Frankly, the banks had this coming. They made their own bed. The drastic increases in overdraft charges in recent years combined with the re-ordering of transactions to generate the most fees… it was a scam, albeit a legal one, and on people who are very vulnerable. If it had been reasonable (like a percentage of the actual money overdrafted, not $35 on a 50 cent overdraft), this law wouldn’t have happened.
I’ve never overdrafted, but I used to work at a place where there were a lot of very low income people, and it was heartbreaking sometimes. Between payday loans and overdraft fees, they spent a ridiculous percentage of their income on… well, basically nothing. On fees for being poor, essentially; one small mistake would snowball into lots and lots and lots of fees and problems.
It wasn’t uncommon to see a nasty cycle of a $2 overdraft -> massive fees -> no money for gas -> can’t drive to work -> miss work, miss pay for that work -> smaller paycheck -> more overdraft fees now unavoidable, and on and on until they lost their car or their child care and they’d lose their job. A lot of people live from paycheck to paycheck through no fault of their own. A mistake that to me that would be a ‘damn! that sucks’ moment is, to them, devastating.
Yeah, it sucks that banking services won’t be as juicy as they were for people who didn’t get these fees, but the actual cost on society was pretty high.
You can still opt in to an overdraft plan if your bank offers it. But apparently some banks like BOA have gotten rid of it altogether. At least, that’s what they told me when I opened an account with them last week. My mom’s bank still allows an opt in plan.
(I’ve know BOA sucks and made your life hell, but I need an option that’s both in Michigan and Massachusetts, because I’m still keeping most of my money in my mother’s financial institution).
Once, when I was 16 and had my account wiped out, needless to say I the bank refunded all the fees, and lost money.
Again, when a my dad deposited a check for me into his account by accident – the bank waived the fees because I asked them to.
My dad’s overdrafted a few times, and I’ve always managed to get him out of it over the phone. I just don’t understand how/why people pay these fees, unless they’re doing it all of the time, in which case – wtf?
You can still be charged overdraft fees on scheduled payments made to companies who automatically debit your account (like Netflix, for example). Just a warning to those of you out there.
In the case of Wells Fargo, overdraft fees were a huge source of income. When these laws changed, Wells Fargo made pretty drastic changes to their product line in order to recoup that lost income. Every single type of account had its monthly fees raised, and nearly everything that incurs a fee had that fee raised. They also got rid of their “Free Checking” account. Every account they offer now has a monthly fee (though there are ways to waive those fees).
Also, nearly every bank will waive or remove overdraft fees as a courtesy to you if you ask, but you have to ask. It’s a one time thing, though. They won’t do it every time.
It’s actually worse than that. Say you had $88 dollars in your account. They would “cover” the $99 dollar check by fronting you the difference between your balance and the $99, charge a fee for that, and then bounce everything in sight to roll up the fees.
Nice.
Excellent move. That really needed to be gotten rid of. If it was something I could have opted out of, I was never once given the notion, not even when I was sitting with a Wells Fargo rep and asked why they did it like that.
Also, I’m not sure scam is the best word to describe it, since it was legal and you (apparently) could opt out if you were careful about it. But it was absolutely a predatory policy, no different from the mess lenders made of the housing market.
“Sure, you can afford a $500k house on a $40k salary!”
“Sure, you can buy that coffee in the morning! And fill up your car! And buy lunch! And stop at the grocery store on the way home! You went negative at Starbucks, but don’t let that stop you!”
In Australia if you bank a check that bounces, both sides of the transaction can get charged at least as much as $35. That’s right, if you bank a check in good faith and it bounces you are charged, even though you had *no possible way *of finding out whether the check was good beforehand. I’ve written about this elsewhere as iniquitous and basically a fraud but I’m still amazed it’s even legal to charge you for something over which you have no control whatsoever.
Apparently, not all banks used this exploit. I’m with First Interstate, and I know that I once tried to use my card without enough money in my account, and it did indeed just get declined, no fee. And yes, it was a bit embarrassing, but I can’t say that declining the card was the wrong move, and it never even occurred to me that some banks might have handled that differently.
Maybe because a lot of people don’t know they can do that? When I was 18 and the bank sent me a scary looking notice, you can bet I went and paid that thing as fast as I could. It took a while to realize that the bank’s goal is to screw me with every move and that there are some small things I can do about it.
I know that for many people reading this, it is a non-issue and are somewhat indignant that people would get into this situation. Nice for you.
Again - this is usually people who have low income and no savings - be it due to underemployment, unemployment, illness or simply trying to survive on a minimum wage salary. Shit happens - a large electric bill, medicine for the kids, car repairs, late payment from an employer…
These are not people worried about having a $5,000 check cashed and paying a paltry $35 for that privilege. These are poor schmucks who thought they had enough in their account (due to stupidity or error or payments screw up) and ended up with lots of overdrafts on very, very small purchases. As fluiddruid suggested, a simple fee (10% or even 20% would have been fair…that $4 McDonalds lunch purchase that is overdrawn would have cost them $4.40 - $4.80 instead of $39.
Had the banks not been so damned greedy, and exploited those who can least afford it, they could have kept this policy and made a nice, FAIR profit. Seriously - there are usury laws against Pay Day Loan companies charging fees that come anywhere near $35 for a “loan” as paltry as the pennies that caused these overdrafts. Banks, however, seemed to feel they were exempt from this silly usury policy.
