The most profitable source of income for banks? Overdraft fees

https://www.loannow.com/bank-overdraft-policy-reform-overdue/

by mrmirz • 11 years ago

150 211 11 years ago

This is one of the financial barriers that severely impacts the ability of poor people to amass monetary wealth, but is invisible to the rich. Before they were overdraft fees, they were Non-Sufficient Funds fees for overdrafting, and these NSF fees still exist for those who can't even get the "overdraft loan".

Banks originally offered clients this service as a courtesy.

Banks originally opted in at-risk customers. This was before payday loans became popular, and the market is one and the same. If you were short of funds this month, you'll probably be short next month too.

Source: personally being an at-risk customer who was opted in without asking.

noonespecial• 11 years ago

The most egregious example that has happened to me: I had a checking account with a hidden $5 fee if the balance went below $5000 in a given month. I made a big purchase, left the account with about $3 in it and scheduled a transfer from savings for the next day... you know how it played out: $5 fee on the low balance, $50 charge to "borrow" the $2 all taken from the transfer the next day. They call that a "service". ha.

twistedpair• 11 years ago

I had a similar fee for not having a transaction into my checking account for the month. I visited the branch to contest it. They waived the fee, and I asked the branch manager, "So I just need 'a deposit' each month, right? How about $0.01?" She didn't answer me, but I setup my ADP account at work the next day and BofA's been getting $0.01 into checking every month for years now.

And you know what? I'm pretty sure it costs them more than $0.01 to process that direct deposit. ;)

fredkbloggs11• 11 years ago

Couldn't wait until the next day to make the purchase? Couldn't use cash or a credit card instead?

You're an adult. You're obviously literate or you couldn't be posting here. Unless these fees were not disclosed to you (a MAJOR breach of the law if true), you had every opportunity to know that this would occur and to prevent it. Try taking responsibility for your own actions.

mikekchar4• 11 years ago

I once had a bank account with $100 in it. I went travelling and didn't access the account for a long time. Eventually, I returned back and found that they had sent me a letter saying that they had close my account for inactivity. The fee for closing the account was $120, which put the account at -$20. They were further charging me a $75 overdraft fee and informed me that my account was in arrears for $95 dollars. I did not pay them, but neither did I get my $100 back.

goldenkey• 11 years ago

A different angle. But probably for the same reason. You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? It doesn't help when most people don't have any spending money to contribute because they are drained dry by the banks...

Spooky23• 11 years ago

That's what credit unions are. You don't have many in the ghetto, because most aren't really communities, which is why they are what they are.

munin• 11 years ago

You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos?

They do: http://www.amazon.com/dp/0674030710

Is the service better? Unclear.

delinka• 11 years ago

Not only opted in without permission, but receiving derisive reactions when requesting to opt out. "You wouldn't want to be embarrassed by having your payment refused would you?" Sure, that's fine, because there's invariably some issue with the store network, or the electronic payment processor that randomly refuses payment anyway. What's the difference?

"Are you sure you don't want this 'protection'?" I'm protecting myself from your fee. That's protection enough.

Furthermore, I worked in IT at a bank for awhile and witnessed many wealthy customers coming through to cash large checks for which they hadn't the funds - a head teller would sign off on the cash, no fees charged, and the customer leaves with the money.

javajosh• 11 years ago

My father was dying and I'd moved home to help him out in his last days. He'd lasted longer than we thought, and so I was very low on money. But he wanted something from the store, and it was cheap, and I went to get it. It went through, but I got a $35 overdraft fee for something like $0.50 over. I was angry, and the woman at Wells Fargo chastised me for not checking my balance by phone before charging anything. Mind you, this was after I told my bank to just decline any charges that would put me over.

I left Wells Fargo that day and have never been back to them or any other big national bank.

staunch• 11 years ago

The pain overdraft fees cause poor people is truly hard to comprehend unless you've been there. It's incredibly evil.

You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account, putting your balance at -$9. Now you have to pay $35/day until you get enough money to cover the overdraft fees. You end up paying $100+ for a $9 forced loan.

The bank could have just declined the charge and let you deal with it, but even though you have overdraft "protection" turned off, they've decided to classify this transaction as an on-going contractual relationship, letting the charge through so as not to "inconvenience" you. Bankers are inventive at skirting the law.

They know exactly what they're doing. They're rich bankers robbing poor people.

I won't be satisified until Bank of America, Wells Fargo, and all these other evil American banks pay back every single dime to their victims.

Until then, no one should even consider helping these evil banks when there are good ones available. USAA is great.

mkaziz• 11 years ago

USAA - The United Services Automobile Association?

nkozyra• 11 years ago

https://www.usaa.com/

Touche11• 11 years ago

They know exactly what they're doing. They're rich bankers robbing poor people.

I can understand thinking that the "correct" thing to do here is to simply not allow a transaction when there aren't sufficient funds, but this language goes overboard. It's not robbing a person because they were unable to keep track of how much money they own and adjust accordingly.

cookingrobot2• 11 years ago

It's a not consensual extraordinarily high interest loan. Robbery is a fine label to use for that.

Bud• 11 years ago

No. Emphatically, no. It IS robbery. Have you ever been a poor person? Have you ever been overwhelmed with depression and the panic of a lost job, a few dozen bills you probably can't pay, the shame of asking friends and relatives for help, and in so doing, risking your relationships with those people and your own self-esteem?

