Wednesday, September 09, 2009

Banking on Dirty Tricks

Don't get me wrong; I'm not against banks having a fee system in place to discourage and punish those who willfully and routinely are guilty of overdrawing on their accounts. I do, however, think most such fees are grossly excessive given the automated nature of most banking transactions and the check processing system. A $29 insufficient funds fee is virtually all profit for the bank aside from the 50-cents for a computer-generated notice printed out and mailed to the customer in an envelope.

It is all too common for several such fees to be applied in one day if a customer paid some bills and the checks all hit at once. Obviously the customer does bear some financial management responsibility in avoiding this scenario, but it does happen, even to the best of us who do keep a close eye on our finances.

There is now a more troubling and grossly unfair practice emerging which involves debit cards and fees for spending more than you have in the account.

Wait a minute. Debit cards are like cash, right? How can you spend more cash than you have? It's not like buying something on credit, or exceeding your credit limit. Nonetheless, some banks are now allowing this to occur with debit cards, the customer isn't declined on the spot for the transaction, and are having fees applied to each transaction which far exceed the cost of the item being purchased in many situations.
When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

This is clearly excessive, and extremely profitable for the banks, so of course they don't want to be more upfront than they are required to be. (Hint: we need regulation to keep consumers from getting screwed.) And they are also being quite deceptive and tricky to increase their monetary take from honest mistakes.
But because consumers use debit cards far more often than credit cards, a cascade of fees can be set off quickly, often for people who are least able to afford it. Some banks further increase their revenue by manipulating the order of a customer’s transactions in a way that causes more of them to incur overdraft fees.


Bankers say they are merely charging a fee for a convenience that protects consumers from embarrassment, like having a debit card rejected on a dinner date.

Ahh yes, of course. The banks are always looking after the little guys, helping us avoid "embarrassment." You know what? Screw that. I'm not sure what percentage of the population would rather get screwed out $238 or even $39 rather than have an embarrassing moment, but if it were me, I'd be content to leave a situation red-faced than have my pocket picked by a financial institution.
William H. Strunk, a banking consultant, devised a program in 1994 that would let banks and credit unions provide overdraft coverage for every customer — and charge consumers for each transgression.

“You are doing them a favor here,” said Mr. Strunk, adding that overdraft services saved consumers from paying merchant fees on bounced checks.

What a load of BS. They are doing nothing more than hijacking the fee which would have been collected by the merchant and thus boosting their own profits.
In all, $27 billion in fee income flows from covering overdrafts from debit card purchases, A.T.M. transactions, checks and automatic payments for bills like utilities...


Yet fees, and how they are generated, remain a mystery to many consumers. Because regulators do not treat overdraft charges as loans, banks do not have to disclose their annualized cost to consumers.

And often, the price is enormous. According to the F.D.I.C. study, a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent. By contrast, penalty interest rates on credit cards generally run about 30 percent.

Yep, always looking out for the little guys.
Ralph Tornes, who lives in Florida, is pursuing a lawsuit against Bank of America for charging him nearly $500 in overdraft fees in 2008 after it rearranged his purchases from largest to smallest. In May 2008, for instance, Mr. Tornes had $195 in his account when he made two debit purchases for $8 and $13; the bank also processed a bill payment of $256.

He claims that Bank of America took his purchases out of chronological order and ran the biggest one through first. So instead of paying $35 for one overdraft fee, he was stuck with three, for a total of $105.

This is simply insidious. It's spreading the wealth...from the bottom to the top.

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