overall amount of noise, added to the noise of my daily worries, means that I'm likely to miss it.
I'm not going insert into the conversation a guess of what percentage of overdrafts are fair/unfair. I agree that many overdrafts are the exclusively fault of the account holder, but I tend to grant leeway when the bank has a general history of "being a dick."
Not talking specifics here, but there's a point that people must be shielded from their own ignorance (or even plain stupidity). There are lots of things to know about, and many people simply won't ever know about them by pure chance. I believe the law should actually be maximally protective of individuals up to the point it starts severely compromising the flexibility of businesses or individuals. Doing any less is masochism in my opinion.
For example, roads have guard rails in high traffic areas that mostly protect people from their stupidity -- you shouldn't speed near ledges otherwise; doing so would be stupid, and from then you could be small distraction away from death. It frees mental bandwidth and cuts transit times of travelers with little added cost. Nobody should have to suffer needlessly for poor decisions (not even taking into account most times it's just bad luck -- let's assume worst case it's just stupidity) if we can prevent it, and sometimes education won't work (not as fast as it should).
I've been stupid quite a few times with regards to physical/career risks myself and have a few otherwise very bright friends make stupid decisions. If those were preventable they should be prevented. They are much more efficient ways of teaching than allowing very significant mistakes to be made.
In particular, any safety mechanism for which if the majority of affected users post facto would agree upon can likely be put in place beneficially (which I would argue is the case for limiting overdraft fees).
You can think about it as if instead of needing people to learn about the innumerable (and mounting) hazards of the systems around us, we can free mental bandwidth and create other systems that learn about the hazards and protects us so we don't have to worry about it.
Sure. For well-educated, silicon valley types with a resident accountant. You're missing out on the part that says that the poor (which many times goes with lack of basic education) are hit the most by these fees.
Not to mention that overdraft fees are a ridiculous concept to begin with.
Well, I expected to be downvoted. This is one of the most heavily Progressivist boards on the entire Internet, so it goes without saying that this view is unpopular. And downvoting is much easier (and faster, and consequence-free) than arguing the facts, especially when they're not on your side. If I weren't willing to accept this, I wouldn't post here. There's a lesson in there somewhere.
You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account, putting your balance at -$9. Now you have to pay $35/day until you get enough money to cover the overdraft fees. You end up paying $100+ for a $9 forced loan.
The bank could have just declined the charge and let you deal with it, but even though you have overdraft "protection" turned off, they've decided to classify this transaction as an on-going contractual relationship, letting the charge through so as not to "inconvenience" you. Bankers are inventive at skirting the law.
They know exactly what they're doing. They're rich bankers robbing poor people.
I won't be satisified until Bank of America, Wells Fargo, and all these other evil American banks pay back every single dime to their victims.
Until then, no one should even consider helping these evil banks when there are good ones available. USAA is great.