Comment by steve8918 | Hacker News Reader

Comment by steve8918 | Hacker News Reader

In the book "The Big Short", Michael Lewis mentions how one CEO admitted to an audience that free checking accounts were simply a way of screwing over poor people for all these additional fees, like overdraft, etc. It's really because people with less money need to spend more time managing their money because they are closer to drawing down the account, and the banks are betting on this. It's basically predatory banking, and I guess based on the numbers, extremely profitable.

It's the exact type of behavior I would expect from a bank. But let's not swallow everything that the article said. It's not like banks of yesteryear were so magnanimous. Back in the Great Depression, it was the banks that screwed over so many farmers and home-owners that many states, including California, made mortgages non-recourse meaning that banks could only take back the house in the case of foreclosure, something that many people took advantage of during the latest housing boom.

  It's the exact type of behavior I would expect 
  from a bank.

From an American bank. There is no German, Dutch or French bank that does that and I doubt Spanish, Italian or Swiss banks do it. Sure, if I overdraft, I pay (serious) interest over the amount overdrawn for as long as I am overdrawn, but you aren't hit with any fine at all.

In fact, I have arranged that I actually can't overdraft. Automatic bills just bounce when I'm underfunded. That's between me and the companies whose bills bounced.

As a European I still marvel at the craziness of American banks. I just graduated college this summer, working at a startup now, so cash is tight, have some student loans, yet I never overdraft cause I can't. If I could, I know the temptation would be too big. (Do have a credit card though, which essentially is an overdraft as the bill comes the 26th of each month, but is automatically paid in full).

As an American who moved to the Netherlands, I can vouch for this. My fellow countrymen don't know what they're missing:

* There are no ATM fees levied by another bank's ATMs.

* There are no ATM fees levied by your bank for using another bank's ATMs.

* There are no fees or minimum transactions for using your debit card at a business.

* You are allowed to overdraft, you just pay an interest rate to the bank for the money you owe (mine is 10%, up to €2,500).

* There are no bounced check fees, because:

* There are no checks. Non-debit card transactions are done via online banking, are free, and usually instantaneous.

* All banks use 2-step authentication (phishing is nearly impossible).

I was confronted by the joke of US banking again recently when I had to mail someone in the US a check, which they lost, found 6 months later and cashed... generating an overdraft fee in my US account.

Totally unnecessary.

"There are no fees or minimum transactions for using your debit card at a business." isn't always true. For (small) business with not enough transactions, accepting debit cards is an expense, and below 10 euros they often charge 0.25. Nothing major though.

And the big downside to all of the above? Credit card acceptance is very very low. Tourists can only purchase train tickets by credit card at Schiphol Airport. Everywhere else the option is disabled due to fraud issues.

For (small) business with not enough transactions, accepting debit cards is an expense

Here in Ireland it's not uncommon for shops to insist on cash only for amounts less than €10 (except in some extrenuation circumstances (like the ATM in their shop being broken)).

Credit card acceptance is very very low.

That has definitly not been my experience. Perhaps you are thinking of chip-and-pin credit cards. Here in Ireland (& IME UK), credit cards are accepted in many, many point of sales/retailers. But they might only accept chip and pin credit cards, which I believe are uncommon the USA.

In the Netherlands very few stores accept credit cards, most accept just the dutch "PIN" and "Maestro" (=EMV). Not many people in the Netherlands have a credit card.

Vice-versa however, I was able to pay at WalMarts in the US with my Dutch debit card with no issues (once I hit the right button, it's confusing).

Most stores and restaurants acecpt VISA in Belgium, and our banking system works as described above.

About the charges, you're correct. I originally thought that this practice was a violation of the merchant's agreement... but I was wrong: http://www.pin.nl/en-US/Zakelijk/Pages/Veelgesteldevragen.as...

Still, it occurs infrequently.

About the credit card acceptance: Good! Most Dutch people have a healthy and rational fear of credit card debt, and the fact that you can't use your Visa to buy groceries encourages good consumer behavior.

Sad if you're a tourist, but easily solved by taking out some cash from the ATM which, on this side at least, is free! :)

Exactly this - the UK banks tried to move closer to their US cousins a number of times, but each time consumers managed to stop a lot of these charges becoming commonplace, particularly with regard to charges or ATM fees.

If you want a really convoluted banking system, try Japan. Its not that you get charged for using another bank's machine, you just can't, with the ned result being that you are always on the hunt for the convenience store that contains your banks machine. My bank also offers no automated payments, and entering payment details is a sea of impenetrable numbers.

Speaking of UK banks. I had the unfortunate privilege of having to use one. My salary wasn't posted on time but all the scheduled drafts went through. A few were rejected and not only did they hit me with the overdraft fee, they also hit me with an additional fee of mailing me a letter saying they were rejected. 3 of them to the tune of 20£ each.

I believe the UK consumer watchdog organization took them to court over this and I had some of it refunded. Later, they emailed me that due to this ruling they were raising monthly account fees for everyone.

It’s not the same everywhere, though. In Germany the fees for using another bank’s ATM are quite high. I think the average is something like 5€ or so.

