The Real Reason The Poor Go Without Bank Accounts | Hacker News Reader

The Real Reason The Poor Go Without Bank Accounts

theatlanticcities.com

279 pointssfrjay224 comments

This comment on the article reflects why many people that I have met personally do not have checking accounts or bank accounts. They are worried about having money seized.

From the comment section of the article -"If you would really like to know why poor people regular these establishments I'll tell you why: it's because they keep you off the grid. I used to have a checking account too all my life. But after I lost my job, even though I'm a fulltime single father, the "child extort" kidnappers levied my checking account several times. They just took money at will no questions asked. There was no rules stopping them and nothing I could do. The Sheriff of Nottingham might as well been barging in me and my daughters tiny apartment and stealing all of our shillings. So after the "child extort" agency did this 3 times, I shut down the account. And from that moment forward I just began to live off the grid using cash and money orders. "

I assume this is talking about child support payments ordered during divorce proceedings?

Not having any paper trail to attract the attention of people and organizations you owe money to is arguably the only rational reason for being unbanked in an urban area of a developed country.

I disagree very strongly with that. Here are a few rational reasons that someone may choose to not have their money in a bank:

- Moral conflicts. Most banks use your money for purposes that many people consider evil, so choosing to not give them your money is a rational choice.

- Lack of trust. Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask.

- Inconvenience. If you don't have very much money, having a bank account is a drain on your resources (fees, mostly) and your money is not immediately accessible.

There are plenty of other reasons, too. Running away from people you owe money to is certainly not the only rational reason for not having a bank account.

USA banks are federally insured, so there's no risk in losing your money.

Running away from creditors is not a valid reason. They can sue you. They can't directly take your money.

Well, that's not quite true. There is always a small risk of losing some (or even all) of your money, particularly if you have a large amount in your account. Obviously that risk is very, very low for smaller amounts of money.

There are risks we should be concerned about, and risks we should not be concerned about. If you stuff money under your matress, the risk of losing it to a house fire or robbery are several orders of magnitude greater than losing it in a bank run.

Assuming your account is under the FDIC limit, how could you lose money on an insured account? Suppose there's a massive bank run and the Fed has to print oodles of cash to repay depositors. This leads to runaway inflation that occurs over a very short period. If you could have otherwise exchanged your cash on hand for a different currency, sure you would have lost money.

Compared with the actual risks of being unbanked, this is a hallucinatory concern.

250k is the insured limit. You can open accounts in multiple banks if you have more cash than that.

> Many banks over the last century have run out of money and been unable to honour withdrawal demands/requests. It's reasonable and logical not to trust them to keep your money and give it to you when you ask.

Within the last century, yes, but quite far back within it: the last time anyone with modest amounts of money in the U.S. lost deposits in a bank failure was 1933, the year the FDIC was created.

You can still lose money in a bank failure if your deposits are above the FDIC insurance limits, but poor people by definition would not have that much money, so it wouldn't explain their choice not to use banks.

The bigger risk if your poor is not having access to your money while the FDIC sorts out the problems. Now, I don't know how long it would take to restore access to your money in a bank closure but, for a lot of these people, having your funds frozen for a week or two would be crippling.

There was a This American Life episode during the financial crisis when interest in bank failures was high. They followed an federal takeover of a bank, and from what I recall, it was an extremely swift and surgical procedure. The don't inform the bank ahead of time when they're going to take it over, because the last thing they want is a bank run. For that reason they also try to disrupt banking hours as little as possible if at all.

[edit: here's the episode, very interesting listen: http://www.thisamericanlife.org/radio-archives/episode/377/S...]

There are also instances though where the FDIC can't find another bank willing to acquire the failed institution, so it can't just close on a Friday and then reopen on Monday as a branch of a new bank.

One of those happened just last week:

http://www.fdic.gov/bank/individual/failed/commbank-ct.html

So it seems like in an instance like this, while you get a check for your insured deposits from the FDIC, your bank is gone and presumably any auto-debits or outstanding checks would fail to clear. You get to wait for the FDIC to mail you a check. Then you'd have to find yourself a new bank. This seems like something that would be fairly disruptive even if you are not poor.

If a bank failed, how long would it take to be reimbursed by the FDIC? Probably much longer than a poor person could weather.

Also, if you chose to forgo paper statements to "save the environment" (and reduce the bank's costs), and you were lax in downloading your statements, it would probably take even longer to be reimbursed.

Typically funds are available by the next business day, at most within a few days: http://www.snopes.com/business/bank/fdic.asp

No bank statements or formal claim for reimbursement is needed; the process is entirely automatic and usually done in less than 24 hours.

> If a bank failed, how long would it take to be reimbursed by the FDIC? Probably much longer than a poor person could weather.

In most cases, the FDIC takes over the bank and runs it (in a matter of hours), specifically to prevent this sort of impact.

Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures, and overconfidence in one's ability to keep hold of their cash.

The inconvenience argument might be true for some[1] people in some countries but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free, as are most forms of transfer between domestic bank accounts, most debit card payments and cash withdrawals from most ATMs. It's hideously inconvenient not to take advantage of all that ([1] I understand that somewhere like the US depositors' costs from basic use of the banking system might sometimes be even higher than those levied by non-bank financial service providers they use instead...)

Granted, the moral conflicts argument has a bit more standing, but arguably only if you apply the same standard of scrutiny to other entities you choose to purchase goods and services from (most of whom will deposit your payment in a bank account...). It's not like there aren't banking service providers that have at least seen the marketing benefits of an ethical stance

> but is a complete non-starter in my country where retail bank accounts with a positive balance usually are usually fee-free,

But not penalty free. A few months ago, I clicked a form twice in my online brokerage and accidentally doubled a ACH transfer from my bank account. Since I was transferring more than half, the double transaction was too much. My bank hit me with a $25 fee.

No big deal to me— but to many poor people a $25 fee could start a spiral of overdrafts which would leave them hopelessly short money. To someone in that situation an arrangement which charged them 5% per transaction would be preferable to one which carried any risk at all of an overdraft spiral of doom.

> Mistrust of banks' ability to honour withdrawal requests is largely irrational in a developed country given the existence of government-backed deposit insurance (and the much greater risk of having your cash stolen). I'd actually consider this to be the classic example of irrational mistrust based on a limited understanding of who actually loses out as a result of bank failures

Pretty much every developed country has spoken in the last few years of forcing depositors to take losses in the event of bank failures, and some have actually done it. Governmental deposit insurance SHOULD be inviolate, but that isn't the way the regulators are talking and acting.

Meanwhile, how many HNers are currently praying that Mt. Gox will stay liquid long enough to give them back their money?

Can you please provide examples of developed countries speaking "in the last few years of forcing depositors to take losses in the event of bank failures" and which ones "have actually done it"? Cyprus is the only example that I can think of that discussed it and I can't think of any that have actually done it.

According to this http://wealthcycles.com/features/cypress-bailout-deal-is-pil... deposits under 100,000 euros were exempt, with a 40% forfeiture of amounts over 100,000. There were other proposals, but that appears to have been the actual outcome.

So in other words, insured deposits were paid out fully and uninsured deposits got a big haircut. Sounds like the correct outcome to me.

Europe has repeatedly stated cyprus is a template for future bailouts.

This sort of argument is what the article complains about. Yes there are easy protections that prevent very rich people from losing money. (The $100k limit simply causes them to open a lot of accounts. Which is why you have mint.com to keep track of it all, I guess. But any rich person will have 4-5 $99999 balance accounts, and have 4-5 of them in multiple countries (US, EU, Switzerland, Dubai, Australia for example), and they know why. There's firms that will arrange it for you).

Suppose you're poor. You do not have the money to support yourself 2 months. You call the helpdesk for cox, they come and repair your cable modem, but somehow they "blame" the problem on you, and that's $250 for riding out thank you very much.

Now let's assess what happens in 3 situations : 1) you have a bank account - the money's gone the moment they say you spent it with them - you have no recourse - you call them - they've got everything they want, you have zero negotiating position - even if you achieve the impossible and talk them out of it, the money's gone for 2+ months 2) you pay by credit card (obviously only available to "the rich", granted, not quite "the 1%", but I'm pretty sure >20% of Americans effectively don't have access to a credit card) - the money's gone the moment they charge you - you call them up, ask what's going on, they don't cooperate - you threaten them with a chargeback - they will suddenly become very cooperative 3) you don't have a back account (with positive balance) - their payment request bounces - they have no recourse - they call you and ask if there's anything they can do - they're pretty cooperative

The "mystery" of why poor people, students, ... go with option 3 is not much of a mystery to me. It's because option 2 is not available to them.

The same goes for being a customer of any service firm. Internet, telephone, car insurance, ...

The people waiting for their money on Mt.Gox should change it back to bitcoin and take the possible hit. The ones waiting for cash withdrawal are playing chicken with Mt.Gox's liquidity problem, and that is the risk they take in exchange for the ~$20 premium they have now.

Do you not consider Cyprus a developed country? Just a few months ago, many of its citizens had their deposits garnished, some at rates of 40%. How about Greece? There were talks of doing the same there.

Yes; the state failed to tax at high enough rates, and had to tax after the fact to pay of the debt they accumulated.

I guess if you want your money safe, store it somewhere that can do their finances properly?

I don't recall the exact date, but within the last two weeks Marketplace on NPR had an interview with several financial executives about the 2008 collapse. One of the execs had his wife run to the ATM to withdraw the maximum limit ($500) when money market funds broke the buck, and even GE couldn't get short term funding. He was seriously concerned about the ability to get to his own funds.

Being in a developed country doesn't mean your money doesn't have any risk when tied up at an institution.

The biggest reason is the over-abundance of fees that eat into your balance.

no slack in your income, and $35 overdraft fees are unarguably rational motivators to avoid big-box banking.

Even that great Satan, Bank of America, allows you to disable overdraft 'protection'. It's what I do.

That was part of Obama's credit card reform in 2009. .. banks were required to offer it.

Ah, I see. That's good regulation there.

It doesn't work for ACH transfers though.

just to clarify, I realize there are plenty of options within the 'big box banking' world that mitigate overdraft fees (well, a few options anyway.)

What I was saying in the parent comment is that overdraft fees are a perfectly rational motivation to avoid major banks.

I personally bank with both Wells Fargo and Bank of America (for convenience, and because several family members that are international do the same; gotta have that free transfer service). I am close with a few people that have foregone banking, and paid out of pocket to have their paychecks cashed where ever they can. As far as I can understand, this is a rational decision if your income does not provide the ability to meet a minimum monthly balance of about $100 of 'slack'. If you've ever worked a menial job for a regular period, I'm sure you'll understand.

If your monthly balance variance is < ONE PAYCHECK +/- $50, a $35 overdraft fees represent a significant percentage of your income.

These overdraft fees are a profit center for banks. Even if there are options to mitigate them, what motivation do the poor have to pursue them? The burden of proof of utility is on the banks, as far as the poor are concerned. If it seems to be more convenient or cheaper to operate without them, people will. This may be partly due to ignorance, but for the most part, it is because there are small inherent costs associated with a bank account that the middle class doesn't seem to recognize.

