The most profitable source of income for banks? Overdraft fees
loannow.com
loannow.com
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.
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.
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.
Right?
Even if you were a driving a commercial truck and ran over a kid walking to school while driving without a license, they still wouldn't press charges.
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?
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.
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.)
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?
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.
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.
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.
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.
1. Banks must make rejection of a charge, rather than overdrafting, the default.
2. When overdrafting is enabled, cap the fees at some amount (say, $5), and also cap the amount the account can be overdrafted at, say, $50.
Looks like a pretty disgusting scheme to me. /sarcasm
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?
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...
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.
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 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.
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?
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.
That's not the language the person I was responding to used.
Essentially, a poor person will be charged higher fees than a rich person.
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
Notice the FDIC. Credit unions are not insured via FDIC, they use NCUA. http://www.gobankingrates.com/banking/fdic-versus-ncua-insur...
And not only is there no account fee, but the checking account pays a pitiable amount of interest.
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.
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.
If you're eligible, you should join USAA.
My paycheck also posts immediately, I get "paid" Thursday while everyone else I work with gets it Friday.
You see, USAA was one of the first banks to have an Android check deposit app. Years before B of A.
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?
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.
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...
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.
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.
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.
Can I send my cash to jury duty? :)
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).
Can you provide citations? Thanks!
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.
[1] https://www.fbi.gov/about-us/cjis/ucr/crime-in-the-u.s/2013/...
[2] http://www.washingtonpost.com/sf/investigative/2014/09/08/th...
In Switzerland one must - by law - accept cash as payment. Is this different in Canada?
> 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 :)
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.
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.
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).
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.
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.
Honestly, I didn't jump to any conclusions -- perhaps you're not interpreting my question in the most generous way?
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.
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.
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.
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.
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.?
"A rose by any other name would smell as sweet..."
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.
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?
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.
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.
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.
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.
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.
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??
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.
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.
> 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.
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.
Also, you're assuming the "purchase" was something superfluous that could wait.
And finally, are you trying to add anything to this discussion or just displaying your self-righteousness?
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".
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.
They do: http://www.amazon.com/dp/0674030710
Is the service better? Unclear.
"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.
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.
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.
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]
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!
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?"
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.
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.
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...
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.
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.
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
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.
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 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.
Not to mention that overdraft fees are a ridiculous concept to begin with.
Every checking account you can walk into a bank and get provides you with a paper register...
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.
"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.
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.
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?
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.
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.
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.
Also, I never read about progressivism before.
https://en.wikipedia.org/wiki/Progressivism
Can you sincerely say you are not progressivist after reading the introduction?
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.
Afraid I'm just not having any. But HN sure is.
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".
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.
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.
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'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."
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.
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.