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One of my close friends called me to complain that she had over $100 in overdraft fees because of a total of $16 worth of Red Bull, cigarettes, and chips -- all paid for at different times. She hadn't realized how close her checking account was to a zero balance, and was assessed a separate overdraft for each purchase, even though they were as low as $.69. It's hard for me to see those fees as anything other than a bank milking a young, inexperienced client (no, customer) for money she couldn't afford. When I talked to her dad about it, the word he used was "evil."
These overdraft charges are not a convenience to prevent bounced checks. As Laura Rowley writes, "Do the math. You may find that you paid an effective 3,000 percent annual interest rate on a courtesy loan you never asked for."
Ms. Rowley makes a number of points about how abusive the system is, and I agree with all of them. Banks should be less evil, and the Consumer Overdraft Protection Fair Practices Act should be passed.
But there's another side to this. As Rowley points out, most people who suffer from overdraft charges are lower-income. Many have their credit cards through separate banks, and don't use the bank for mortgages or other cash-cow services that banks provide. So how can a bank make a buck off people with little in the way of assets? Overdraft fees -- a game of "gotcha" that is absolutely predatory. But can you really blame them that much?
There was a time when people actually did save money, or so my grandma insists. They put their money in a passbook savings account at the bank and received a pretty low interest rate, and the bank collected the spread between the amount at which they lent the money out and the amount they paid in interest. But people have no money saved, they can't do that.
If banks could make money from low-income consumers without overdraft fees, they'd be lining up courting those people with big signs: "No overdraft fees!" But they can't, so they don't. There's no market force in place to stop overdraft fees because there's no way to stop them except by essentially forcing banks to take on customers at a loss -- or worse, reject them and send them off to the check cashing shops and payday lenders.
Maybe Congress should act to protect consumers from overdraft fees, but we could see the law of unintended consequences in full force: People are much better paying overdraft fees than using check cashers, and the last thing we need is to expand the "class" of society that doesn't have bank accounts.
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Reader Comments (Page 1 of 1)
7-29-2007 @ 3:37PM
Fred said...
You may do better moving your accounts to a credit union. Did you know that banks really hate credit unions?
7-29-2007 @ 6:07PM
jloving said...
I can tell you this, from experience. It took me almost 2 years to figure out what was going on. First of all, money magically appears in your account, you have bad credit, no credit and you still need to pay your bills. Before there was even any disclosure about what exactly was going on I was taking money or writing checks on what the bank said I had available. This started a cycle of course. Car pmt due on the 18th every month, rent due on the 1st, Electric bill due on the 9th, etc. To miss a payment at this point either means repossession, shut-off or eviction. Most low income people are living check to check. Once this cycle starts how do you get out of it. Oh and by the way, I have a credit union account. For which I pay about $200 in fees because the bank (in this instance, credit union) will determine when they want to process the EFT. That's what brings up all those fees. Very crafty they are.
7-30-2007 @ 5:51AM
Drew said...
I agree with what this article is presenting. I got screwed out of $300 from these overdraft charges just because I didn't know that I was spending money I didn't have. The card should stop working when there is not enough money to pay for an item.
8-02-2007 @ 6:38AM
gotwins said...
Having worked in the banking industry for a while I have some access to the "inside info".
I work for a bank and encounter the excessive overdrafts in some of my customers accounts which creates a world of frustration. I will always give my customers the different options when it comes to managing their accounts but many times there really is no solution because my customer is living paycheck to paycheck.
For the bank I work for linking a savings account and/or credit card to the account will minimize the overdraft fee.
I think the industry standard is about $34 per overdraft charge per transaction but with the bank I work for the fee can be reduced to $23 per transaction if the checking account is linked to a savings account. In addition the fee can be reduced to $10 per day versus per transaction if the checking is linked to a credit card.
Overdraft charges are one of the most profitable aspects of the banking industry. I mean honestly, does it really cost $23 to transfer funds from your savings to checking? I do it online all the time for free.
What's really sad is the people who need overdraft protection are the people with no money in their checking/savings accounts and are the people who can't qualify for credit cards. Those are the people who need the most help. Unfortunately for these people banks profit too much to do away with overdraft fee's.
8-02-2007 @ 6:38AM
mary said...
banks make money on overdraft because society doesnt want to take responsibility for itself. learn to manage your money and there will be no over draft fees. we blame anyone we can for not taking care of ourselves. lazy people want someone to watch over them so you pay for it
8-02-2007 @ 6:38AM
Lin said...
Banks are GREEDY, plain and simple. They charge overdraft fees because they know it is an easy way to gouge their customers. It is not just banks...credit unions do it too.
9-27-2007 @ 2:09AM
Karen said...
Banks are crooks!!! Worse in my opinion than the worst gansters or thieves!! And the worst part?? We "little guys" are helpless....for now.. to do anything about it. One thing is forgotten here-- these banks are playing with OUR money!!! They SHOULD have to ask permission EVERY TIME they use it--otherwise, why bother putting money in the bank if you no longer have any control over how it is spent? Bank robbers are tracked down & prosecuted, maybe it's time to drop the double standard here?? The "little guy" should be able to prosecute the banks that steal from them!!
9-27-2007 @ 12:15AM
Karen said...
I have even heard through various consumer groups & experts that bank hold your deposits, until your account is in danger of overdraft, & then rather than put the smaller transactions throught that WOULD have cleared, they wait & hold funds until a bigger transaction comes through, process that one, hit you with ffees, and then proceed to put the smaller ones through & hit you again and again with the "fees" for the overdrafts. Have you ever noticed that the phone bank balance and the ATM balance & the statement balance and the teller in person balance are ALL a different amount for the same day? Just how ARE we to know what the TRUE balance is?? Consumer experts answer: Banks DON"T WANT you to know.. then you can't fall into the "trap" & watch as your balance bottoms out & your paycheck is spent by the bank before you get it TO the bank! THIS NEEDS TO STOP!!! HOW CAN THEY CALL THIS LEGAL??? Welcome to the "NEW" America.
We don't need foreign terrorists to threaten us & scare us... we already have our own..& we're letting them do it to us! Remember that old saying, "With friends like these, who needs enemies?" Wake up America! Start speaking out, doing something about what is going on here at home. If we don't...who will?? I don't want to live among liars & thieves anymore- do you???