After posting this, I saw the prolific Salmon had added some excellent thoughts on the subject, dropping a little behavioral economics on the laissez-faire crowd. Here’s a taste:
…I wrote that the banks “should be stopped”. In response, Fernando says that “we need to keep holding people responsible” and that “some people just need to manage themselves better”. But here’s the difference: stopping banks is, conceptually, possible. But the $38 billion in annual overdraft fees are clear proof that Fernando’s “people” just aren’t going to magically start managing their finances in an optimal manner.
Empirically speaking, it’s clear that the 20% of checking account holders who pay, on average, $1,374 in annual overdraft fees apiece are precisely the people least able to afford them. They’re probably also the 20% of people who, for whatever reason, find it very difficult to manage their personal finances. Not everybody is as numerate and sophisticated as Vincent Fernando — a lot of people can’t even manage simple addition and subtraction. Is it fair for the highly-sophisticated and numerate executives at international banking giants like Bank of America to take advantage of that financial illiteracy in order to line their own pockets with multi-million-dollar paychecks? Or should people be able to trust their banks implicitly?
Can’t put it any better than that. Go read the whole thing.
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Good post, Ryan, particularly the part about "taking sides." I think it was Breslin said something about, when some bully is beating the crap out of an innocent little guy, it's not the reporter's job to get quotes from both sides and set them next to each other. The banking story is that story.
As for "overdraft protection," it's one in a matrix of scams designed to reap fees. Built into these systems is quite a bit of knowledge about how people actually behave; the fees are designed to cash in on normal behavior while subtlely casting it as aberrant. A look at the software and systems produced by the CRM (customer relations management) industry is all the evidence anyone needs.
But these kinds of industries (bad debt buyers, the still thriving COLI trade, CRM, "competitive intelligence" practitioners and dozens of others), like mold, bloom in the dank shadows because they can live only there. To learn of them one must troll through the trade journals and shows and ask a few questions of their salespeople. Business journalists seldom do that; they'd rather wait around for a tip from some short-seller or, worse yet, lionize another corporate fraud.
Posted by edward ericson jr on Sat 4 Jul 2009 at 03:37 PM
I used to work at a bank so I have seen both sides of the issue. The big issue is the use of debit cards, which people need to think about as "Check cards" because they do get treated like a check. If the bank does not cover what you charged, then it gets sent back to the place where you made the charge and they are still going to charge you at least $20 and may not take your card in the future. I had customers that loved the overdraft protection and it was a comfort knowing they didn't need to worry about their purchase being refused. Honestly - I was shocked to hear someone say that myself.
And people do think of these cards too much as credit cards and expect the bank to tell them when they are overdrawn by refusing their purchases. The truth is that the person knows better what charges they have made and what checks they have written than the bank does. When it comes down to it, it's ridiculous to think the bank is going to balance your checkbook for you. I have gone over a list of transactions with people who refuse to believe they were overdrawn only to have the conversation end with "Oh I forgot about that..."
It's not that hard to keep up with your accounts these days with it online or on your cell phone even. Frankly if it costs you $36 to learn your lesson of responsibility I think it's worth it.
On the flip side, I now belong to a credit union. They automatically move my money from my savings to my checking if I make a mistake. I don't get charged. Of course you have to have some money in savings in order to not be charged. If you have nothing to move over, you will be charged.
Of course the goal of the bank is to make money and I agree they can still do that without the overdraft protection cost being so high. Ultimately though, everyone needs to take charge of their money and not blame someone else because they don't know how they are spending their own money.
Posted by ECS on Mon 6 Jul 2009 at 02:43 PM
Thank you for this reporting.
I'd like to add that, after the NSF charge, the bank solicits the account for a "NSF protection" line of credit; the original sub-prime loan.
These loans, research has shown, go largely unpaid, thus the bank has substituted an occasional NSF fee with a steady stream of interest income at unregulated usurious rates.
Posted by LeeAnne on Wed 8 Jul 2009 at 08:43 AM
These banks are operating 'protection' rackets by claiming they pay overdrafts to protect the poor from having their utilities turned off.
I love all this 'blame the victim' stuff. That's how criminal behavior persists and prospers; it is encouraged by these attitudes: victims are asking for it.
Sure, I was asking to be discriminated in employment after the age of 50.
If you have no feeling for your fellow man, democracy and representative government are not for you; fascism/oligopoly is,.
I was recently charged $105 for a $60 overdraft generated by a withdrawal from the ATM machine at my branch office bank; a total of 3 charges @ $35 each.
The additional 2 overdraft fees of $35 each, generated by a small eCheck and a debit card grocery store item of $4.38, were caused by the overdraft charge the bank delayed posting until the day following their charge to my account.
The bank makes money by NOT providing routine minimal bank services such as timely record keeping with balances available to the customer via phone and/or email..
The bank reversed this last $35 fee only. So, poor bank, made only $70 for my $60 overdraft their processes helped to cause.
Posted by LeeAnne on Wed 8 Jul 2009 at 09:17 AM
"This is a tax on poverty, it’s substantial, and it ought to be stopped: the 20% of bank customers who pay 80% of the overdraft fees are the banks’ poorest customers."
Citigroup was charging me $7 a month because I had less than $1500 in my checking account. Talk about winning over a customer in hard times. I'm switching my account later this month. I cant imagine a better way to alienate a customer.
Posted by Alex on Wed 8 Jul 2009 at 11:21 AM