You CAN operate with less expense with cashed checks and payment cards than you can with a bank account and a debit card. Hobos and junkies would not do so if it were not the case. Hard living makes people rational like a motherf*er. You may forego some potential interest incomes, bank protections, and countless conveniences associated with using a bank account, but when it comes down to brass tax, it just costs less.

How about the reason given in TFA? If you're living on the edge, financially, cascading fees and fines from a single incident can cripple you.

The rational response to concerns about crippling fees is to choose an account without a minimum balance or with low overdraft fees, or preferably no overdraft facility at all. Sure, people living on a financial edge are often less well-informed than the general public when it comes to understanding fees, but it's probably rare for the optimal solution to be paying 2%[1] of your meagre income to the nice guys at RiteCheck, or 20% if you've cashed a bad cheque in the recent past... or eye-wateringly high fees if you actually need to borrow some money

That may be a rational response, but you need better support for the suggestion that no other possible response is rational.

Basic bank accounts, i.e. the sort without credit, are very under publicised - and the bank staff don't, last I checked, have to tell you they exist.

You speaking of rational responses. You likely refer to the rational expectations hypothesis in economics. The default assumption is of course that everyone makes rational decisions, including the poor.

Since they are making decisions that you don't think are rational ("it's probably rare for the optimal solution ..."), you conclude that the reason is that the poor people are less well-informed.

This makes sense, so long as everyone has equal access to the same services, or at least access to the same services you do, and that there is competition among those services.

However, as the author points out, the poor areas are under-served in terms of banking choices, and banks use "private databases like ChexSystems that currently keep more than a million low income Americans from being able to open accounts."

Because of the obvious market inequality, you cannot conclude as you did that the people who use RiteCheck are making either an irrational decision or un-informed decisions.

It's not the rational response at all. The rational response is to get a bank account like your wallet. One that ASKS YOU explicitly for permission before paying out money to someone else.

A bank account is not that, at all. A credit card is closer to that (because of chargebacks). Prepaid credit cards, and getting a new one every month (carrying over the balance, and because of the number changes, it's very hard to charge you things you don't want to pay for), are better still. Cash is best.

You want to improve the situation of 90% of America's poor ? Find a way to convert a check into a prepaid credit card (with balance transfers from a previous prepair card, ideally), for as low a fee as possible. Make that option available in poor neighbourhoods. When you have that, offer a bank account to them as well, NOT linked to the credit card, fee-free (no-one will care if it's also interest free) that they can save money into.

The people we are talking about use cash, but need a service to turn checks into cash.

You propose what you think should be a better solution. This history so far shows that your solution is not clearly better. Just this month "The Consumer Financial Protection Bureau issued a bulletin warning employers against using only so-called payroll cards to pay workers." ... "Complaints received included fees for withdrawing cash and checking card balances. Critics say payroll cards with high fees mean that some workers are essentially making less than minimum wage." -- http://www.usatoday.com/story/money/business/2013/09/13/agen...

Yes, there can be a time where that's a better solution than a check.

However, we are not yet at that time, so it's not a rational choice NOW.

Well obviously spending the money should be free, as should checking the balance. Why can't we just legislate that that exists ?

Prepaid cards, fee-free for the user. Seems like a basic necessity for an economy to work smoothly.

Let me add a small story from my past.

While studying, I was quite poor, and rarely had any reserve cash on me. In an effort to secure me against emergencies, I borrowed a small amount from a friend and put it in my bank account. It was not to be used except if the house burned down and I needed a motel or if some other unlikely event occur.

After my studies was done, I was unemployed and thus went and sought some social security money to pay rent with. When the first check came in, it was reduced with the amount I had in the bank.

TLD: paper trails are contextless, and do not always paint the correct picture. Giving the state this information can be quite costly on a personal level.

I was talking to my girlfriend last night and she mentioned how her ex-boyfriend doesn't have a bank account. He's actually well off financially, so I wondered why. Indeed, the answer is to avoid wage garnishment for child support.

I wonder what the mother and child think of this arrangement?

I presume they wish the state had more effective means to redistribute the deadbeat's assets.

Is it even his kid? It could also be the "works" of the new boyfriend ;-)

In many states, that won't work. The state just goes after the employer. A bank account is not a requirement for many states to grab your cash.

It's also not unknown for a state you used to live in to suddenly decide you owe them a large amount of taxes, and take it directly from your bank account.

Last year, to attend a tradeshow I opened a sales tax account and Wisconsin. As I was engaged in extended travels afterwards, and made no sales taxable sales at the show, I did not file any returns with them. If course, they expect you to file each quarter even if to report zero sales.

When I returned it to my house nine months later, I found a wide variety of letters from them culminating in lien on my bank account for about $1500.

Why they decided that I would have $10,000 in sales that were taxable, given on my history of never having reported anything ever on a brand-new account, I have no idea. Strangely, others at the show who also failed to ever file did not receive liens.

This article validates one my key beefs with "big data" - databases (like chexsystems in the article) remove slack from the system. Humans need slack and only humans can provide slack.

In the short term that may seem like a good idea, removing slack appears to increase efficiency. But in the long run it is socially destructive -- we are all people, not just numbers and reducing us to numbers ignores much of the realities of life. When you can't take into account the realities of life, then the imperfect systems that the databases model as perfect fall apart.

I remember reading about this in the book "About Face" about interaction design at least 10 years ago. It is a problem good interaction designers already care about. I think it's more a problem of upper management understanding that maintaining some slack can be more important than squeezing every last dollar from every transaction.

I generally agree with that, but there is a potential downside to it as well. The slack that humans will cut you is not a right, so it can be taken away at will for completely arbitrary or malicious reasons such as stereotypes against particular groups or even because you didn't bribe a particular offcial.

I'm still convinced that your point is correct, but it only works in combination with the utmost transparency.

While the alternative financial service providers is taking the road of improved customer service, the banks are going the other way.

In Sweden, most ATMs is set at a maximum withdraw of 100$, while a few is set at $300. The bank itself also adds additional restriction of maximum $2000 per week. If you want to withdraw more of your own money, you have to ask permission and give a reasonable explanation why one is taking out "that much cash". Only if the bank approves of your reasons to withdraw money will you be able to do so.

All withdraws are of course logged, stored, traded and given away for inspection. I can also be held, for any reason the bank can think of or from outside pressure (like the Wikileaks visa scandal).

I fully understand why more and more people chose to avoid banks. Banks are services. If you voluntary give away your money to be owned and controlled by a third-party, they will indeed do so.

corrected: month -> week

In the U.S. you don't have to give a reason for taking out your cash (though withdrawals over a certain amount are reported to the Feds). But there are ATM limits. I always assumed - perhaps naively - that the reason was to keep the ATM from running out of cash too quickly, thus minimizing the cost of replenishing them. And occasionally, on 3-day weekends, I have seen more out-of-order ATMS than usual. . .presumably because they had run out of money.

My impression is that it's to limit fraud. If someone steals your card an your PIN, the daily limit keeps the amount they can steal from your account before you discover the fraud reasonably low.

If for some reason you need a bunch of cash from an ATM, you can generally call your bank and have them temporarily raise the limit.

In the past (I haven't tried recently), a call to customer service could raise or remove your ATM limits.

Recall a recent hack/heist re ATM withdrawal limits: http://www.pcmag.com/article2/0,2817,2418841,00.asp

"The elimination of withdrawal limits enables the participants to withdraw literally unlimited amounts of cash until the operation is shut down," the U.S. attorney's office said.

That has not been my experience, ever. I only had "problems" with my bank once, that was when I was buying parachute equipment from France. The transfer went through, the bank contacted me and said "we have turned off international transfers from your account due to what we believe could be fraud committed by a third party". I contacted them, was told the cause of the "lock", said it was a legitimate transfer, they unlocked the international transfer thingy, really smooth.

I regularly withdraw money from ATMs in excess of 500 USD equiv.

I have not heard of this 2K USD equiv. / month thing either, is that the policy of your bank or is it regulatory? Do you have a source?

EDIT: I live in Sweden

Sorry, it was per week, not per month. Must have remembered wrong from last time I checked. Here is a good summery for most banks in Sweden: http://mfc.elmberg.net/2010/03/07/kontantuttag-vad-galler-fo...

The 8000kr per withdraw is for ATMs on the bank buildings. More common is those outside malls/shop, like ICA (http://www.swedbank.se/privat/kort-och-betalningar/kort/om-k...). However, I have seen some who increase those restrictions to half, so its a bit 50/50 if you get 1000 kr or 2000 kr (divide with 6.5 to get US dollar).

In this case, treat a bank like you would a family member; let them know that you will be out of the country for a period of time and they will make a note of it on your account. Whenever any transactions occur it may cause an automatic tripping of a flag on your account, but a human will be able to read the note. This has helped me greatly in the past.

PS: This can also (and should also) be done on your credit card accounts.

"In Sweden, most ATMs is set at a maximum withdraw of 100$, while a few is set at $300."

I think you did a conversion error from SEK to USD. Did you mean $1000 at a time?

The documents you referenced say Swedbank has a max of 8 000 SEK/day, Nordea's is 5 000 SEK/day, SEB has 10 000 SEK/day, and so on. (Under-16s have a limit of 1 000 SEK/week.)

That would correspond more to US$1,000 than $100.

FWIW, I had a limit of $200 or perhaps $300 when I lived in the US.

According to https://www.tcfbank.com/customer-service_tcf-convenience-ser... , a US bank, "The daily withdrawal limit varies by account. In general, you can withdraw a maximum of $500 daily." I think this is typical.

I've never pulled out more than $2000 per week from Swedbank. I do know they are an anti-cash bank, and want to get rid of handling cash. ("It's environmentally better if we don't have to drive the money around" and "It's safer because it prevents people from being robbed.")

Sweden doesn't even really like bank machines. See http://www.thelocal.se/50228/20130913/ - "Sweden second worst in EU for ATM shortage":

> pensioners staged a protest after another automatic teller machine was recently bricked up. Their actions prompted the Nordea bank to pledge to open a new ATM before the end of the year.

> Sweden is among the main countries leading the way for non-cash payments. Several businesses will now only accept cards while some bank branches don't handle cash at all.

> Swedish researcher Niklas Arvidsson recently wrote a report suggesting that the country could be cashless by 2030. However, he added for that to happen a complete ban on cash was likely needed.

The 8000 SEK/withdraw is only for ATM's located at the bank, and are been general dedicated to that banks customers. Bank ATMs has slowly been phased the last ~10 years with general ones (any custom of a bank can use them), and those has been spread out at malls and other similar places. Those however do not have an 8000 SEK withdraw limit, but rather around 1000-2000 SEK. ICA was one of the earlier adapters of those ATMs, and others has slowly followed suit.

However, I think you slightly missed my point. I do not say that Sweden is worse than the US. I merely wanted to point out that banks actually put in some real restrictions for taking out cash from ones own bank account. They are not holding my money for safe keeping, but rather providing a service where my money goes in, and I can get some out under circumstances they dictate, and only if they agree with it.

