How banks screw consumers, or how your negative balance keeps them afloat

http://shortformblog.com/biz/where-do-banks-really-make-their-ill-gotten-money-overdraft-fees

by shortformblog • 17 years ago

11 9 17 years ago

kyochan• 17 years ago

Regulating overdraft and overlimit fees doesn't lower the demand for overdrafting or overlimiting. Regulations that lower the penalties for overdrafting will likely raise demand.

If you regulate the demand side like limiting or banning overdrafts, let's just say drug dealers can do a bit more business with their pocket money.

Banks charge outrageous fees because consumers are willing to fork over a lot of money later for money immediately.

Wanna stick it to the banks and credit card companies? Don't overdraft and pay your balance in full and on time and collect reward points or cash back.

dasil003• 17 years ago

I'm a bit torn on this one since things like delaying settlement and changing the order of transactions is just plain shady. Would the executives who made these decisions stick by them if they had to actually deal with the angry customers? I realize it does self-regulate to some extent, but there's always a new generation of young people coming in to take their lumps.

All that said, as an individual you need to look out for yourself. If you overdraft or run CC balances then you are just throwing your money away. I finally put my CC debt to rest last year, and have been able to start saving serious money. I'm never going back, I watch my budget like a hawk now.

mnemonicsloth• 17 years ago

Regulations that lower the penalties for overdrafting will likely raise demand.

No, this is wrong.

You can't get away with a simple supply-demand analysis here because the demand curve for overdrafts doesn't slope downwards. After you've incurred an overdraft penalty (or two, or ten), you're more likely to incur further overdraft penalties. Even if you dig yourself out of the hole, you still have less money than you would have, so you're closer to overdrafting again than you would have been, and this tendency increases with the size of the overdraft fee.

This isn't to say that you can't discourage overdrafting with really big fees, but the relationship is going to be complicated, and the opposite outcome is also possible.

patio11• 17 years ago

In the spirit of "competition works", I've got a suggestion for anyone here who is still in poor college kid mode and overdrafts:

Sign up for ING Direct Electric Orange checking. They charge interest, not fees, on overdrafts, something on the order of a 9% APR. So, if you go over on your checking account by $1, and you realize this when they text you and cover it a day later, you owe them less than a penny. Don't make a habit of overdrafting, obviously, but this will save you substantially if you have a sudden attack of forgetfulness once or twice a year.

Obviously, since they're charging money on the actual amount your account is short by rather than per-NSF-transaction, it doesn't matter what order they process your transactions in.

Suggestion for people who are no longer in poor college kid mode: Don't spend more money than you have in checking. Simple and effective!

bmcleod• 17 years ago

Suggestion for people with discipline. Keep money in savings and pay off your credit card every 50 days.

Slightly less worthwhile with current interest rates unfortunately, but still a good habit.

My card has 55 days interest free, may as well make the most of it.

akronim• 17 years ago

isn't that typically "Up to 55 days" i.e. you still have to pay it monthly?

sgman• 17 years ago

These numbers are lacking context. What percentage of their total revenue do these fees make up? Is $50b even a drop in the bucket when considering all the banks in the United States?

trezor• 17 years ago

Or: How consumers are screwing themselves by spending more than they can afford. Get over the victim mentality. You are responsible for your own actions.

Just because the bank offers you credit doesn't mean you have to take up on the offer and use it. You know there are fees. Don't act surprised when you have to pay them.

If my job was to keep people's money safe and give them access to it when they needed it, and they constantly withdrew more money than they put in, I would also demand some sort of compensation for their lack of discipline and economic rigidness.

jpcx01• 17 years ago

I switched to a credit union 8 years ago when Washington Mutual charged me 300 dollars in fees in a single month (10 accidental overdrafts in one week).

Havent been charged a fee since.

How banks screw consumers, or how your negative balance keeps them afloat

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