Every single person I know that has had financial difficulties has run into this problem. What’s even worse, though, is that a lot of places would then charge you extra themselves for you getting an overdraft. I never understood that, since they got their money. But I am all for banks charging the people who actually have money for their services.
I do fear that businesses pushing in fees when you get declined will become the norm instead. While, in some it is easy to just deny purchase, many, like restaurants, only take money after it is all served, and thus the denial would cost them money. I wonder if we’ll see a rise of taking the check upon order.
I got a letter from TCF Bank saying that they had put me into an overdraft protection program and that I would need to opt out. I got this about two weeks ago. I closed the account in Janaury. I called the bank to make sure the account was really closed. They said, “Yes, you closed it in January.”
So the banks are really pushing for this overdraft protection.
I don’t think those two things are the same.
The banks make it VERY VERY clear that each time you do something you don’t have the money for they will charge you $35. They do not hide that fact. They mail out fee schedules, they send out a letter each time the fee changes and they teach you by example. Each time you do it you get a $35 charge. But so many people chose to just ignore all the fees and dug themselves so deep that now everyone else has to get punished for it.
The mortgage side of things is a bit different. The bank told these customers that a $500,000 house would cost them $700 per month, but did they explain to them that in a few years it would jump to $2500 per month?
It’s like that in the US as well. The only way you can really cash a check without having to worry about it bouncing is to take it to the writer’s bank and cash it at the counter. Then they’ll either hand you the cash or hand you the check back and tell you the account doesn’t have enough money.
All those fees that get racked up are from the bank doing all the legwork for you. And you have to remember, whether the check is for 50¢ or $100 the bank is going to do the same amount of legwork. In fact, the smaller check will probably cost them more money because the person writing little tiny checks is probably less likely to be able to cover the overdrawn amount and spend more time on the phone with customer service complaining about it and telling them their life story (as opposed to the person that’s writing larger checks, sees the OD in the morning on their online account and runs to the bank to make a deposit to cover it or transfers the money from another account).
Um who exactly is getting punished for it? The banks? Oh noes! Those poor, poor, multi billion dollar institutions whatever shall they do?! I expect to see them out on the street tomorrow with cardboard signs. :rolleyes: Just because you make someone aware of an issue doesn’t make it Ethical to stick them as hard and often as possible. Nor does it make that agreement ethical either. What happened here, was that they got excessively greedy and people got tired of it, so the laws change to reflect that. It’s designed to protect people against what was an unethical, and blatantly predatory policy. The reason we have financial laws is to set forth what is a reasonable and ethical manner to conduct business. If the banks hadn’t gotten so greedy, they’d still be raking in a tidy, if smaller, profit.
You know, The more I think about this the angrier I become.
How could Anyone defend the predatory use of that policy boggles the mind. It was obviously designed to prevent people from bouncing their accounts on bad checks and things they could not afford. It was USED to nail people when they went over by a penny. Most of those fees weren’t coming from Joe “badcheck”, they were coming from accounts where the people lived on very meager margins, and occasionally went over by a few dollars. The ethical thing would be to decline the purchase, or charge a percentage or sliding scale.
I think they are. Each one is a case of the bank allowing you to think you have sufficient funds when you don’t, then punish you for it. Sure, they tell you there’s a late fee for overdrawing, but then they don’t tell you when you’ve overdrawn and in fact rearrange the order that credits and debits clear each day so that you get hit for the maximum number of fees.
Yes, people absolutely need to be aware of their finances, but both practices are misleading and predatory. That they sign you up for opt-out overdraft protection when you create a bank account is extremely non-obvious, and the natural assumption is that if you try to pay for something that costs X and you have less than X, you can’t buy it. So if the card goes through, you must have had X. That’s only sensible, right?
No, he means other customers. Since the banks are no longer allowed to target a small section of their customer base for predatory fees, they’re not just going to let that money disappear. Instead we’re probably going to see higher rates and fees across the board for everyone. And as long as they don’t use deceptive practices in applying those fees, I think I can live with it.
ME! Somewhere along the line this will end up costing me more money. Either in the form of (higher) checking account fees, lower savings account rates or higher mortgage rates etc. The bank is going to want that income back, and some how I will end up paying for it.
But there’s another difference, it’s not the banks fault (or mine for that matter) that you are spending more then you have. If you pay attention and balance your checkbook it’s not a problem. In the however many years I’ve had a checking account I’ve never had a problem. I record all my deposits when I go to the bank and I record all my withdrawals as I make them and I keep a running total. I routinely log on to my bank’s website and make sure that everything matches what I recorded and then as long as I never let that running total get below zero there’s not a problem. I’m sorry if other people can’t handle that, it does take some thinking ahead because of automatic withdrawals, but I shouldn’t have to be punished because other people aren’t paying attention.
The mortgages were totally different. They would lend people 500,000 dollars and tell them they only have to pay $800 per month and didn’t mention that it might go up to $2500 in a few years. And there’s no way whatsoever for Joe Homeowner to know what would happen with the housing market in a few years. The banks probably could have predicted it.
Also, it’s not that I’m defending the banks 100%, I disagree with their policy of re-ordering checks and deposits to maximize the bounce fees. To make it fair, I think deposits and withdrawals should go in the order they were physically presented to the bank, that would make the most sense IMO.