Hmm, somehow I forgot to include the ICA information in my previous reply.

http://www.swedbank.se/privat/kort-och-betalningar/kort/om-k... says you can take out up to 8 000:- per time, and up to 15 000:- in any 7 day period.

ICA's web site (just for reference, I have no real point here), at http://www.ica.se/ica-kort-bank/icas-kort/insattning-uttag/ says people with an ICA bank account can take out up to 3 000:- per occasion, and at most 15 000:- during a 4-day period.

You are right in that I didn't understand what your point was. Thank you for the clarification.

My updated point is that when I lived in the US I also had limits in what I could take from a bank machine. If I wanted to get more than that, I had to go to the bank itself.

You write: "If you want to withdraw more of your own money, you have to ask permission and give a reasonable explanation why one is taking out "that much cash". Only if the bank approves of your reasons to withdraw money will you be able to do so.", but what you've been pointing to have been bank machine limits, not cash withdraws.

It's not that I don't believe you. I know that Swedbank wants to get rid of dealing with cash. But do you have a reference for having to justify to the bank your need to withdraw the money?

As an extreme, and admittedly not likely case, what happens if they say "no" and you respond "I wish to close my accounts. Please give it to me in cash."?

(BTW, I live directly over a Swedbank, which makes it very easy to get to their own bank machine. :) )

The ICA link is about using one's ICA customer card for bank withdrawal while paying the cashier. Those ATMs I was referring to are separate machines in or outside the building.

When someone wants to withdraw more than the maximum per week, my guess is that the bank feels they need to ask questions to fulfill the requirements of the law from 2009 (http://www.penningtvatt.se/) that requires that bank to inquire the nature of the withdrawal. SVT had a story when the law was introduced, and their conclusion can be read in the Q/A at (http://www.svt.se/ug/chatt-om-penningtvatten).

I don't know what happens if you close your account, but my guess is that the law would still hold the cash in place.

The ICA link was mostly to point out that your stated limit of US$100/occasion is too low, even for ICA. The ICA web site says the limit is over $400.

Thanks for the links! At the very least it helps me understand the relation between Swedish and similar US laws.

In the US, if you deposit or withdraw more than $10,000, or do transactions that appear to be done to get around the limit (like successive transactions of $9,999; so called 'structuring'), then the bank is obligated to file a report.

However, that report is filed in secret to the Feds.

It is possible for a US bank to freeze an account that they suspect it being used for laundering. That's different than having a teller decide on the spot if something is suspicious or not.

Are you aware of people who haven't been able to take money out of their account because they didn't want to tell the cashier why they were doing it?

I just don't understand why you would even have a daily withdrawal limit. As soon as I opened my account I set mine to something silly like $10k per day so I would never have a problem with withdrawing money if I need it.

Wow, that's absurd. I can't imagine having to ask permission from my bank to withdraw money.

c. June 2011 I got quite involved in the Bitcoin scene and arranged to meet up with a guy at a local establishment and buy a large quantity of BTC from him. I walked into the bank and asked for $11k in cash and there were only two (small) things out of the ordinary: 1) the teller explained that she didn't have that much cash at her station and it would be a few minutes while she went to get it, and 2) a quick, non-invasive question about my intentions in an attempt to make sure I wasn't about to be the victim of a scam.

That is obscene. With my bank in Poland I can set any limit I like, directly through their website, and never had a problem with withdrawing even very large amounts of money.

Also, I would never open an account that is not 100% free to run. I anything happens, I don't want my account to be eating into my savings. So far, I am successful - my current account doesn't cost anything to run, there are absolutely no fees for withdrawing money at ATMS, and my Visa card costs $0.50 per month,but only if I don't use it to make at least $30 of payments each month,which I always do. So I never pay any fees.

A friend of mine works at a gas station in my hometown (a fairly low-income, rural city, pop. ~4600). After seeing him post Facebook statuses such as "Oh boy, it's the 31st and I get to work tonight" (in a sarcastic tone) a few times, I asked him about it.

He tells me that on the last day of every month, there are a number of people who come to the gas station starting as early as 9 p.m. and simply "hang out". They wander in and out of the store but mostly linger in the parking lot, chatting with others in their large group, and simply trying to entertain themselves, in general.

Naturally, I asked him why they would do this. Apparently their government "checks" are now "deposited onto their card" (a debit card, basically) at exactly midnight on the 1st of every month. They know that at 12:01 a.m. on the 1st, their money will be available and so they hang out at the gas station in anticipation of being able to load up on cigarettes, basic groceries (more expensive than a typical grocery store, of course), lottery tickets, and such.

This is a pretty well known phenomenon.

http://www.npr.org/2010/10/02/130272928/midnight-shopping-on...

I'd imagine another reason is they need the certainty of having their money be there. My wife had an account she didn't use since college, and apparently she fell below a balance limit and they charged a $5 fee, which overdraw her and turned into a $35 overdraft charge. Inconvenient for us, potentially a disaster for someone scraping by.

I had the same thing happen several years ago when I moved. I changed banks and left my "old" account open with ~$18 in it. I completely forgot about it until a few years later when I received a letter telling me they had closed the account and I owed them $9.

Why is it exactly that online wire transfers aren't used in the US? As an European, I've not been in a bank since the 1990's, and never written or cashed a check. On the other hand, it's impossible to live without a bank account here. Your bank account is the only place you get paid to, whether it's salary or social security money. Also, you need it to pay your bills or transfer money to your friends.

Electronic ACH is often used in the US, which is basically the equivalent to an electronic check. Actual wire transfers usually have fees associated with them both to send and receive (~$25), and are thus more rare.

Not often. Harris Bank doesn't even let you initiate an ACH transfer from the website; you have to call or go in.

Much of Europe pays for POS transactions with free, fast bank transfers from their smartphones in lieu of credit and debit cards. No checking account, routing number, and 3 business day verification crap.

Because inertia. I expect the greater success overcoming it in Europe is somewhat due to the smaller regulatory units (that is, countries) being serviced by a smaller number of institutions. In a lot of countries, if a handful of large banks say something is so, then it is. That pretty much won't work in the U.S.

To add another reason -- most Americans hear more about wiring money being used to defraud you out of your money than they hear about it being a useful financial tool. I have never heard any bank (or credit union) employee even mention sending money to another bank. Most banks won't even let us put money into another person's account without several pieces of information about the other person, and that person's permission.

Maybe because it's local (it's a credit union IDK how that is different from bank) but my bank lets me transfer my money to other accounts in their bank. Recently they even added that to their online services (it might have been there and I never noticed).

Transferring from them to BoA or another institution likely wouldn't work but I have no expectation that it would (at least not without meeting in person etc).

I once was attempting to receive a wire transfer from a company for some consulting work I did. After failing to complete the transaction a few times, I found out that the credit union I'd kept my checking account at for years didn't even have the ability to accept the kind of wire transfer that was being sent. I had to create a one-off savings account at a bank to handle the transaction.

Perhaps that has something to do with it.

I've only ever tried to wire money (online or in person) once in my life. That was online through Chase's web site a few years ago when I wanted to wire $15k USD. I remember it being a huge PITA (due to all the information needed) but I had no problems doing it. I think they called me to verify but I might even be wrong about that.

The last time I did a wire, it was to send a 6-figure amount to Washington Mutual (RIP) to pay off a mortgage.

I logged into WAMU's web site to find out the amount and procedure, printed off the reply, and took it to the bank. The nice lady in the banking lobby took my printout and did the transfer. The fee was $15, IIRC, in 2007.

Wire transfers do entail some extra work, because the transaction is cleared in real time, whereas ACHs and bill-pays and paper checks are cleared (or bounced) in large batches that are processed daily.†

†http://www.depositaccounts.com/blog/difference-between-wire-...

Some reasons which are cited in the literature, of which there exists lots (http://www.kansascityfed.org/publicat/research/community/Unb... is a good entry point):

1) Many poor people mistrust banks, for reasons ranging from cultural ("Where I come from, they're far more likely to vanish with your cash than the mattress") to personal experience ("I was just going about my business one day but then I ran the account a little low, $300 vanished in fees, my rent check bounced and I got arrested for 'uttering.'").

2) Banks have some assumptions made about their customers which are institutionalized by practice and sometimes regulation or policy. These assumptions map fairly well to the middle class but sometimes don't travel well. Here's four things I could tell you about an adult member of the middle class: they're literate, have a primary address which changes relatively infrequently, carry identification with them, and do not fear speaking to Authority because they're not cognizant of a reason why that should result in their immediate arrest.

3) "Free checking" was a multi-billion dollar ongoing wealth transfer from poor bank customers to banks and relatively wealthier bank customers. ("Free checking" was a marketing tactic very popular in the 90s and early 2000s where banks eliminated monthly fees for checking accounts while slashing minimum balances to open them. The flipside is that they then started cranking up fees generated by e.g. overdrafts. This combination generally tends to not be to the benefit of (many) poor people.)

4) The alternative financial sector has a product mix which more closely matches poor people's needs than traditional banks. For example, short-term loans for small amounts of money available with minimal documentation required are a) astoundingly high risk, b) relatively expensive to process, c) have fairly low margins, and d) carry explosive reputational risk. These counsel against the typical retail bank even trying to offer them. Much better to loan a middle class American $8k out of a credit card limit of $20k at 12% with a 3% loss rate then to loan a poor person $100 with $110 due a week later. (If you APR-ize that it becomes "A number which one never, ever wants to get asked about when you're called to testify before Congress about how you're causing poverty in the community you serve.") Business thus flows to the alternative financial sector.

5) (The literature is a bit circumspect about this one, but it's there.) Sometimes poor people make decisions which, if you appreciated their limited options, individualized viewpoints of the world, and the sociocultural context and structural issues at play... are still very effing bad decisions.

This is an astoundingly good response. Kudos.

This is a great comment, thank you

I guess at the end of the day, poor people present poor revenue opportunities for banks. So the banks resort to underhanded methods (ie ones that customer would not agree to if they were given a choice). In turn, these customers learn to mistrust the banks and turn away.

Even if you aren't poor, moving frequently or living on the road can cause you all kinds of problems with traditional institutions. So many things in our society rest on an unquestioned assumption that people 'live' in one place and don't move more than once a year and maintain a steady mailing address.

Oh, I wouldn't say that's an assumption so much as a premise upon which services etc are offered, because the people who move every week are both a pain to support and not a significant portion of the population.

In other words, all of this is not brought about by myopia, but simple business decisions.

In a balanced society, the needs of businesses do not outweigh the needs of citizens.

I agree! Where is that?

Excellent question.

Businesses are run by citizens, who have a right to choose which other citizens they're interested in serving.

A problem is when those big businesses prevent other smaller businesses from catering to the niche markets, through lobbying or other anti-competitive means.

Then combat the lobbying or other anti-competitive antics. The last time we tried to force business to operate in the wrong market, we told banks to lower their lending criteria and look where that got us.

> we told banks to lower their lending criteria and look where that got us

There's definitely a mix of opinions out there on this, but there have been some good challenges against community lending targets as a significant cause of the crisis.