What you're missing here is that poor people KNOW that they are poor and right on the edge. They are already making a lot of adjustments that you probably can't even conceive of. They have a daily, hourly even, intellectual load from financial panic that more privileged people cannot even imagine.

The banks are the guilty party, here. They know that some of their customers are near the edge and in trouble, and they are strategically choosing to exploit them. Period, paragraph.

kelnos• 11 years ago

If the customer had set up the overdraft "loan" feature, then sure, I'd agree with you. But they didn't. How is it sane (and legal) to automatically loan someone money to pay something, without their permission, when you can set whatever repayment terms you want? Declining for insufficient funds is the only correct thing to do in that case. And yes, banks will usually charge a fee for that, too, but at least it'll only be a one-time fee.

karamazov• 11 years ago

Banks make keeping track of the money in your account intentionally difficult. You can't just check your balance and assume that you can spend what's there.

Instead, your balance includes only processed transactions, whereas your account also has a list of pending transactions that can hit your balance at any time. Pending transactions can also disappear from your account, only to come back as a confirmed transaction. In effect, you can't be sure of exactly what's in your account unless you manually keep track of every charge you've made.

Banks do more than this to make overdrafts difficult to deal with. For example, Bank of America intentionally processes your transactions from largest to smallest, ensuring you'll git hit with the maximum number of overdraft fees.

e.g: if you have $10 in your account, and you make a $3 purchase, a $4 purchase, and a $12 purchase, they'll run the charges in the order of $12, $4, and $3, hitting you with three fees instead of one.

tl;dr: banks love overdraft fees and do whatever they can get away with to hit you with them.

pyre4• 11 years ago

Large banks will do things like structure charges so as to extract the maximum amount of overdraft charges. For example:

  You have $40 in your account. You spend $20, then $12,
  then $5, then $120. One would logically conclude that at the
  end of the day, the bank will resolve these *in order* and
  you will have a single overdraft fee. Large banks *cough*
  Bank of America *cough* will explicitly structure those charges
  to resolve like this: $120, $20, $12, $5. Now you have 3
  overdraft fees ($35 a pop when I was with BoA) instead of a
  single overdraft fee.

Do you not see anything morally and ethically wrong with this?

rokhayakebe3• 11 years ago

It is robbery, I am perplexed how you fail to see it.

djloche2• 11 years ago

I wish USAA would open their net a little bit to extended families. My brother is a doctor in the US Navy, but that supposedly wasn't 'close' enough of a family relation for me to qualify to do business with them.

mbrameld2• 11 years ago

Why do you think it should be?

bradleyankrom• 11 years ago

Navy Federal CU is also very good, it may be worth checking their membership requirements.

ssimpson• 11 years ago

USAA also batches their debts and payments differently than other banks, to help their members minimizes any fees incurred. Their customer service saying is "assume positive intent" and they have amazing service. I will probably be a customer for life.

tlrobinson• 11 years ago

For awhile Bank of America did the exact opposite, ordering transactions each day from largest to smallest to maximize the number of overdraft fees. Fortunately that truly evil practice was put to an end when they lost a $410 million class action lawsuit.

a3n3• 11 years ago

The other day I took a picture of a check that I received, with their phone app. They credited the check to my account immediately. Not "pending," it was in there with no unusual note. I assume it would have been on me in some way if the check bounced, but still.

If you're eligible, you should join USAA.

e40• 11 years ago

USAA is, indeed, an exceptional bank. Hard to get in, though, unless you have served in the military or have a parent that did. My father was quite surprised when I asked him to sign up for a website account (not bank account) so I could use that to join.

You see, USAA was one of the first banks to have an Android check deposit app. Years before B of A.

mikekchar4• 11 years ago

There are a couple of times in my life when I was quite poor (for someone living in a G8 country...) The biggest thing I learned was to use cash. Cash is awesome because you can see how much you have and you can't spend more than you have. Even now that I am relatively well off, I have my habitual routine of getting cash at the beginning of the week and spending only that for the week. In fact, I make sure that there is always a bit left over at the end of the week (because there are always surprises).

The thing that is frustrating for me in western countries is that using cash is becoming more and more difficult. The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.

In the UK, I used to use my Oyster card (a pre-paid travel card for public transit in London). I could basically use it like cash. You put in whatever money you want at the beginning of the week and then you can use it without worrying about over spending. If you ever travel in London, be aware that the payment system is buggy as hell and they will over charge you badly. With the Oyster card it's great because I can notice that my balance is lower than it should be, go online and get a refund (seriously ... it happened at least 3 times a week for me!!!) But now they are pushing using your bank card as a payment mechanism. They have access to all of your money and you have many less ways of detecting when they have overdrawn (or penalized you for the failure of their equipment to register your badging in).

Again... these companies know exactly what they are doing.

As an aside... I often wonder what happened to the laws about accepting legal tender. There are a number of times that I've been refused service because I wanted to pay cash (hotels and car rentals being the biggest culprits). Is this actually legal?

pyre4• 11 years ago

The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.

This has more to do with the hotel's liability. If you steal from the hotel or damage the room, they will apply those extra charges to your credit card. Even if your credit can't cover the costs, your verified credit card information tells them that you didn't provide a false name, and they have someone to chase after to recoup the charges.

gizmo686• 11 years ago

Being legal tender means that something must be accepted as payment for a debt; it does not mean that it must be accepted as payment when no debt exists. For example, if you go to a restaurant that serves you before giving you your check then they are required to accept cash. However, they are allowed (possibly depending on jurisdiction) to insist on being payed by card prior to serving you.

silveira• 11 years ago

Civil forfeiture laws in the US. I don't feel safe carrying a reasonable amount of cash. Here the police can just rob me, and now I'm guilty until proven innocent.