Italian banks are terrible. Lots of fees, they don't pay interest at all, and the hours are ridiculous. Most stores are open from something like 8:30/9 - 12:30, then 15:30 to 19:30. With banks it's along the lines of 8:00 - 13:00, 15:00-16:00 or something odd like that. Ours raised the interest rates on us the day before we were supposed to sign the paperwork for our mortgage.

OK, the reason I doubted it is because it is very easy for anyone to open an account in a neighbouring country and profit from the better arrangements there. I know people living in Germany who haven't bothered to open a local account, because their Dutch account works just fine.

Not all of Europe is quite so 'small scale'. It'd take me a couple of hours to drive to Slovenia, and 3 for Austria.

Where I come from in Canada, people make day trips of over two hours and a half each way to go to the shopping mall... heck, my commuting was two hours each way in Montreal, every day.

But I do admit that if I were living in eg. Napoli, I wouldn't want to go to the Netherlands or wherever just to open a bank account.

They are an 8-hour drive from their bank

Don't forget the British banks, they seem as rotten as the Americans.

(I never thought I'd miss the German banks.)

More generally: from an unregulated bank. The tradeoff that came out of the Great Depression was that the government insures bank deposits, and in exchange the banks agree to be bound by rules that enforce responsibility - both fiduciary and to their communities. Over the past 20 years, the American banks have succeeded in shedding many of the regulations that used to bind them to those terms of responsibility. Not only has that resulted in more cynical and opportunistic 'service' to customers, but also it has resulted in the financial instability that led to the big crash of 2008.

It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory".

This isn't to absolve any banks, but rather to mock the federal government and their chronic flailing about while trying to control the financial sector(+). It's shades of the same mindset which led to subprime mortgages being subsidized, purchased by the million by Fannie Mae and the FHA. "Banks are a bunch of meanies. They ought to do charity instead."

(+) and this isn't to say that the sector couldn't use a little control, just that the Feds aren't proving themselves very competent at it.

> It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory".

In a sense, yes. But you should rather compare it to the good examples mentioned in Europe, which also have free accounts for poor people. I wonder what those banks do different.

I had a free checking account with TCF National bank (US). After getting hit number of times with overdraft fee, I went to my local branch, asked for a manager and explained that I want to disable overdraft protection on my checking account. Manager told me he can't do it and that I have to write a letter (they didn't have any forms for that) explaining things and send it to their HQ. Needless to say, I closed my account the same day.

Well, let's face it -- it's not like banks actually make money any other way out of checking accounts. Any bank account with less than... I dunno, $50K in it... is probably costing the bank far more than it's worth. The bank ain't a charity.

I don't think it's how much the account has in it, these days, half so much as the amount of payments they put on their check card. Cash flow and merchant fees are where it's at.

There are more honorable ways to make money than to label something as 'free' and then attempt to incorporate as many hidden fees as possible.

Bah! It's not like anyone would ever fall for that.

    Sent from my iPhone

True which is precisely why banks used to charge a small monthly fee to have an account. Then one bank offered "free checking" and all the rest had to follow suit or lose all their DDAs. There are evil banks out there, and customers flock to them.

Frankly if you were looking for dishonorable behavior there is much worse going on at banks. For instance its widely known that a certain bank will report its current customers to chexsystems for the slightest infraction (a few overdrafts, or a returned deposit). Effectively this makes the customer unable to open an account at a competitor. So they remain stuck with bank of scam-erica.

Yeah, tell me, how much are those electrons costing the bank, again?

Unless they're also giving you free checks, that's pretty much the cost. A human being will rarely look at anything. Everything is handled by automated computer systems.

I think you're missing out on a lot of things. The bank definitely has costs that go into supporting its customers: branches and employees to staff them (most banks, not all of course), phone support people, the very computer systems you talk about, and people to keep them running and add new features to them. Most mainstream banks' free checking accounts make these things available to account holders, so I don't know how you can say they don't cost anything.

I haven't set foot in a bank branch in over a year, and then only to deal with a problem caused by the confluence of their antiquated model and that of another company.

I've never once made a phone call to, or received one from, my current bank in the ~7 years my current checking account has been open.

I don't know who you think they're maintaining such anachronisms for, but it ain't this free checking user.

The computer systems have to be created and maintained for their wealthy depositors regardless. The marginal cost of adding less affluent customers is laughable, and more than paid for by the interest they can earn from a few hundred dollars in deposits.

Next time you walk by a bank branch, take note of how many people are inside. That would likely indicate that your something of a anomaly.

Um, zero?

That was pretty much the case whenever I went in to a bank branch in past years. Often I was the only one there, never was the employee to customer ratio less than 5:1, and anyone who was there was most likely to be 60+.

A visit to a physical bank branch is the anomaly today, not a lack thereof.

The thing that matters is that those are available to you. The bank does some modeling on how much use all of those facilities will get, and plans accordingly. You figure into that planning whether you go or not. I don't know the stats on how many free checking users use bank branches, but we both know it's more than zero. Same with phone service.

As far as the computer systems, those scale with number of accounts, not number of dollars. Given that the majority of accounts are likely to be free, or low net-worth accounts, it stands to reason that free checking customers make up a significant portion of the cost of operating these systems.

In some countries regulation will state that the bank needs to send a physical account summary to people every so often (month? quarter?) which has a mail cost to it.

My bank charges me for that.

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