Somewhat more polemical: 1. http://www.forbes.com/sites/stevedenning/2011/11/22/5086/ 2. http://www.washingtonpost.com/blogs/wonkblog/post/no-the-aff...

Wikipedia can sometimes provide a pretty good record on controversial topics with sufficient visibility.

The current article on causes of the US housing bubble, and specifically the section covering loan policy, cites useful literature on both sides. While it's not a completely one-sided argument, it appears the weight of the evidence goes against the CRA and similar government initiatives as a leading cause of the crisis: http://en.wikipedia.org/wiki/Causes_of_the_United_States_hou...

At the very least, given the number of other sections on that page, you should conclude that the CRA wasn't the sole cause of the crisis.

Note from the same page, (and in some of the above polemics), it seems like there's a similar cry to blame deregulation for the crisis. There are reputable economists, even Bill Clinton claiming that the repeal of Glass-Steagall probably wasn't sufficient to cause the crisis. Regulation and deregulation make suggestively convenient bogeymen for the right and left respectively, so they should draw a sort of heightened scrutiny.

Events like this are naturally complex. Alarm bells should ring if anyone boils down the entire crisis to something so simplistic as "too much or too little government." Some problems and some solutions don't fit conveniently on a postcard.

Agreed. That's where you start heading into things that should be illegal in a free market.

Of course, but some businesses like banks are also run by the government.

Businesses serve at the pleasure of their shareholders, and are under obligation to maximize shareholder value. They do not exist to serve whichever customers they feel most affinity towards.

Shareholders aren't always even citizens (can be foreign, can be other businesses).

What if other citizens are prevented from running such business too? Mt Gox almost got shut down because they are competing with the God-given monopoly rights of the banking cartel. The banks do not like to serve the poor but they are also very efficient at getting anybody shutt down who does. Seriously, they are now trying to shut down the entire bitcoin industry, not because it abets drug dealers, but because it would give alternatives to the poor.

I think national governments are not going to feel like rushing to the aid of virtual currencies - from my understanding they have the potential to eradicate tax bases.

There's a very large gap between "moves less than once per year" and "moves every week".

Hell, I'm having trouble keeping a steady place to live because I'm an intern in the Bay Area for 2 months at a time. Housing market is too hot for anyone to have offered rentals even loosely timed to what I needed.

I moved around every month or two during college, because it allowed me to constantly lower my rent in a very expensive area, and saved thousands of dollars. I recently moved to Palo Alto for work, and got in a minor motorcycle accident that left my bike out of commission for several months.

Fully experiencing bay area traffic for the first time, I was pretty annoyed, so I went into 1. my national bank of multiple years, 2. a local credit union, and 3. The dealer itself to try to get a brief loan so I could get a nice sportbike. I make a decent salary, and have been working since I was 13.

Every single financial institution made me fill out my residence history for the past two years, which (on their paper forms) was a several hour process and a huge pain in the ass - why does it matter where I lived when I was eighteen? I'm not sure I remember the names of the people I was living with, much less the landlord's secondary phone number. It seemed especially pointless with my main bank, because they had full historical data on my salary, and knew damn well that I could pay off the loan in full with a month's salary.

Long story short, all of these places denied me for not having lived in the same house for multiple years. I waited a week, got a bonus, and bought one from a different dealer in cash. The next time I need a loan, you can bet I won't be going to any of the companies I visited previously.

It's ridiculous to make financial judgments based on length of residence at an address in 2013 when there's so much more accurate data available (actual income/purchasing data). I think this is a policy that's going to change - many if not most of my highest-earning peers move around frequently to meet needs of the modern job market.

I can only imagine they denied you because they were not confident they could find you if you defaulted, which is different from your risk of default.

... or, perhaps, find the bike (collateral) to repossess it.

Exactly. My drivers license expired (the fact that could happen was news to me - law change came in after I got it) and I discovered this when trying to rent a small truck to move house. I went to renew it. They wanted 3 months of utility statement for the property I listed as my address. That's all well and good, but I didn't live there yet. I drove without a license for 3 months to meet their requirement. Then to cap it all off, at the appointment to get the license they wanted 2 forms of ID. As my old license had expired it wasn't valid, so I used my 2 passports. They seemed to think having 2 was illegal and called the police. Well done New Zealand Land Transport Authority. It was a pleasure.

I'd say the 5th point is true in general, is just that money insulates you from the worst effects of many bad decisions and severe poverty can amplify them.

Having money gives you free mistakes. If you have very little money, then little mistakes can mean you have no money for food or accomodation. Then you start on the downward spiral. Having extra cash allows you to make the mistake without it ending your career.

Very good points.

#4 is a lot of why Kiva exists and works here in the U.S. as well as the rest of the world. By being charitable we can offer these higher risk loans, and in the end we end up still having a very high repayment rate.

I only ever ASKED one poor person why they didn't have a bank account. A young mother of a student at a middle school I do work with. She has three kids and one month she was hit with fees for a) having less than a prescribed amount in her bank account. and b) writing a bad check. (Ironically, a check that was bad because of the fee taken for 'a').

Now for her, going to Walmart every month and putting her earnings on a prepaid card gives her everything she needs with little of the risk. And so that's what she does. It's not a "check cashing place" or "payday loan" place, but it is one of the places siphoning the poor from the banks. (My guess is that it's probably siphoning a lot of them too).

I think sometimes it's a little easy to lose sight of that single mother with three kids working a low end job. She really can't afford fees like that... though the fees may sound trivial to the middle class. When she gets home, she HAS to have food for her children. And among a lot of what you might term the "responsible single mothers", anything that would put their ability to do that at risk is, rightfully, eliminated.

Bank accounts, in their current form, are on the list of things that can put that at risk. And so, bank accounts are eliminated.

After that conversation, it was not clear to me that she had made a bad decision. I couldn't really question her priorities. A bank account was good for me... but maybe not for her. This is why I think that these sorts of decisions will be made more and more often by the poor. Because they only care about the ends, (feeding her kids). Not the means, (the bank account).

I guess I'm just saying that...

It wasn't clear to me that it was an... "...effing bad decision."

> (Ironically, a check that was bad because of the fee taken for 'a')

This is a real big problem in these kinds of situations.

To give you an idea of how this happens: when I was in college, I worked at a pizza shop. It was Thursday. I got paid Friday. I thought I had $20 in my bank account, but I didn't realize that day was the day that my World of Warcraft subscription was up, and that was $15. During the course of the day, I bought lunch, a snack, and some pencils or something. All that total was less than the $20, it was something like $10 for lunch, $2 for the snack, and $5 for the pencils. So I was good.

I wans't good. They applied the charges like this:

  Starting Balance: $20 
  WoW:             -$15 
  ---------------------
                    $ 5
  Lunch:            $10
  ---------------------
                   -$ 5
  Overdraft fee:   -$35
  ---------------------
                   -$40
  Snack:           -$ 2
  ---------------------
                   -$42
  Overdraft fee:   -$35
  ---------------------
                   -$77
  Pencils:         -$ 5
  ---------------------
                   -$82
  Overdraft fee:   -$35
  ---------------------
  End total:      -$117

Now, what sucks is that if they had processed them in a different order, it would have looked like this:

  Starting Balance: $20
  Lunch:            $10
  --------------------- 
                    $10 
  Snack:           -$ 2 
  --------------------- 
                    $ 8 
  Pencils:         -$ 5 
  --------------------- 
                    $ 3 
  WoW:             -$15 
  --------------------- 
                   -$12
  Overdraft fee:   -$35
  ---------------------
  End total:       -$47

Still an expensive mistake on my part, but it's more subtle than 'made a bad choice.' I was able to convince the bank to refund two of the fees so I was only out $40, but that extra $70 was a _massive_ amount of money to me at the time. It basically meant that I could only exactly squeak by for the next month, since that was basically all of my discretionary income. You can construct a similar situation which would have forced me to then take out a payday loan to make my bills, had I made one or two more mistakes in that same timeframe.

Did you know that this kind of reordering was intentional in some banks?

http://consumerist.com/2011/11/10/bofa-scraps-plan-to-let-cu...

It's called transaction re-ordering. The bank claims the that large transactions (like rent, mortgage, etc) are likely to be the most important and that you, the customer, would want those to be processed first. But, the math works out in favor of the bank because you get more fees (exactly as you showed in your example).

I remember this being in the news several years ago. I don't remember if anything came of it, maybe somebody else here does. But, personally I did opt out of all overdraft services from my bank - so if I did run out of money my charge would simply be denied. As far as I know this never results in any penalty. Any automated billing I have set up seems to be fault-tolerant and will just notify me to verify my card information and re-try the charge a few days later.

IIRC Bank of America lost a class-action lawsuit over this practice. I didn't opt-in to overdraft protection precisely because of stuff like this. I'd rather just be denied.

I got hit with several overdrafts after some tickets I purchased finally got charged a month after I purchased them. Even better was that I never got any text messages to warn me. I set up alerts for low balances and whatnot, and somehow this was the one day it failed to work. If it had, I would have transferred money from another account and avoided any problems. I've been meaning to find a new bank (or credit union) since.

I just got a letter in the mail telling me that I'm a beneficiary of a successful class action lawsuit against my bank for doing this.

When I was a student I was broke, and lived off a tiny income of $800 a month for food. I bought a 3G mobile stick which didn't work, and immediately returned it the next day and cancelled the service.

Of course, they never cancelled service so a year later I get collection phonecalls that I owe them $1,000. Regardless of me disputing the bill they instead debited my bank -$1,000 which I had no idea they could do since I didn't have overdraft. What they did was wait until 11:59pm the day before I was to be paid out $800 direct deposit from my pitiful p.t job and the bank allowed it to go through, then charged me interest on the negative balance for those few hours where they overdrafted the account.

I woke up to -$280 in my account in overdraft fees and the theft of my money from that telecom. Being that I couldn't feed myself I had to go out and do cash loans at extreme interest and was in a cycle of poverty for 3-4 months after that until finally got my money back from those assholes. I closed my account after that and asked to be paid out in cash from my job instead.

What a distressing story. The collection agencies are happy to pick on those who do not have the resources to defend themselves. The bank is happy to let your balance go negative, because it permits them to rack up fees. The interests of the customer (you) do not even register as a footnote.

Good on you for closing that account, and clawing your way back to solvency. One day you'll be wealthy, and that same bank will come a-knockin'. Tell them to go pound sand.

I had to go out and do cash loans at extreme interest and was in a cycle of poverty for 3-4 months after that

That's one of the biggest problems with poverty. You can get stuck in the trap and you can't work your way up. Often things get more expensive as you have less money. You can't buy things in bulk and get the savings of economy of scale. You can't afford to go further to get a cheaper thing. You can't afford to get that item today even though it's cheaper. You can only afford short term, more expensive solutions.