In DC it costs up to $2500 for the right to challenge a police seizure in court, it's complex, expensive and it can take years.

tomtang0514• 11 years ago

Here in HK and Shenzhen we have similar thing called Octopus card where you can use it on almost anything other than buying house or cars or "high-class" shopping. An even better part is that almost all octopus card scanner has a display for the amount just charged so you can dispute right away. To encourage people to use them, there're even discount stands on the street. A "discount stand" is basically a machine that you can scan your card and get $2 off your next purchase. Yes, that's its only functionality and you don't have to input email or any BS, just scan it. That's my favorite part of HK.

mrb• 11 years ago

I wonder if there would be an interest in a virtual credit card (NFC smartphone) showing you how much money you can spend for, say, the rest of the week. You would be able to configure your desired spending limit. The virtual credit card app would automatically be able to update the amount of money spent whenever recurrent charges are processed automatically. The idea is that whenever you pull your smartphone to pay, you always see exactly how much you have spent so far. As opposed to the situation today where nobody logs in multiple times daily on their bank/credit card website to check how much they have spent.

fmueller• 11 years ago

The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.

In Switzerland one must - by law - accept cash as payment. Is this different in Canada?

mr_green_tea• 11 years ago

The last time I tried to rent a room at a hotel in Canada, they would not accept cash -- credit card only.
In the UK, I used to use my Oyster card (a pre-paid travel card for public transit in London). I could basically use it like cash.

You might want to consider a pre-paid credit card :)

colanderman3• 11 years ago

Oh it's better. I've seen a poster on a commercial bank in the US which advertised a usurious loan (I forget the exact rate but it was up there with pay-day loans) that was only in Spanish while all its other products were advertised in English.

rokhayakebe3• 11 years ago

The bank could have just declined the charge and let you deal with it

Wells Fargo will charge you $35 even if they decline the charge. So they don't pay because you don't have enough money, and on top of that they charge you for not paying.

ams61102• 11 years ago

Never never never bank with the big national banks like Chase, BoA, etc. Find a local bank or credit union, they are generally much more reasonable with their fees and penalties and often have free overdraft privileges (with some caveats -- understand those!).

Never set up automatic payments directly from your bank account. Pay your bills manually, once or twice a month whatever fits best with your cash flow.

joe5150• 11 years ago

There are also good banks that, unlike USAA, most people can actually join with minimum hassle. CapOne360 and Ally have both done me very well, no connections needed.

omonra• 11 years ago

I mostly agree with you (99%) except the part about 'Rich bankers robbing poor people'. The bankers devising this are not rich - they are very much middle class MBAs who are struggling to meet ends meet, what with high cost of property in good school districts, etc.

It the same guys who develop devilishly complicated cell phone plans, cable tv plans, drug packets that are 8oz big but contain 4 pills that would fit in a 1oz packet, etc. There must be an MBA school course 'How to screw over people with IQ lower than 90'.

What i'm saying is that it's not a rich vs poor but rather intelligent vs less so (or just people who fail to pay sufficient attention).

vacri• 11 years ago

even though you have overdraft "protection" turned off

If you've explicitly opted to turn off overdraft protection, then the bank should honour that and let the payment through. The bank has no idea how vital that charge is for you. The problem is in the ridiculously onerous penalty.

nandemo3• 11 years ago

*> You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account,

I don't want to be rude but I wonder what set of circumstances leads a poor person to subscribe to a relatively superfluous service (unless you're a pro photographer?) in the first place.

maehwasu2• 11 years ago

Could happen from anything. I've also been poor, and one thing that sent me over the edge was a check that someone waited months to cash. Thought I had $200 in my account, and made a payment with debit card, only to go under $0. What's worse, I wasn't notified, and made a couple more charges, all at exorbitant rates, until I realized what had happen.

As always, it's best to interpret others' comments in the most generous way possible, rather than jumping to the conclusion that the poor person must have been spending too much money to pull himself up by his bootstraps.

Johnie• 11 years ago

Here's a good breakdown of checking account profitability:

http://www.bankdirector.com/index.php/issues/retail/the-prof...

stevewepay• 11 years ago

This is a quote from Michael Lewis' The Big Short, I'll never forget it:

Obsessing over Household [Finance Corporation], he attended a lunch organized by a big Wall Street firm. The guest speaker was Herb Sandler, the CEO of a giant savings and loan called Golden West Financial Corporation. “Someone asked him if he believed in the free checking model,” recalls Eisman. “And he said, ‘Turn off your tape recorders.’ Everyone turned off their tape recorders. And he explained that they avoided free checking because it was really a tax on poor people — in the form of fines for overdrawing their checking accounts. And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.”

Eisman asked, “Are any regulators interested in this?”

“No,” said Sandler.

“That’s when I decided the system was really, ‘Fuck the poor.’”

Touche11• 11 years ago

form of fines for overdrawing their checking accounts.

