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.
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?
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.
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.
> 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 might want to consider a pre-paid credit card :)
In Switzerland one must - by law - accept cash as payment. Is this different in Canada?
If you're eligible, you should join USAA.
You see, USAA was one of the first banks to have an Android check deposit app. Years before B of A.
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.
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.
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.
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.
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.
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).
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.
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.
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.
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.
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.’”
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.?
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.
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.
The bank isn't doing you any favors by letting you pay with money you don't have, they know they'll be getting that money back and then some.
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.
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.
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.
> 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.
"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.
And you know what? I'm pretty sure it costs them more than $0.01 to process that direct deposit. ;)
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.
They do: http://www.amazon.com/dp/0674030710
Is the service better? Unclear.
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'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.
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.
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.
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.
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.
Not to mention that overdraft fees are a ridiculous concept to begin with.
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.
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.
When you go report something to HR, the HR rep always writes things down on paper. Why do they do that? In case things go to court.
Write down on paper what everyone says. Otherwise is your word vs the manager's. Employees will not win in a case of he said she said.
They got sued and settled for $410 Million in 2011: http://www.bloomberg.com/news/articles/2011-02-05/bank-of-am...
[edit: spelling mistake]
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.
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!
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.
A couple of articles that make me wonder;
http://www.businessinsider.com/chart-of-the-day-how-a-bank-m...
http://www.wsj.com/articles/banks-fee-bonanza-dries-up-14096...
http://independentbanker.org/2014/01/finding-more-fee-income...
> 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.
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.
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.
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.
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.
This is local smallish CU...
https://www.youtube.com/watch?v=-n4DRcGJQo8
Some quotes:
"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!?".
I left Wells Fargo that day and have never been back to them or any other big national bank.
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.
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 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.
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.
B. It is the banks responsibility to maintain an accurate accounting of funds deposited with them.
A customer has no mechanism to instantaneously check their balance, and 'hold' funds for a transaction, or if unavailable avoid the transaction.
The bank does. It is the debit card system.
They, not you, are responsible for using the systems they have to avoid accounting errors.
No one should be made to feel guilty because they are poor, or for failing to keep a ledger that only a bank has the ability to keep.
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."
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.
[1] http://www.moneysavingexpert.com/banking/bank-charges-compar...
[2] http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds...
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
http://www.bankdirector.com/index.php/issues/retail/the-prof...
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.