Came here to post something on the order of this. One time I was nailed for > $250 and the correct ordering would have been only one overdraft for about 30cents and a penalty of $35. I was working at a min-wage job at the time and taking home less than $200/week. I lost over a week and a half of pay to the bank, couldn't afford to pay rent and had to leave my place. I got slammed less than two weeks later and that pretty much finished me. Situations like this happened to me a few times and happened quite often to a few friends I had. I walked into the bank and told them I wanted overdraft protection or they can close my account. They refused and I haven't had an account since then. I'm still on chex systems over that snafu, but why would I pay them for money I never had or used?

Banks are just awful things for people who are poor. There really isn't much point when you live payday to payday and you have zero dollars by the time payday comes.

You have to pay $3 for ATM fees and you may forget exactly what you have in the account, overdraft by $1, and then get hit by $150 overdraft fees. It would be helpful if the ATM showed the real amount of money left on the cards, but no, they showed one number then another number the next day.

I still don't know what banks can do for me, but I thought the idea was a safe haven to keep and save your money. All I've experienced are predators who take my money and then refuse me basic services.

As for the reason for reordering, since I didn't use it for anything high priority, they couldn't use that story on me. The bank blamed the merchants and the way that the system ordered the money. I cried foul, saying that I can't believe that a bank, who's singular expertise is managing money, can't figure out how to add and subtract a few numbers.

As an experiment, try this for three months: Open up a bank account, put $150 in it and use it for paying for the bus, your food, clothes, soap, shavers or whatever expense you may need. Of course, if you get hit by the overdraft, you can't pay it. The next month, put $150 in the account and live off that minus the overdraft fees. See if you can manage it and then come back and tell me poor people are making a stupid choice by keeping the money in their wallet.

Dealing in cash is an excellent choice. Not only do you avoid getting screwed by banks, you experience the gut-churning visceral reaction of handing over a Benji - something you just don't get with a credit card swipe. So it's a financial and psychological win. That's why Dave Ramsey advocates for it (plenty to critique about the guy, but he nails that part).

The stupidity comes from the wretched check cashing agencies (aka liquor stores). Pay us for access to your money, minus 3% for our trouble. What a racket!

My favorite story for this type of stuff was in college when the bank double cashed a check I had written. I went below 0 (it was my rent) and 5 other checks (for less than $50) bounced. Cue $175 in overdraft fees.

I went in to fix it and they realized they double cashed my rent (still not sure wtf that was about), and they added back on the amount of the rent. It took another 2 weeks to get the fees removed. I had to call and visit 8 times. Being $175 down in 1988 was not fun.

I switched banks, but as a student I am pretty sure these days I would have used something from Walmart or another group. I bank with a credit union now and they are amazing.

Ahh this is why I've always gotten an account that can not overdraft, and I refuse to opt-in to any overdraft crap. If I am out of money, I want to be out of money, and to not be able to buy things, period.

That such a thing is possible. If I try to get below my limit in the Netherlands I am simply not able to. The only services who can go below my limit are my rent and gas/water/electricity bills. And then I just pay a high interest rate. Which doesn't really matter if you deposit money the next day.

> I didn't realize that day was the day that my World of Warcraft subscription was up

I no longer allow any automatic payments from my bank account because of this issue. Maybe one is ok but if you start to have 5 or 6 monthly payments automatically coming out of your bank account, it can be hard to keep track.

Also, if they make an error and you are dealing with a large company, it is probably going to take months to get the money back whereas paying invoices leaves me in control and I can choose not to pay if something is wrong.

If I do have a subscription, it just goes on my credit card and then I pay at my convenience. This also allows me a buffer in case of any unexpected emergencies should I need some extra cash flow. I could pay the minimum monthly amount for a month or two should I need it.

I really don't know why people do this. Let's let some large company have direct access to debit my account at will.

(Sorry for the tangent but I feel strongly about this)

Make sure all your payments come out on the first of the month. This way it's easier to keep track.

"Just use a credit card" isn't necessarily an option (if your parents have bad credit, they aren't going to be able to help you get starter credit which means a secured card, which means having the cash to secure it...).

I agree though, I like to trigger my payments.

A similar thing happened to me in college (compounded by the bank charging me another $35 every day until I had money again) and I was lucky I had a paid-for place to live and a paid-for meal plan to scrape through till payday.

Pew has a nice little infographic depicting your exact situation: http://www.pewtrusts.org/our_work_report_detail.aspx?id=8589...

Banks mostly stopped transaction reordering when it got a lot of attention post-financial crisis, but they're slowly going back to it, so some orgs and the CFPB are starting to shine a light on the problem again.

http://www.forbes.com/sites/halahtouryalai/2012/02/22/are-ba...

Since we're doing stories, here's mine.

My brother didn't have an account but he needed someone to cash a $3K check from an acquaintance of his. He told me he'd give me 10% if I did it, and I was dead broke at the time. So I do it and the next day my bank (one of the big names) lets me take it all out, at which point I give it to my brother and he gives me $300. On the same morning, the check-writer cancels the check and the bank hits me with a -$3,000, plus overdraft fees. A week later they closed my account of good standing of 10+ years. My brother spends the money, refuses to pay it back and swears he wasn't 'in it' from the start with his buddy, the check-writer. That was 4 years ago and I haven't spoken to my lovely brother since. To top it off, I wasn't able to open another account in the US for a few years.

I just got something in the mail about a class action lawsuit against my bank for that very thing (processing transaction out of order to maximize overdraft fees)

I'd be happy if I could just turn off overdraft "protection" altogether.

She would fit nicely into category 4 though.

Except those debit cards have all kinds of predatory fees. They're smaller and predictable, but way more expensive than using a checking account from a credit union correctly.

For example, PayPal: https://www.paypal-prepaid.com/prepaid-debit-card/paypal_fee...

I suspect he/she is referring to Walmart Bluebird. It eats bank's profits for breakfast, lunch and dinner.

MasterCard is also a big player with a lot of outlets (MasterCard Prepaid Everyday Cards).

Because they only care about the ends, (feeding her kids). Not the means, (the bank account).

I don't like this ends/means thing here. I mean bank accounts aren't 'ethical things'. Not having a bank account isn't 'unethical'. In the context of money people only see accounts as an ends. Very few people have a bank account "just because".

I must have missed something. I didn't read what patio11 wrote to suggest that he thought paying with cash (or it's equivalent) would be a bad decision. It seems to me like your friend made a sane and responsible choice when she ditched the bank.

Really, if asked, I don't know anyone struggling financially who has a line-item in their budget to cover not having money. Maybe overdrafts should be capped and charged the going annual interest rate for short-term loans. If I understand correctly, that is how they are handled in Germany.

have an uncle who is a bank dev since forever... he says when he started banks had a "cost per client" that they had to make up for lending/investing that clients money.

nowadays they have only consideration for "profit per account".

and he says thats because banks are now almost required if you want to get paid for your job, so you dont have to give anything for free anymore.

3) "Free checking."

And then, even if you (the low-income person) avoid the overdraft fees, eventually monthly fees start appearing. So far, in 10 years of using banks, I've twice closed checking accounts because they started charging monthly fees. I might try a credit union next time I need a bank account.

Keep a $3000 minimum balance or have a regular job depositing money into your account electronically, and the monthly fees disappear. Banking is, in absolute terms, too expensive for the poor.

What the hell? Minimum balance? This practice is news to me. Is this effectively making zero into 3000? What happens if you dip below?

Then they start charging "maintenance fees" on top of that. Thereby making the (completely manufactured and idiotic) problem even worse.

"Low Aggregate Balance Fee $5" - always a pleasure to see on a statement

Ahh, obviously the solution to the problem is to lower it further.

All the credit unions in my county (sw usa) charge monthly fees for "low balance" checking accounts unless you meet several stringent requirements, like: >= 30 debit card transactions, >=1 direct deposit, e-statements, etc. These are and'd requirements, not or'd.

1) Many people mistrust banks.

I also mistrust banks. Most banks are confusing and make it difficult to tell exactly how much money you can spend, and then lie in wait to hit you with overdraft fees. For now, I'm trying out Simple Bank, but they're in closed beta. I don't personally know anybody who wants to use the invitations that came with my account.

I'm also suspicious of "know your customer" laws and all that tracking information. I reduce the amount that they can know by keeping a small amount in cash, to use when shopping locally.

There are lawsuits out relating to accounting fraud. I know they have been caught reordering transactions to increase overdrafts. I have also experienced what seems to be deliberate delays in online reporting of transactions and even one case where a transaction somehow did not appear in the record until after I had withdrawn enough money several days later that this meant my account was suddenly overdrawn. They will also happily overdraw your account for an electronic transaction of $300 so that they can start collecting fees.

Are you talking about regular banks or Simple?

Regular banks.

banks are among the slimiest for finding ways to run up fees on you - I believe it must be their primary source of income these days.

It's not just the US - as patio11 knows, here in Japan, the banks charge you a "convenience fee" for using the ATM when the bank isn't open.

Using an ATM vs a teller actually SAVES them money. This is the most ballsy thing I've ever seen, and exists only because most Japanese don't realize it isn't normal

If you were the bank, would you set your fees based on cost plus a reasonable profit, or would you set your fees based on what your customers were willing to pay?

My friend had $150k in his bank account that was taken by the IRS while they were still in negotiations on a huge tax bill. No notification, no nothing. He only found out after he was trying to buy groceries and his card was declined.

After it was all said and done he ended up owing the IRS ~$14k and they gave him a check for the difference, but it took months to get it all sorted out.

I lent him some money to get him through it, but what if he didn't have a friend to do that? He'd be kicked out of his apartment and starving.

Now he doesn't trust banks (not that it's the necessarily the banks fault). He keeps around a thousand in his bank for emergencies, and keeps the rest in cash (at an undisclosed location :)).

It goes to show that even people with a reasonable amount of money have reasons to keep their money out of banks.

I heard of a guy that did that and his ex girlfriend told her new gangster boyfriend (real gangster) where he kept the money. It's probably safer to keep your money in the bank.

It is generally safer to not tell your secrets to people who have reason to be vindictive. If it hadn't been his stash, it would have been something else.

I can understand this. My mother in law was sick for a while and in a hospital for a few months. During that time she was late on one of her mortgage payments, which she as been faithfully paying for 2 decades. She also took an equity loan to remodel her house. Because of the missed payment they cancelled her equity loan. She went to the bank to talk to them hoping they would understand, but all he heard was how his "hands were tied". She tried telling them she was a customer for years, she had a number of accounts with them, mortgages, car loans from the past, she even paid extra on her mortgage payments often. She explained her medical condition hoping they would understand, but all to no avail. He kept hearing about how all these rules and triggers are automated in the "system" and nothing could be done.

She lamented the time when banking was a personal experience just like the article wrote. You went your teller, you'd known for years, they'd ask about your kids. The manager migth know you, might send you a birthday card and so on. I can see how she would be a person willing to pay $5 per check just to get back that personal touch.

The article also touched on this, but many people who are poor also don't happen to see a lot of human kindness, sometimes fake customer service kindness is better than nothing, they don't even mind paying extra to get it.

Stop banking with big banks. Go local. When my brother started his business, he moved all his banking to a local bank, one that had only one branch, which was downtown in his town. He's built a personal relationship with them, and the flexibility it's given him has paid off in spades over the year.