Why in the world shouldn't you be fined for overdrawing your checking account? A checking account is not a loan, am I wrong in thinking this quote is B.S.?

selectodude• 11 years ago

The charge should be declined, no different than a credit card. Allowing it to go through and then charging usurious fees is wrong.

hrehhf• 11 years ago

Because the bank should just deny the charge to the account instead, and have no fine. You are right that a checking account is not a loan--so the bank should not treat it as if it is!

scintill76• 11 years ago

I'm not really in the know, but I'd guess "back in the day" it legitimately cost somebody something to deal with a cheque with a value greater than the balance of the account. Nowadays, it should be the same $0.0001 worth of computing/networking power which is already spent if it's a good cheque. I'd welcome corrections from someone who knows more, but I figure modern fees are just a way for the bank to extract money from people too harried to fight back. Perhaps some of it is legitimately used to subsidize general account maintenance, and maybe the banks are passing on a real cost specifically charged by a clearinghouse for bad debits -- but somewhere down the line, the bulk of it has to be lining someone's pocket.

If someone were attempting thousands of bad charges in a month, maybe they "deserve punishment" for abusing the system. What the fees do now is just taking money from people who already have little, and/or just lost track of their balance and made a small mistake that would have no bearing on anyone else if the bank didn't fine for it.

geofft3• 11 years ago

What is the purpose of a fine? Before we discuss further why one shouldn't be fined, can we make sure we agree on why one should?

Off the top of my head, I see "dissuading behavior that negatively impacts the bank", and that doesn't seem to justify a fine in this case, but maybe you're thinking of a rationale for a fine that I and maybe others are not thinking of.

Ollinson• 11 years ago

Why not just deny the transaction if it can't be paid in full?

The bank isn't doing you any favors by letting you pay with money you don't have, they know they'll be getting that money back and then some.

bedhead4• 11 years ago

No, it's the same system that allows the lottery to exist. It's not "fuck the poor", it's "fuck the stupid" (alternatively, "fuck the bad-at-math"). If there's a high correlation, I don't think anyone is going to be terribly surprised, as uncomfortable as that may be.

I have been poor. I have also been the opposite. I have also been a bank employee, and a professional investor who studied security analysis by looking at banks. The feds have rightly come down on banks via recent regs about how to charge overdraft fees, because banks did in fact used to play bullshit games with how they charged fees. A lot of that has been fixed. But the uncomfortable truth is that the people who repeatedly fall victim to these fees these days are simply irresponsible. You might as well complain about the high price of parking/speeding tickets - every opportunity in the world is there to avoid it.

I'm sure this will get about 50 downvotes but whatever.

danharaj6• 11 years ago

There is a cognitive overhead to managing every predatory relationship. The poor have to deal with many, many predatory relationships all the fucking time. People make mistakes and extremely powerful people and institutions exploit them as much as they can when they do.

Good on you for being able to say that you were poor, in the past tense. I'm glad. I don't think people are stupid just because they stay poor. When you call people stupid because they suffer and can't catch their breath or get their affairs in order because human institutions are structured in the most hostile, alienating, predatory way they can get away with, you start seeing stupidity wherever you ought to see compassion and empathy.

fideloper• 11 years ago

Sounds like victim blaming. To an extent you're right, but the situation is not at all this black and white (like anything in reality).

Take for example just the fact that it's easy to lose track of your current savings especially without ready access to the internet, a common situation for the low income.

guelo• 11 years ago

Except that banks go through great lengths to make keeping track of your money as confusing as possible.

onion2k• 11 years ago

I'm not saying this isn't true, but the post is on the blog of a short term loans company who have a vested interest in people believing a short term loan would be preferable to an overdraft fee, and there's no cited report or study that suggests banks make most of their money from fees.

A couple of articles that make me wonder;

http://www.businessinsider.com/chart-of-the-day-how-a-bank-m...

http://www.wsj.com/articles/banks-fee-bonanza-dries-up-14096...

mrmirz• 11 years ago

"In fact, roughly half of respondents to the ICBA survey say that overdraft fees constitute their most profitable non-depository and non-lending product, despite regulatory changes that have crimped their income potential."

http://independentbanker.org/2014/01/finding-more-fee-income...

morgante2• 11 years ago

So basically the article is completely wrong when it says:

The most profitable source of income for banks is not mortgages, credit card fees or mutual funds, but the fees they charge clients for these short-term loans.

some-guy• 11 years ago

About five years ago I worked at Wells Fargo as a teller while in college. During that time Congress passed a law prohibiting debit transactions from going through if there weren't enough funds in the account. Shortly after that we were told to start telling our customers about a new service called Debit Card Overdraft Service which was marketed as a "convenience" for customers when they were in a bind.

When I asked my branch manager about this service in person, he said he was told by his manager that the company was going to lose billions of dollars due to the new law and that this service was meant to alleviate those losses. I filed an ethical complaint since I believed that it violated one of their Team Member Codes of Ethics regarding "encouraging reckless financial behavior". It pissed off my manager, which pissed off his boss, and then I had a round table meeting with them. My manager then claimed that he never said anything about losing money, and that the new service was unrelated to the new laws passed in Congress. Since I couldn't prove he said those things I decided to drop it, but he told me I no longer had to advertise the service.

It still irks me that there was absolutely nothing I could do about the situation. After I quit some of my co workers told me that they were told that the service was used to make up for lost revenue also, but they were afraid of speaking up since they didn't want to lose their jobs. I had less to lose because I was a college student studying CS.

eru2• 11 years ago

I guess the moral of the story is that ethical complaints should be anonymous?

kelukelugames2• 11 years ago

The moral of the story is to gather evidence.

When you go report something to HR, the HR rep always writes things down on paper. Why do they do that? In case things go to court.

