Steve Tuttle of Newsweek has one of the worst columns I’ve seen in a good long time, arguing “Why Banks Should Charge Hefty Overdraft Fees.”
This is one of those standard-issue John Stossel-wannabe rants about personal responsibility and the mommy state and comes in the wake of big wins by the press, regulators, and consumers against predatory bank behavior.
I’m all for personal responsibility. But you know what? I’m also for corporate responsibility. Let’s have both, how about?
Here’s a representative sample from Tuttle’s column to spare you from reading the whole thing:
It really comes down to a simple truth that we seem to have forgotten as a nation: if you spend money that is not yours, guess whose fault that is? And guess who should suffer the consequences of your profligacy? Your bank? The store? No. Welcome to Overdraftville. Population: You. You’re the one who spent $300 on that god-awful Tommy Bahama sweater when you had only $250 to your name. The bank didn’t buy that sweater. As best I can tell, the bank doesn’t have arms and legs, or even a car to get to the mall. And besides, where could you find a sweater big enough to fit all the way around a bank?
There are a couple of big conceptual whiffs in this piece. First of all, Tuttle is, whether he knows it or not, arguing “yay for usury!” What is an overdraft charge after all? It’s a bank lending you money you don’t have to buy something and charging you a flat fee rather than interest for the “protection.”
Fortunately we have a non-Orwellian term for a bank giving you money to buy something on the expectation of being paid back with future income: Loan. That’s what a bank does right? Why is this any different? The median annual percentage rate of an overdraft charge is 4,500 percent. Does Tuttle support 4,500 percent APR’s?
Apparently he does:
Congress has it all wrong. In their wisdom, lawmakers want to help people by lowering these fees when what they should be doing is raising them much, much higher. Why not charge at least $100 if you overdraft at the ATM? That seems a reasonable fee to pay to get $20 that you don’t have from the bank.
Hey, whatever the market will bear, no?
The second and more critical conceptual blind spot here is this: The banking industry engineers its products to trap consumers into overdraft charges. Tuttle either doesn’t know this or doesn’t acknowledge it, but it’s been widely reported.
Large banks also reserve the right to process large transactions first, triggering more overdraft fees by emptying the account more quickly. Some even charge consumers before they overdraw by deducting a purchase when it’s made, rather than when it clears, pushing the account into the red sooner.
Some consultants offered banks ways to boost overdraft and credit card revenue. A 2001 “checklist” from Profit Technologies — a firm that has worked with 19 of the USA’s 20 largest banks — has more than 600 strategies. Some are cost-cutting ideas such as printing a dispute form on the back of credit card bills to curb phone calls.
But most relate to income from fees. One strategy listed to boost overdrafts: “Allow consumers to overdraw their … accounts at the ATM up to the bank’s internally set limit.” To increase credit card fees, banks can “delay crediting of payments not received in bank provided envelop (sic) or for which payment coupon is not received for up to 5 days,” and “remove bar coding from remittance envelopes,” slowing the payment.
But worst of all is that banks haven’t even let customers opt out of overdraft “protection.” Now why would that be? To put it another way: Most banks haven’t let you be personally responsible enough to ask them to shut off the loan spigot. And 57 percent of us overdraw, meaning a non-trivial majority of Americans are personally irresponsible, in Tuttle’s view.
Still, I’d be more sympathetic to the “it’s their fault” argument if people weren’t being manipulated into these charges. The banks set up the system to maximize pain for their customers—$27 billion worth this year. These aren’t bad checks. They’re card transactions that can be denied at the point of sale. Seventy-seven percent of big banks force you into it when you set up an account, and many of the banks won’t even let you turn off overdraft “protection.”
Until they all do, this kind of argument isn’t worth the pixels it’s printed on.
(h/t Daniel Gross)Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.