There's no reason to pay some megacorporation to treat you impersonally.

Cost. If I bank with a large bank I can use their network of ATMs for free. With a smaller bank I can't withdraw anywhere other than my branch without incurring a ridiculous $3-$5 charge.

Many credit unions are part of a large co-op with lots of no-fee ATMs all over the place ( http://co-opatm.org/ ). You can also deposit checks/cash at many of these ATMs. They may not be on every street corner like major banks are in some cities, but chances are there's one near you. Some of those credit unions will also reimburse all your ATM fees if you use your debit card a certain amount (for mine, it's 12 transactions per month).

Yes, credit unions are an excellent middle ground between mega banks and local small branch banks. Just use one that's part of a co-op and most people won't have any problem at all. YMMV.

Some banks/credit unions/other places that offer checking accounts with bank cards will sometimes refund ATM fees.

My credit union, asides from having 20,000 fee-free ATM's across the U.S. just from other credit unions, has free withdrawals at Walgreen's and 7-11. I travel the U.S. quite a bit and haven't had to pay a fee yet. Might want to look into it.

I'd rather pay a well-known, well-understood charge for using the ATM than get charged secretly deeply hidden inside some kind of other fee. The people running these ATM's don't do that for free. How would it be possible that I could use their service for free? When I withdraw cash for free at an ATM, I feel more suspicious and more cheated than when they would charge me 50 cents for drawing 50 dollars or so.

We bought a house last year in what was a moderately complex transaction. What we were trying to do was purchase a "new" home (it was actually 2 years old, but had been the model home in a neighborhood so it hadn't actually been lived in) and, at the same time, build a detached garage on the property. While this seems simple, actually doing this in a way that doesn't involve multiple loans is surprisingly complex.

In the end, it would be a low-risk, vanilla, 30 year conventional mortgage, and we had enough cash for a 20% down payment. It just required some complexity to set up.

Not surprisingly, most major banks wouldn't even try to help us once we explained what we were trying to do. It didn't fit any "profile" they had and the "system" was unable to let them continue. We lost count of the number of times we were told that a "system" prevented them from doing something.

So we went to a local bank - only one location, right in the middle of town. We sat down with an older guy who's probably been making loans in this town his entire life. The president of the bank came over and talked to us, and congratulated us on our coming addition to the family (my wife was 7 months' along at the time, so very clearly pregnant).

After talking with us for an hour or so, before having even filled out any paperwork or pulled any credit, they were confident they could help us. They were even more happy once credit had been pulled, and offered us rates lower than any of the big banks were offering at the time. What we ended up doing was writing a 4-month construction loan for the purchase price of the house plus the cost of constructing the garage. A few months later, when the garage was completed, we closed the loan and had a single mortgage for the whole property.

So after that experience, I've started recommending my friends and family stay away from big banks and work with local banks and credit unions. Big banks may be great for the convenience factor of having branches everywhere, but they fail hard when it comes time to do anything remotely out of the ordinary.

> He kept hearing about how all these rules and triggers are automated in the "system" and nothing could be done.

This will ultimately be the downfall of 'computational governance.'

"Sorry sir, but the system clearly says you're to be executed next Tuesday. There's nothing I can do about it. Please choose your last meal carefully from the touchscreen."

I am not buying this; I agree that poor people not using banks is an issue, and I appreciate a number of interesting reasons why this is the case (the list iterated by patio11's comment is amazing): I do not, however, think it is because banks are turning into impersonal institutions with which you never interact with a person.

Sure: this author doesn't generally interact with her bank. She doesn't see the need to, so she isn't choosing to; but, the bank she is using does have a branch she went to, and if she actually went there at all often the people there would get to know her. The building might be "impersonal", but the people are still people.

This doesn't even just apply to small banks (a friend of mine has always used local banks): I use the Bank of America, and almost everyone at my local branch knows me because I go there often and actually talk to them. I seriously look forward to making a wire transfer because I enjoy the interaction with the people I know there.

Corporations with local offices are still made out of people; like, while I prefer automated payments, if I end up in a situation where I need to write a check, somehow that's on the other side of "I may as well drive to your office and hand-deliver it"; this meant for a long time I even knew the people who worked at my car insurer ;P.

Anecdote of one: I bank with Wells Fargo, I go inside the branch less than once per month, and I rarely see the same tellers or "bankers" (the ones that sit at a desk) from visit to visit. I think it's pretty high turnover. I don't know the reason, but I suspect it's because the bank is trying to sell me services like insurance, and there's pressure on bankers to make sales. It may also be because a teller or banker job is a young person's first career-like job, from which they move on and up as soon as possible.

In fact I hate it when I have to talk to a banker, I get annoyed when they try to sell me services that have nothing at all to do with what I went in for, or with why I'm a customer in the first place.

Also, I suspect because of turnover, they usually can't answer my questions when I ask. They just do not know the answer to "how do I do this particular bank-like thing" without researching and asking the branch manager. But man they do know all about their insurance products.

I think it is actually a good thing that lots of people do not want to use bank accounts. It keeps the alternatives afloat for when I ever need them. Furthermore, I welcome alternatives like bitcoin with open arms. We don't want the banking system to have as much power as they have now. They must be made to cave in and become service providers again, instead of some kind of overlords, over other people's money.

Don't forget that in poor areas, there aren't many banks. When you're in the suburbs there's a bank on every corner. Even trying to find an ATM in the part of town I work in can be a challenge. They recently built one and it has so many lights an mirrors around it, it seems a bit silly.

I'm not sure what the banks use to determine whether they open/close a certain branch. Everyone jokes that 'The First National on MLK Boulevard got robbed twice a month so they shut it down', but I'm sure there's some real process with population density and more importantly, income density.

When you cash your check at a liquor store, two things happen - you end up buying things like food for your family (as well as beer + cigarettes + lotto) and they take a % cut. The bank doesn't have anything for you to buy and they don't take a cut.

This also means the poor can't pay their bills online. Again, in the bad side of town on Fridays and on the 1st and 14th of the month, there are massive lines outside the power company, city water department, and cable company. Everyone's standing there waiting to pay their bill in cash. While the rest of us pay everything from our smartphone or have it directly taken out of our accounts, they're spending two hours in line during the day.

When I was 19, I tried to open a checking account. Amazingly, I was declined. For a bank account. I didn't ask for credit, in fact I had no credit history at all. I was apparently so unworthy that they didn't trust me to give them my own money. I never understood that, as I figured they'd just bounce a check anyway if I lacked sufficient funds.

I'm much older now, and have a bank account, mortgage, credit cards, and all that jazz. Just a silly anecdote that it's actually possible to be too poor to be allowed to have a bank account.

You didn't ask for credit. They make money by giving people credit. You wouldn't have made them any money.

You also didn't have any credit history. That's something that young people could be taught: "How to get a good credit rating, without being stupid and getting into tens of thousands of dollars of unpayable debt".

The UK has the concept of "basic bank accounts" which are needed so people can have state benefits paid to them. These accounts don't allow debt; don't have credit or debit cards. (Except HSBC I think does issue a debit card with its basic account and other banks probably do to?).

> You didn't ask for credit. They make money by giving people credit. You wouldn't have made them any money.

In South Africa, banks are desperate for young customers and all of them have no-fee high-interest savings accounts for children, no-fee checking accounts for students, and so on. On university open days and orientation days, all the major banks have a large presence encouraging students to sign up for these. Most customers never switch banks after opening their first account, so it's highly worthwhile for the bank to be attractive to customers who've never interacted with a bank before (especially if they have money to save as children, so are likely middle or upper class, or are attending university, so have future earning potential).

I'm surprised this is not the case in the US (Wells Fargo quite happily gave me a no-fee checking account just after the financial crisis began, when I did an internship in the US -- I assumed the reasons were much the same).

I have a bank account with Santander in the UK. The account doesn't have overdraft(I specifically said I don't want one) and I was also given a Visa Debit card with it. It is silly that I have to pay fees for it(5 pounds ~ $7), but as far as I am aware no bank in the UK offers account that don't cost any money to run, which I personally don't understand.

Sorry, but what do you mean? There are plenty of accounts in the UK where you don't have to pay anything, as long as you don't go overdrawn. I have an account with the Halifax which actually pays you £5 a month if you pay in over £1000. Most of the major high-street banks have a free account and there are basic bank accounts which are mostly fee-free available in many banks. In the UK, you usually don't pay fees to withdraw cash, either.

Well I might be completely wrong, I checked 4 different banks and the cheapest one was Santander, and not a single one was free. In any case - I absolutely hate Santander, would switch in a pinch - any recommendations?

I have a "basic account" with HSBC. All banks and building societies should be offering something similar.

It has no fees, so long as I don't go overdrawn. It had a regular cashpoint machine card, which they've just replaced to be a visa debit card. It has online banking.

Currently, I'm interning at a well known banking wealth management company, and I find the rich like to have the same environment.

Birthday cards, get well soon cards, calling the client and asking how they are, helping them with last minute account stuff (like making their visa have a higher cap so that cruise trip can be insured).

I think a lot of banking should be like this. I doubt it ever could be, as most banks have very few people, but specialized areas, like this rite-aid, or some wealth banking, have the time to dedicate to these people.

Treating people like people, whether it is restaurants, or banking, or anything, makes a business less like a service and more like an experience. It should be something a lot of startup companies on hn should look into.

I think that most middle class people just do not need any personal services. I understand why rich need it - they have complex finances with multiple sources of income, bank accounts in different countries, tax management needs etc. Poor also may need it - bounced checks, cashflow problems, lack of understanding of financial products.

But finances for most middle-class people are plain vanilla - one or two checking accounts, credit card, simple mortgage. They do not live paycheck to paycheck so no bounced checks. There is not much space for personal interactions, especially profitable ones. Get paycheck every two weeks, pay all the bills, move whatever left to investment account. The last time I was in the bank was three years ago to do international wire transfer.

Good analogy - when I was poor student with crappy car that was constantly broken, mechanic was important person in my life. Car repair expenses in some months were bigger than my monthly budget and having rapport with good mechanic was important. Now I have newer car that pretty much never breaks and I do not give a damn who changes my oil as long as there is Starbucks nearby.

When I read an article like this, I'm always amazed that more people haven't discovered credit unions. Most of the objections that the article raises about "banks" are objections that I have too, except that they're really about "big (multi-)national banks". My experiences with credit unions have been much more in line with what the author describes about the check-cashers. On one occasion there was an incident involving a mis-typed amount in an online transfer, basically all my fault, but everybody was on my side and it got resolved quickly and easily---and all over the phone, as I was several thousand miles away from home at the time!

I've never been treated that much nicer at credit unions than banks. My last story with a credit union - I had been with them for years, but when I have a story as soon as I ran in to hard times. I was 62 days overdue on my credit card (which was also with the credit union), and I was told the credit card department I'd deposit a check on Friday and make a payment. Meanwhile, the checking department closed my check account, and took the $10 there and applied it to my credit card. Since I had written a rent check before putting a check in the bank and finding the account was closed, it messed me up even more.