Write down on paper what everyone says. Otherwise is your word vs the manager's. Employees will not win in a case of he said she said.

oasisbob• 11 years ago

I was working at a credit union during the same time, and I found the immediate change in rhetoric really disheartening.

Overnight the line for overdrafting your account went from, "You're being financially irresponsible by not properly balancing your account - you deserve the fee" to "Overdraft Protection is like an umbrella - nobody expects it to rain, but if it does it's nice to have protection.

I was shocked at how much fighting there in the industry to carve out transaction types from the opt-in behavior.

colanderman3• 11 years ago

I'm surprised and somewhat disheartened to here that there are credit unions which follow this practice. Doesn't seem to really fit with their charter.

wnevets• 11 years ago

Why bother with a bank? Find a local credit union

boling11• 11 years ago

Bank overdraft and NSF fees are definitely odious. It's part of the reason why so many poor people have switched over to prepaid and are opting to pay the $5-$10 monthly fee for those accounts - it comes out to less for many people and at least it's predictable.

These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).

fredkbloggs11• 11 years ago

These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).

Maybe the lesson is that over-regulation and financial repression aren't so good for the people. These guys are going to make money somehow. You can create a system that allows them to do so with minimal harm while providing valuable services or you can take away every stream of revenue except the evil things they haven't thought up yet. America is clearly opting for plan B, and it's working about as well as you'd expect.

rev_bird2• 11 years ago

This seems like a politically motivated conclusion -- I just can't find any evidence that it's necessarily true.

I really can't see how "over-regulation" is the cause of banks behaving badly -- their core business is ostensibly to charge interest, right? That's still legal and, in the US at least, loans (for school, homes, etc.) are an almost celebrated social rite of passage.

I just can't look at banks knowingly screwing their customers and react with "they need less rules." If anything, this behavior is evidence that banks cannot be trusted to act in the public interest, if only because there are much more substantial financial incentives to act like assholes. Regulation is in place because it's absurd to just say, "oh, they'll be nice, why would anyone be mean to people in exchange for huge sums of money?" It fills in the moral gaps that the market doesn't enforce.

hippich• 11 years ago

I was bitten by overdraft fees few times, and after much complaining all fees were waived. BUT, every time I insisted on disable all kind of overdraft protections and simply dishonor ACH charge or paper check if balance is not enough. I've been told that even in that situation they will still charge NSF fees if check was authorized (and yes, recurring transactions are authorized.) They also offered to stop specific check. This will cost... same amount as NSF fee. Also, they can freeze account, it will cost... same amount as NSF fee, (and same amount to unfreeze)

This is local smallish CU...

Cacti• 11 years ago

It's important to keep in mind that "overdraft fees" is a complete horseshit of a term. The banks could easily just deny the transaction... there's nothing in the universe that says you have allow your customers account to overdraft. As the link says, these really are not fees, but short-term high-interest loans, extended by the bank to the customer, with an intent little different from other high-interest short-term loan places.

These are LOANS, not FEES, at HIGH INTEREST rates, and they're aimed SPECIFICALLY at the poor, because they're the only ones without other options or recourse, and the least likely to fight the issue when it happens.

MereInterest• 11 years ago

In addition, the fact that they label it as "overdraft protection" is thoroughly ridiculous. Overdraft protection should protect me from overdrafts by denying a transaction. Instead, the worst effect of the overdraft, being charged an additional fee, is applied.

ceejayoz• 11 years ago

Bingo. It makes the overdraft worse.

fredkbloggs11• 11 years ago

We could read 100 sob stories, or we could recognize that every single overdraft (other than errors and fraud, which do happen but are rare and these days invariably corrected) is voluntary. Yes, banks will make money any way that they can. Yes, they will happily take your last dollar, or even dollars you don't have and never will. No, they do not give one flying fucking rat's ass about you, your sister, or the homeless Vietnam War veteran who saves orphaned children on weekends and singlehandedly saved the world from nuclear annihilation last week. Twice. They don't care. Not one tiny bit. They're probably bastards.

So why in the name of all that's sane and holy would you give them money by falling into the traps that they set for you? You choose to write checks you don't know for sure are good. You choose to use your debit card instead of cash. You choose to keep poor records of your own accounts. These are choices that you make, or not, despite 13+ years of free public education that includes all the basic skills necessary to avoid this problem. And then you complain that the bankers are making too much money charging you a fee that you agreed to as a direct result of a transaction that you deliberately initiated against your account. You. Not the bankers.

If you can't or don't care to keep good records, you should use your checking account for only the bare minimum of transactions that you know for certain you can keep track of, only when you are absolutely sure you have enough in your account, and use cash for everything else. Basically, if it is at all possible to use cash for something, use cash. If you aren't sure of the terms on your account, get out your paperwork. If you lost it, call the bank and get them to send it to you again; they're required to do so. If you don't like the terms, find someone else; there are over 7,000 commercial banks in the United States.

There are thousands of pages of banking law and regulations devoted to making sure that you are aware of these fees, limiting them, obligating banks to refund or cancel them in certain situations, and on and on. It's your choice to pay them. It's your choice to hand those bastards a bunch of money for lending you literally a few bucks for a few days. Yours. Not theirs.

And they're not even grateful for it. You really oughtta cut those bastards off.

Karunamon6• 11 years ago

And the best part is, you're being downvoted for this..

I dunno, apparently a lot of HN thinks that it's impossible to believe that banks are generally run by bastards while simultaneously believing that 99% of these instances are completely voluntary and completely avoidable?

If you keep track of what you're spending your money on, it's not a problem you're gonna have to ever deal with - and I say this as someone that's played this game with Wells Fargo in the past.

But apparently, advocating for people to be responsible for their own actions is a radical and terrible thing nowadays.

outworlder3• 11 years ago

Sure. For well-educated, silicon valley types with a resident accountant. You're missing out on the part that says that the poor (which many times goes with lack of basic education) are hit the most by these fees.

Not to mention that overdraft fees are a ridiculous concept to begin with.

danharaj6• 11 years ago

It's probably because people usually grow out of the stage of political awareness where one imagines human beings to be atoms that aren't connected to one another. If you think that 'personal responsibility' or whatever allows you to judge someone as stupid, inferior, or deserving of misery, then you will have a bias that makes you see people as individuals cut off from all social and economic context because it gives you the most leverage to rationalize their misfortunes away.

People are all connected and all economic relations are social relations. If you treat everyone without their social context, you're basically saying that every powerful individual or institution can make relations with them a minefield because all that matters is that it's their weaker counterparty's responsibility to avoid all the mines. After all, everyone 'consents' to a 'voluntary' exchange. How could 'voluntary' exchanges be bad???

Your worldview is just a very immature way to rationalize predatory institutions and hostile power structures. Actions cannot be judged as voluntary except in context. The context that people like you and the grandparent tend to take is, at best, one of the law or some insipid moral principles based off of a rancid individualism.

jkestner2• 11 years ago

Don't forget to read all your EULAs!

Not everyone can afford to educate themselves on every consequence of every interaction with a corporation that is actively trying to obscure those consequences. I'm generally not ignorant, and I naively thought last week that if I transferred some money into a checking account on the same day that a payment was taking the balance below zero, I'd end up positive when the transactions were run at the end of the day. I got dinged $35.

fredkbloggs11• 11 years ago

Well, I expected to be downvoted. This is one of the most heavily Progressivist boards on the entire Internet, so it goes without saying that this view is unpopular. And downvoting is much easier (and faster, and consequence-free) than arguing the facts, especially when they're not on your side. If I weren't willing to accept this, I wouldn't post here. There's a lesson in there somewhere.

darkmighty3• 11 years ago

Not talking specifics here, but there's a point that people must be shielded from their own ignorance (or even plain stupidity). There are lots of things to know about, and many people simply won't ever know about them by pure chance. I believe the law should actually be maximally protective of individuals up to the point it starts severely compromising the flexibility of businesses or individuals. Doing any less is masochism in my opinion.

For example, roads have guard rails in high traffic areas that mostly protect people from their stupidity -- you shouldn't speed near ledges otherwise; doing so would be stupid, and from then you could be small distraction away from death. It frees mental bandwidth and cuts transit times of travelers with little added cost. Nobody should have to suffer needlessly for poor decisions (not even taking into account most times it's just bad luck -- let's assume worst case it's just stupidity) if we can prevent it, and sometimes education won't work (not as fast as it should).

I've been stupid quite a few times with regards to physical/career risks myself and have a few otherwise very bright friends make stupid decisions. If those were preventable they should be prevented. They are much more efficient ways of teaching than allowing very significant mistakes to be made.

In particular, any safety mechanism for which if the majority of affected users post facto would agree upon can likely be put in place beneficially (which I would argue is the case for limiting overdraft fees).

You can think about it as if instead of needing people to learn about the innumerable (and mounting) hazards of the systems around us, we can free mental bandwidth and create other systems that learn about the hazards and protects us so we don't have to worry about it.

methodover• 11 years ago

I think there's an aspect of morality that you're missing. There comes a moment when taking advantage of someone's lack of foresight, lack of intelligence, and/or carelessness becomes immoral.

I'm not sure where exactly that line lies, but I think I have a good staring place:

If you've created a system that takes someone's money -- even when that transaction was done with the person's prior permission in some way -- and that person says "Woah, wait a minute, this isn't what I thought I signed up for," that's a hint that you might be on the wrong side of that line.

If millions of people have that reaction, and legislators start making public inquiries into what you're up to, that's a REALLY good sign that you might be on the wrong side of the line.

Kinnard• 11 years ago

This is all the more frustrating—no, enraging, when you learn how banks create money.

vonklaus• 11 years ago

Underrated comment. I was just listening to a bitcoin podcast with the Bank to the Future author discussing this. Bit one sided, but really interesting essentially he posits that capitalism is somewhat problematic but still a great way to organize actors in a market, however the ability for banks to create money and the false assumption that they are intermediaries has lead to the problems we're in now.

pedro50• 11 years ago

Fuck the banks.. when u down they will punish you.. and even creating a new bank means you can punish.. FUCK THEM ALL

worldadventurer• 11 years ago

Bank of America had some pretty bad practices where they would reorder the sequence of debit transactions, largest amounts first, to maximize the number of overdraft transactions: "the bank mixed up the order and delayed the timing of debits and transactions to maximize the possibility customers will overdraft accounts".

They got sued and settled for $410 Million in 2011: http://www.bloomberg.com/news/articles/2011-02-05/bank-of-am...

[edit: spelling mistake]

zacwest• 11 years ago

Their argument for doing is compelling. They figure larger purchases like rent or car payments should go through above smaller ones. It feels like the person doing the reordering was a different person from the one setting charges.

meric• 11 years ago

That's a ridiculous argument by the bank.