I'm about to be in difficulties with a current credit union, we'll see how they treat me as my clients keep their outstanding debts to me just a little more outstanding.

To all those who state that it's irrational to be non-banked, remember two things:

1) Just as all the world is not a Vax, all the world is not you and your circumstances and acquaintances and anecdotes.

2) as the article briefly touches on, many people simply cannot get a traditional or even minimal/basic bank account because of entries in ChexSystems. These entries may be correct and current, or they may be old, or inaccurate, or not reflective of current circumstances. And banks are only too happy to outsource the expensive process of judgment and "knowing their customer." No banker ever got fired for following ChexSystems' recommendations (I assume).

HN is so cute. So many people here talking about why poor people do things the way they do without having ever really experienced it.

Here's why poor people don't like banks: because banks don't like them.

Let me paint you some pictures.

You're not clean-shaven. You smell a little bit, whether because you just finished a smelly job or because you're living on the streets or because you're depressed and haven't bothered to clean up in a day. You enter the bank, and no less than four pair of eyes look at you -- eyes that are surrounded by expensive haircuts, ties, and nice dresses or suits.

You're exhausted and you can't concentrate well. Maybe it's the chronic lack of sleep, maybe it's malnutrition, maybe it's stress, or maybe it's drugs or alcohol. You walk up to a counter with a check in hand. This paper is worthless to you, what you need is a different kind of paper that you can trade for things you need.

The teller asks you if you're a customer. She's polite, but polite in that barely perceptible condescending way that people are when they're uncomfortable with the person they're talking to.

You're not a customer. She'll have to charge you for cashing the check then (or maybe won't do it at all -- depending on company policy).

Can you be a customer? She directs you over to a desk. The desk has a nice finish on it. It's probably worth more than anything you own. It might even be worth more than everything you own.

You sit down at the desk and another person with a polite smile, perfect hair, and a nice tie or suit or dress asks you for some personal information and enters it into the computer.

You're poor, so you hate computers. They keep track of you everywhere you go. You can't seem to escape them. The police in different towns all somehow have access to the same information about you. Computers produce paperwork that occasionally makes it into your P.O. Box, or last address, or friend's address, and usually it's bad paperwork: more bad news, more stress, more trouble. Some faceless agency somewhere wants more of what you don't have.

This computer is no different. A few keystrokes later, the representative apologizes in that polite-but-condescending way: "I'm sorry, you're here in Chex Systems for account abuse at BigCorp Bank three years ago, we can't open an account for you."

This is the sixth bank you've been to.

Three years later, after a little bit of luck and a lot of hard work and a struggle that will forever leave a scar on your soul, you've finally reached the five-year expiration period for Chex Systems, you've finally got a regular job with a regular paycheck that is just barely enough to live on. You're set up with free checking at some bank, but you're very very careful not to overdraw your account, ever, because that one time you did it suddenly somehow turned into $250 of money that you owed the bank -- money that you didn't have, because if you did, the bank wouldn't be asking for it.

But this morning, your beater car finally crapped out for good and the low-rent apartment complex you live in forbids you from working on it in the parking lot. You can't get to work without the car. You have a little bit of savings, about $100, and you just need to borrow a little bit of money so that you can get another beater and get back to work as soon as possible. Your job doesn't offer paid sick days, so every day you're out of work, you get a little bit poorer.

You walk or get a ride down to your bank and you sit down behind that desk, and that computer that you still hate, and you ask the polite-but-still-a-little-condescending nicely-dressed person if you can get a car loan. You quickly add, "I don't need much, only a few hundred dollars, and I'll be able to get this car I saw down the street from my apartment." You make promises and tell the representative how important this is to you, because you're under the mistaken impression that the representative has the ability to make a decision. But it's not up to them, it's up to the computer.

The representative politely tells you that they don't do car loans for a few hundred dollars, they only do loans for a couple thousand. You don't need a couple thousand -- in fact, the very idea of borrowing that much is really scary to you, because you're pretty sure that if somebody gave you that much money you'd mess up with it, just like you always do, and then you'd owe a lot of money that you'd have no way of paying back.

But the representative tries to get you a couple thousand dollars for a car anyway. The computer says no: you don't have enough credit, your credit is too bad, you don't make enough, you don't have collateral. In short: you are too poor.

It doesn't matter that you're a customer. It doesn't matter how hard you're trying. It's just like all your friends say, it's what you hear all the time: banks only lend you money if you don't need it.

That was me. For years. I'm reasonably intelligent, I've never had a drug or alcohol problem. Still, though, I made a relatively simple decision many years ago, to take a vacation from the computer industry for a while and be a climbing instructor. Unfortunately, while being a climbing instructor was amazing and I'm still glad I did it, it didn't pay very much, and eventually I got into trouble with a bank.

The economy started to have trouble then (dot-com bust), my computer skills were more of a liability than an asset, and for the next several years I struggled desperately to keep my head just barely above water. I was homeless for a while.

I've got my own business now and my finances are better and I still hate banks. I love the people at my local bank, but I hate banks.

Before I was a developer I was poor and worked as a busboy and a dishwasher for several years.

At one point I mismanaged my finances and completely destroyed my credit score, as well as getting listed in chexsystems for overdrafting a bank account and not being able to pay them back for several months.

To cash my paychecks (I got paid mostly in tips), I used a check cashing place or the grocery store. I did this because being listed in ChexSystems prevented me from opening a bank account.

Once I became I developer I dug myself out of debt and then rebuilt my credit score. Eventually after waiting long enough I was able to get a checking account from a bank that used FICO scores instead of ChexSystems.

The article is a bunch of crap. It reads just like that nickel and dimed book by Barbara Ehrenerich[sp]. How an academic cannot figure out that the reasons these poor people are giving for not having a bank account is false? There is one reason: they are listed in ChexSystems and can't get an account.

Well, I think the article did get one thing right, something that many articles about poverty don't, and that's the kinship and us-vs-them attitude that tends to be a factor in decision-making among the poor.

Check cashing places are a lot less formal than banks (when formality is intimidating), and they tend to say "no" less often. They're more of an ally to the poor than most people would think.

But, yeah, the article should've mentioned Chex Systems.

> "I'm sorry, you're here in Chex Systems for account abuse at BigCorp Bank three years ago, we can't open an account for you."

> eventually I got into trouble with a bank

Could you elaborate on this? I'm very familiar with the CRAs and how they operate, FICO, etc., but I know very little about Chex. What kind of "errors" do these entail?

I'm not asking about the details of your personal case - I'm just trying to understand what a typical experience with Chex is like, since I have no firsthand knowledge and you seem to.

Sure. I had two bank accounts: one with USBank, one with Bank of America. I had set them up as a savings account at one and a regular checking account at the other, back when I had money.

My funds eventually ran out, and they both were overdrawn. Not by very much -- $20 to $50 each as I recall -- but with fees & etc., it grew to more than I could resolve. One of them grew to over $500 of debt. (I stopped using either account as soon as they were overdrawn; I didn't write $500 of bad checks.)

I simply wasn't making enough money to do anything about it, and had no friends or family to turn to. (Well, that, and I was too proud to ask for help.) So, I walked away from it. I didn't know about Chex Systems at the time, and didn't realize that doing so would mean I wouldn't be able to open accounts elsewhere for about five years.

I think some banks do now offer options for people listed in Chex Systems, but at the time that wasn't the case.

I'm not sure what the range of abuses are that Chex Systems tracks. I was told more than once that mine was especially egregious, probably because it involved accounts at two banks, and because one of them racked up a pretty big sum.

Well said.

About a year ago I walked into "my" bank (hah!) and a guy pulled me over to his desk and "invited" me to sign a form (he said was mandatory) accepting or rejecting a $35 "overdraft insurance" fee. I "invited" him to check his computer and see how many overdrafts I'd had in the past 10 years ... and that my "insurance" was keeping my checkbook balanced.

Not sure what game was afoot there, but I'd bet that some of the people who were treated to that strong-arm tactic resigned themselves to paying that monthly graft. Vampire squid indeed.

This article has a lot of fluff and before getting to the point. It just seems unlikely that the success of these shops that provide expensive financial services to poor people is all down to the human touch. I see friendliness in the report but not much in the way of personalised service (just the lady with the payment plan).

The benefits of paying a percentage to get your money a couple of days earlier are clear enough. But the avoidance of overdraft fees may be the key. When paper cheques have had their day and every non-cash transaction is software talking to a bank server, there will be no need for unarranged overdrafts to exist for every bank account. Accounts that carry no risk of unplanned fees would be a disruptive innovation, given that retail banks seem very addicted to the profits from overdraft fees.

I agree with your analysis of overdraft fees however what you take to be fluff and not greeting to the point, others may interpret as good writing, or at least a more verbose style than we in the modern tech sector are used to.

I thought it was a colorful and well-written article that while anecdotal (plural != data!) effectively conveyed the conclusions this author, who is putatively an expert in the field.

I love verbose writing, but only if it's purposeful and spare:)

If there's a reason to tell me the color of her shoes, I'd love to hear about the color of her shoes. I don't want to hear about the color of everything in the room, though.

I have a bank account in Poland,and the account is 1) free to run,no monthly fees 2) cards are free if you spend at least $30 per month, otherwise it is $0.50 per card,per month 3) there is no overdraft(unless you specifically ask for it, I didn't) 4) nobody uses checks,so "unarranged overdraft" is virtually unheard of, I only once went "under" when I sent a large sum abroad, but then a few days later when the money actually left my account the price of euro changed and I was charged slightly more, putting me a few Zlotys under zero. I just quickly paid in some money to my account and there was no fee for that.

So how does the bank make money off me? It must be by investing the money they keep for their customers,because I certainly am not paying them anything. I've had an account with them for the last 5 years, and paid exactly $0 in fees.

With my extremely elementary understanding of the banking system, i'd think they loan the money you put in your account to others, and make money from the interest from that.

TLDR: Check cashiers have better customer service and (anecdotally) less stupid fees.

Unmentioned in the article: New York has strict regulations on check cashing that limit fees. Roughly 2%. Only a few states do this, some limit it at 5%. The check cashing business is very different in those states that don't have such limits.

Banks have been continually inventing and raising fees on unsuspecting middle-class customers for decades. I wouldn't be surprised if banks made more fee revenue per customer than check cashers.

Absolutly. Looking for an alternative a few years ago I found a check cashing place that would simply stop payments before a transaction, so you couldn't overdraft.

I was happy to pay 1% fees on check cashing for that; with low income that was quite reasonable.

Direct deposit had no fee, and this was a great deal for me.

So basically the check cashers have become more like banks, and folks who are short on human interaction value that more than the extra couple bucks a monolith that pushes you to an ATM (that may charge you extra for your withdrawal as well) costs.

Wonder if any banks will see this as a proper wake up call...

What banks can do is pretty tightly regulated and I wonder if it would be legal for a bank to handle the overdraft situation in the aritcle the same way, with deducting a fee from checks cashed over time.

Banks have significant flexibility. Capital One 360 (the former ING Direct) handles overdrafts by providing a line of credit. The fees there for short term over drafts are a few cents.