1. A person has many payments to make, some very large ones, but also some very small ones - and yet the variance in utility of making many of the payments is a lot smaller than the variance in the size of the payments to be made.

2. The utility of a creditor in receiving the majority of their payments is a lot higher than the utility of a creditor in receiving none of their payments.

A person requires BOTH shelter and food.

This month, your payments are:

    1. The food payment is $20.
    2. The rental payment $1000.

Let's say you have only $1000 for the month, and overdraft is turned off.

If the rental payment goes through, you have zero dollars remaining for food, leaving you hungry for the month, and will starve to death without assistance.

If the food payment goes through, you have $980 left. Send the $980 to the landlord and apologise and promise $20 will be sent the next month. Your landlord won't kick you out.

Ergo, largest payments should not go through above smaller ones, if we want to order in a way for the customer's benefit.

Therefore, taking into account of both parties, utility is maximised when a couple of percent of a large payment is skipped rather than when the entire amount of a small payment is skipped.

From the point of the view of the bank where they are usually the ones receiving the largest payments in mortgages and car loans, they will require a lot more customer support staff if there are lots of instances where people pay only 98% of their payments, because that's not a good reason to foreclose on somebody and at the same time they don't want them to continue skipping 1-2% of their payments.

What the bank is saying: Largest payments should go through above smaller ones, for the benefit of the bank!

jellicle2• 11 years ago

Err, their explicit practice is to send through ALL purchases; that's sort of the point of milking the overdraft cow.

The person doing the reordering is exactly the same one setting the charges. The reordering is done to maximize profit.

"Bob, here are five transactions. You must process them all sequentially. No law regulates the order you must process them in. They were received in order A,B,C,D,E, however you need not process them in that order. Processing them in the order C,D,B,A,E maximizes the profit for us, your employer. What order should you process them in, Bob?"

outworlder3• 11 years ago

As a Brazilian, the whole concept of "overdraft fees" feels truly alien.

I am not aware of any banks that will charge you like that and wouldn't be surprised if it were forbidden by the central bank. Some of them will even charge you nothing even if the account sits in the negative for a set number of days (10 usually). The others will just charge as if it were a loan, by the month's end.

Now, here is the interesting part. You can expect to pay, currently, over 10% per month on any outstanding loans. In the case of a negative balance, charges upwards of 30% are common. So it's not like they aren't robbing people either. They are just doing it in a less visible way.

colanderman3• 11 years ago

If you're in the US, ditch your bank and find a credit union (or failing that, a cooperative bank). They are financially beholden to their customers (what a novel idea!~), so they don't pull this kind of shit.

Ever since dealing with unwanted overdraft shit from Citizens Bank (may they rot in hell), I swore off the adversarial relationship of commercial banks and found a nice credit union. With them, I once overdrafted my account slightly (forgot about an ATM fee or some such), and they ignored it for months. I only found out about it because they casually mentioned it when they called me about something else. No fees whatsoever.

ajmurmann• 11 years ago

When I first moved to the US as a student from Germany I kept most my money in Euro cache and only covered what I needed in the coming weeks because the Euro kept going up pretty quickly. I will never forget how furious I was when I got an overdraft fee. It took my wife quite a while to even explain the concept to be because it seemed so completely nonsensical coming from Germany. In Germany the bank would be set on fire for this by leftists.

iamchmod• 11 years ago

I'm really not sure why this is news. It's been covered all the web previously that banks make a lot of their net profit from overdraft fees. Here's a couple recent articles: http://www.fool.com/investing/general/2015/06/17/bank-of-ame... http://247wallst.com/banking-finance/2015/06/17/banks-making...

polishninja• 11 years ago

I've worked at a credit union for many years. The fees from overdraft charges probably come in second or third behind loan interest income. There are a few community banks / credit unions that don't charge a fee if your overdraft is less than $5 or if you bring the account current within 24 hours. I think this is a step in the right direction.

If you overdrafted at the credit union, we gave you a $500 limit and 30 days to pay it back. For $35 you could borrow $500 for a month. The problem is, people would pay the $500 back and the next day withdrawal it again. They would be caught in a cycle of this, very similar to payday loans, for months or years.

There we so many fee reversals at the credit union I was at the instituted a policy that said any fee reversal had to be approved by the CEO or VP of Retail operations. We were refunding millions of dollars in fees a year. That cut down on the reversals for sure but didn’t help the consumers.

I have an overdraft loan ($500) that just draws (transfers) funds to the checking if I go over. The only thing I pay for is the interest, which is a lot less than an overdraft fee. That's if you can qualify for a loan though, which can be tough if you don’t handle your finances properly.

rdtsc• 11 years ago

Another take on the ridiculousness of overdaft fees is presented by Louis CK in this "I am broke" skit.

https://www.youtube.com/watch?v=-n4DRcGJQo8

Some quotes:

"Did you ever get so broke that the banks starts charging you money because you don't have enough money"

"Sir you only have $20? How can you only have $20. -- Look, I am not being broke just to fuck with you, I really just don't have any ... money. I am not trying to be a dick"

"So they charged me. They charged me $15. That's how much it costs to have $20. Here is the fucked up part, now I only have $5. What did I pay the $15 for if I don't get to have my $20!?".

raz32dust• 11 years ago

Wow, this is truly ridiculous. I recently moved to the US (yet to set up a bank account here) and did not know about this. Back in India, if you don't have funds, your transaction is declined. Plain and simple. And no fee for that, either. This is pure unleashed greed. Now I know why bankers are so hated out here. Banks have way too much power, way more than the benefit they provide. This whole system needs to change. Horrible!

And I am sure we are going to find this kind of shit in India soon, because from what I see, we are blindly copying the American way over there. The good, the bad, everything.

rokhayakebe3• 11 years ago

If you don’t want your account to come with overdraft services, clearly tell your bank or credit union to decline purchases that exceed the money in your account.

Well, Wells Fargo charges $35.00 overdraft fee. Or if you choose to decline, they charge $35.00 for unaccepted charge. Either ways you'll be paying Wells. Oh well.

yuhong• 11 years ago

I wonder what would happen if for profit banks didn't have savings accounts that accumulate interest.

EGreg• 11 years ago

Many times in the past, I've learned the hard way that when you ask the bank to STOP paying any charge that would take the account negative, they say OK but then have enough loopholes that the request is essentially meaningless. They STILL apply the overdraft and there's no way to turn it off! I thought laws were recently passed to prevent this behavior, but I guess not.

joshuak• 11 years ago

A. Use small claims court. I have. It is very successful. The more who do it the harder this abuse will become.

B. It is the banks responsibility to maintain an accurate accounting of funds deposited with them.

A customer has no mechanism to instantaneously check their balance, and 'hold' funds for a transaction, or if unavailable avoid the transaction.

The bank does. It is the debit card system.

They, not you, are responsible for using the systems they have to avoid accounting errors.

No one should be made to feel guilty because they are poor, or for failing to keep a ledger that only a bank has the ability to keep.

morgante2• 11 years ago

This title should be changed, as it is not the title of the article and even more importantly seems to be pure clickbait.

No source is cited for $37 billion in overdraft revenue and even if that number is accurate I'n highly skeptical that it's the most profitable line-item in a $1.26 trillion dollar industry.

kevinSuttle• 11 years ago

I remember when these were added to my account as a poor college kid. Devastating. It used to be, swipe -> no money? No purchase.

codezero• 11 years ago

Overdraft fees are maddening. I can't even imagine how bad they would be if I were strapped for cash.

I admittedly am not great at managing my accounts, but, it blew my mind that the following situation could (and did happen):

I got paid monthly, let's say it was $5k USD. At the end of the month, I may or may not have enough money in my account, for, say, a day or two.

So, I go to buy a coke at the university shop. No problem, costs me $1.25, but I used my debit card.

Now I get a $35 fee because my account was at $.75

That makes sense right? Given that the bank has significant historical information that I will get paid in less than 48 hours, how am I a risk?

OK, so I bought another soda, later in the day, another $35.

Whoa! $70 for two sodas.

Kill me now.

What's worse... I couldn't set my account to reject these transactions. Either I had to always monitor my account, AND make sure that none of the services I subscribe to ever charge me in this specific time period.

It wasn't until specific laws were passed that I could make my account follow these rules, and this was about 2009, or 2010.

I paid at least $1000 to the bank in overdraft fees over the course of a few years.

In fairness, these are the only fees I paid to the bank, and probably, if this were the cost of banking (less than Spotify!) I probably would have paid them happily.

The problem with these charges is that they were volatile, a surprise, and scraped the bottom of the barrel when I was least capable of handling the charges.

It's maddening, and I feel strongly for those who weren't as well off as me who got fucked over by banks under the scheme, and likely continue to get fucked over because the banks still don't make it easy to set your account up in such a way that you reject overdraft charges.

switch007• 11 years ago

Pre crisis overdrafts used to be cheap. There was just a monthly interest amount (fairly low - IIRC mine was about 12%).

Post crisis, many banks in the UK "simplified" overdraft fees by charging rediculous daily/monthly usage charges and increased interest rates. It really is a massive swindle when being £100 overdrawn for one day can cost between £5 and £40 [1]. You used to just have a monthly interest rate like a credit card, often paying a few pence for going overdrawn for a day.

Of course being British, we just rolled over and took this (I did close all my Natwest accounts after being charged £5 for being £1 overdrawn for one day, but most banks are the same now). The people with the power have large amounts of money in the bank and had no need to complain.

With blllions in PPI being reclaimed (Lloyds alone supposedly have a bill of £13 bn [2]), this isn't a surprise. The banks always win.

[1] http://www.moneysavingexpert.com/banking/bank-charges-compar...

[2] http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds...

greggyb• 11 years ago

According to an ICBA survey of 200 bankers nationwide, overdraft fees constitute their most profitable non-depository and non-lending product.

Emphasis mine. This is an inflammatory title, not matching the article's or any statements I see made therein.

This statement is buried in there, but if we want the title to at least be accurate, it should be along the lines of "The third most profitable source of income for banks? Overdraft fees - behind their two core services, depository and lending services."

bryanwbh• 11 years ago

This is not at all, correct.

The most profitable source of income for banks is non-interest bearing checking accounts. On an overnight basis, Fed Fund Rate is 0.25% and Overnight USD LIBOR is at 0.133%. However these checking accounts pay nothing to customers. So, whenever customers deposits any amount of money, banks easily earn at a minimum 13bps out of it.

That is free income for the bank.

Other lucrative source of income for banks are interest bearing checking account and savings account as they pay peanuts to customers compared to what they can lend out to the interbank market.

Disclaimer: I work for a bank in the treasury dept

The most profitable source of income for banks? Overdraft fees

Related Stories