I'm actually somewhat curious, why does CapitalOne fuck everyone in their "traditional banking" over, but generally not screw with [ex?] ING Direct customers?

We have very high standards and would immediately abandon CapitalOne in droves if they fucked with us.

For years whenever people complained about banks I always said "ING Direct isn't like that". So far CapitalOne hasn't wronged us yet. I suspect it's because they just bought out the business and the same ING Direct people are still running it, and the CapitalOne people know to leave well enough alone.

dylz: Because the moment Capital One 360 started becoming predatory, I'd move my money out to another bank. So far they've been fine.

Considering they're making record profits and if not, seems they can always turn to the government for a few billion... Probably not.

http://mobile.reuters.com/article/idUSBRE97S0O520130829?irpc... "U.S. bank industry profits hit record $42.2 billion in second quarter"

Doesn't sound like an industry desperate to squeeze more pennies from paupers. They have much better ways to do that than urban branch banking.

I thought this article was fascinating and made me think about all of this stuff in a completely new way.

I'm much like the author. I bank electronically. I actually just visited a physical branch today for the first time in months because I had a big wad of cash to deposit, and mobile phone deposit technology hasn't quite reached the level of sophistication needed to handle cash yet.

My relationship with my bank is generally simple. They store my money, and occasionally pay it out or receive more. This is almost all automatic. The one thing they do that might actually involve some effort is the bill pay service, where they will actually mail a physical check in some cases. But most of the payees I have set up in their system have electronic arrangements.

When I need further service, they're good about it. They answer their phones quickly, they can overnight a cashier's check for a reasonable fee on the rare occasions I need something like that, and they'll call me if something looks like fraudulent activity. But this comes up once a year or less.

For the most part, they're basically another appliance for me. We have defined roles and we stick to them. I keep a generous pad of extra cash in the account, never overdraw, never need anything weird, and in exchange, they charge me no fees, even pay me (extremely nominal) interest, and don't hassle me.

This works great if you have the responsibility and cash to do it, but it would fall apart if I didn't. If I started cashing bad checks and overdrafting, I'd get hit with fees up the wazoo and I'd pretty much have to leave. Features that are an extreme convenience to me now, like totally automatic bill pay, would become a huge liability.

I looked at these places and thought that they offered less service. They don't even keep your money for you, after all! And they charge you for the privilege! But, to their customers, they offer more service. They offer more control over their customers' money. They offer more flexibility and less punishment when bending or breaking the rules.

It's a good lesson in not just assuming people are dumb or ignorant. Sure, a lot of people are, but when behavior is this common, there's usually a good, rational reason behind it.

I always thought that if I was poor, I'd still be "smart enough" to bank properly with whatever money I had. Now, I wonder if that really would be "smart".

I also wonder about financial regulation. I generally favor a "better safe than sorry" approach there, but this might illustrate a downside of that. We've all heard about the trouble that non-traditional companies have had with such regulations, whether it's companies like Paypal, or Simple, or Bitcoin-related businesses. They try to get around the regulations in various ways. Here, RiteCheck is getting around banking regulations by simply not being a bank. I have to wonder if they could offer better service and some of the sort of safety and savings ability we associate with normal banking if it were less difficult for RiteCheck to offer something like an actual bank account.

For those in San Francisco the city/county government has setup "Bank on San Francisco" to help people use regular banks instead of check cashing places. They have partnerships with banks that allow people to get bank accounts even if they have had trouble in the past. http://www.bankonsf.org/

Bank on SF also has a small dollar loan program called Payday Plus SF. Their partners offer payday loans at reasonable rates (max 18% APR). http://paydayplussf.org/

I know they don't address a lot of the issues the article brought up, but they could be useful for people in certain situations.

So this woman spends some time in a cash checking place and now knows why "poor" people don't use banks?

Poor people don't use banks because you don't need a bank when you live check-to-check. One doesn't need to make a deposit when the check they just got doesn't cover their expenses from last month. So her concluding statement of "the banking industry needs to develop different fee and service structures designed to accommodate lower income depositors "makes no sense.

It's not a choice, it's not like people are like "Hmm, well I could deposit my money and make 0.5% back next month", it's more like "shit, I'm behind on my gas bill and can't have my family freezing again this winter."

The fact that the teller at the check cashing place is like "family" and they speak spanish isn't really a reason why the poors go there, it's because they don't have a choice.

As an former academic who made it out of the poverty system with some serious work and lots of scars to prove it, this article really pisses me off. Not only due to it's lack of perspective, but due to it's lack of due diligence to actually answer the question they claim to answer in the title.

Maybe it is because the services sucks as well. American banks are decades behind Eastern Europe, Russia or even Africa.

Just basics: account where 'overdraft' is not possible (account can not go into minus). Debit with low (5%) interest can be arranged separately .

My bank had mobile banking in 1999 (simtoolkit & SMS). In 2002 mobile banking become free!

Credit card fraud? How about white-listing expected transactions over the internet? How about setting up your own filters?

Shit articles like this make me feel lucky. I don't come an extremely wealthy background or anything but reading this sort of stuff makes me feel like a life-assets superstar. I have to say it makes me appreciate my bank/national banking culture:

1) I can ask for an overdraft limit of up to $2000, which if I draw into I pay a $3 monthly fee for. 2) I have a credit card which I can easily ask for a limit up to $5000 if I ever need that sort of temporary cash (I don't.) 3) Everything is done with banking cards here - balances update automatically, only credit cards have weird lags with responding to transactions.

Recently I dropped my OD limit to $200 to try and improve my financial hygiene. I didn't watch my transactions and a small weekly automatic payment pushed me past my arranged limit. Talked to the bank and they explained in that case I would pay one $15 fee per month for any number of unarranged ODs. Seems pretty lenient compared to the American situation... but they never charged me the fee anyway!

Being a citizen of a third world country (India), this sounds all too surprising to me. Looks like banking in the US is pretty shitty for the poor.

Out here, banking works like a charm. At least, most of the nationalized banks. Nobody pays the banks anything, and they get a little interest on savings/deposits accounts. OD is not outrageously charged. Internet banking and ATMs are very friendly and totally inexpensive. Almost everyone has easy access to banks; with co-op banks and urban banks offering accounts with minimum limits of 500 INR (~9 USD), everyone can make use of banking institutions. Only those people with lots of black money would want to keep much of their stash away from banks to avoid tax authorities.

I am happy that at least our folks got basic stuff like banking right.

Reading this it sounds like there is a non zero minimum amount you're allowed to have in your bank accout. Is this true? I've never heard of such a thing in my country.

In the U.S., banks can charge you a fee for having less than an agreed amount in the account. They're required to tell you in advance what that minimum amount is (and it may be $0), but they're free to set their policies at will.

I wouldn't mind the banks so much if they did not lobby the government all the time to stamp out alternatives to their abysmal service ...

It's a tough situation, it has a lot to do with momentum. If these check cashers had profitable local ventures to invest in, they could hold deposits and pay out interest.

Because there isn't a lot going on in the area, a deposit/commercial bank isn't interested in the area and in turn, business people in the area do not have as many local sources of capital.

In place that need it, entrepreneurship would lead to a rise in saving.

We're talking about the US in the twenty-first century: profitable local ventures can borrow money at low interest rates from non-local commercial banks at much better rates than the check cashers could possibly offer.

The check cashers don't offer deposit accounts because they couldn't possibly invest their received funds well enough to pay interest after covering the overheads of managing many tiny retail bank accounts with constant withdrawal demands, and their customers are far happier paying a fat commission to get cash than now than a bank account fee to get it later.

The check cashers don't offer deposit accounts because ... they are not allowed to.

And here we find one of the root causes... regulation (overregulation?)

I've never been with a traditional bank, even though I've always been able to afford it. I prefer credit unions. I can get all of the "bank-like" services that I need at a credit union and I have the satisfaction of knowing that I'm not further enriching a bank CEO.

This might be the right place to ask:

Can I simply lend money on my own? setup my own site. People request for loan and I choose whom to lend money to. Kinda micro financing. How easy it is to do that?

I want to do something like $1000 @ a flat 5-10% p.a

What are the risks? Is defaulting a big issue?

That's why Walmart has jumped into this. There is a lot of money to be made.

It isn't even that strange. Grocery stores have provided check cashing services for decades.

Walmart went a bit farther and teamed up with American Express on their Bluebird card.

http://www.walmart.com/cp/Bluebird/1099170

The meat of this article, hidden underneath all the fluff, is simply that fees are higher and poor people end up paying more of them.

Honestly though, they probably deserve that. I've never in my life been charged an overdraft fee because it doesn't take much to just track the payments you make and never go over.

Of course, an inability to plan is probably why they're poor in the first place...

It's amazing how much more biting a simple arithmetic mistake can be when you don't have the luxury of being able to accumulate any significant amount of padding money into your banking account.

Almost as amazing as how blind we the privileged can be to the myriad advantages we enjoy.

Ignore trolls please.

It's not clear he was trolling - there are people who genuinely do believe all that stuff about the poor deserving it and completely fail to grasp the advantages they themselvse have.

Please don't troll.

> I've never in my life been charged an overdraft fee because it doesn't take much to just track the payments you make and never go over.

That's easy to do if you're not poor. It's a problem you've never encountered, so don't pretend your virtue protects you.

Obviously 'punishing' those with no money does nothing. It certainly doesn't prevent overdrafts. The only sane response to this (correctly identified) cycle of poverty: "inability to plan is probably why they're poor in the first place..." is education and help.

Your attitude is the pinnacle of intellectual void and laziness.

> That's easy to do if you're not poor. It's a problem you've never encountered, so don't pretend your virtue protects you.

I didn't always have money. My father is a carpenter, and I definitely took the time to write down every expense back when there was serious risk I might overdraft.

However, I must apologize for phrasing my original comment too harshly. People don't deserve poverty, but what I meant was that they're at least partially responsible for their situation.

As you rightfully point out, punishment certainly isn't the answer. (I certainly don't see overdraft fees as a sane punishment.)

But payday lenders and the like aren't the solution either. The solution is helping everyone to get the necessary planning skills for the modern world through education. It'd be great and truly refreshing to see a bank which tried to do that (obviously they'd have to find a different business model than the usual).

So, help people to learn to plan. Don't excuse not planning and the institutions (check-cashers, etc.) which enable it.

Life itself may not go according to plan. Not everybody is a civil servant safely working for an otherwise over-indebted local city council. Other people could get fired from their jobs, the company could have packed their bags and moved to China, or their own business could have gone bust, and so on. Whatever happened, in those circumstances, the fact of having money in the bank does not help, because they will just arraign that money too. More often than not, related to what happened in your life, they will just seize the balance. And now you can no longer pay for the rent nor the food. So, you may end up homeless in the streets, unless somebody helps you. That is why I do not save money in the country that I happen to live in. It is much harder to attack a foreign bank account -- how can anybody know it even exists -- than a local bank account. So, I never trust local bank accounts. Whenever things go wrong, that thing will inevitably go wrong too.

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