A nasty statistic:

 

Banks make $38 billion a year from overdraft fees.

 

Now let's look at the internals on that statistic:

 

3/4 of all accounts have not had an overdraft in the last 12 months. This means that one quarter of all accounts are responsible for basically all of this.

 

Of the remaining quarter, half of those account for nearly all (90th percentile plus) of the overdrafts. This means that roughly 12.5% of consumers are bearing the entire brunt of these fees.

 

70% of the overdrafts happen at a POS terminal or ATM, not by writing a check.

 

The last statistic is the clear one: There is no reason whatsoever for anyone to take such a hit. The bank knows before they approve the transaction that the money isn't there in the account.

 

This is not the same thing as a check, which the bank has no way to warn you about before you write it, as there is no "connection" between your checkbook and their computer.

 

IF we had honest regulators it would be strictly unlawful for a bank to intentionally approve a debit transaction which it knew you did not have the funds to settle unless you had an established overdraft line of credit (at a reasonable APR.)

 

In fact, it was not all that long ago, in the 1980s and early 1990s, when this was the case: If you went to the ATM and tried to withdraw $100, but didn't HAVE $100, the transaction would be declined.

 

Every time.

 

But then the banks came to realize that if they let the transaction go through they could make an unregulated loan for that $100 to you, charging you $30 or more for the privilege - an annualized interest rate of thousands of percent!

 

This is clearly-predatory behavior. Nobody with half a brain would knowingly sign up for a "service" that would cover a POS or ATM withdrawal at 5,000% interest, yet that is exactly what nearly every bank in the land will currently do by default when you open a new account. They bury the "disclosure" in their terms and conditions, but nowhere do they state these "fees" in equivalent annual percentage rate terms.

 

It gets better: Banks will intentionally "sort" transactions from a given day to produce the maximum overdraft fee. They sort withdrawals to debit them largest-amount-first, because the fee is assessed per item. An example:

 

$1,000 in your account.

 

You write checks for $20, $50, $100, $1,000 and all are presented on the same business day.

 

How many checks will hit you with an overdraft fee?

 

THREE - every time. The bank will re-order the transactions so that the $1,000 check is processed first, guaranteeing that the $20, $50 and $100 checks overdraw, thereby generating three overdraft charges. If they processed the transactions "largest item LAST" you'd generate one overdraft fee - on the $1,000 check.

 

It gets better.

 

You have $1,000 in your account.

 

It is after 2:00 PM, the cut-off for a business day.

 

You go to the mall and use your debit card four times to buy a $5 Latte, $15 lunch, a $40 pair of pants and $25 for a couple of movie tickets.

 

The next morning a $1,000 check hits your account.

 

The bank processes the $1,000 check first, even though in terms of actual presentation time the debit card withdrawals were approved first, and whacks you for four overdraft fees instead of the one legitimate fee on the $1,000 check. That Latte just cost you as much as $45!

 

This sort of predation is responsible for nearly $40 billion dollars a year in pure "profit" for the banks, it is directed specifically at those who have the least in resource to cover it, and it relies on lack of clear disclosure and intentionally-predatory "sorting rules" to get past what would otherwise result in a howl of protest by consumers and lawmakers alike.

 

This sort of practice should be absolutely outlawed, and if we had anything approaching an honest Congress and Federal Reserve it would have been years ago.

 

Say thanks to Barney Frank, Chris Dodd and of course BenDover Bernanke when you're bent over the table and repeatedly violated by the banksters as a consequence of this "little" scam.

 

After all, its only $40 billion dollars.

 

http://market-ticker.denninger.net/archives/1315-Bribed-Regulators-Another-Example.html

It's sad to see how many people are discontrolled buyers, and compulsive that they just spend more money than what they have. Plastic transactions have become so compulsive that many people might look you weird if you pay cash. Sadly, Americans are used to pay everything on credit and their bank accounts will keep being overdrafted because they can't control themselves and their compulsive spending in materials and stuff that they don't need.

 

Materialism kicks in, most Americans can't see that. :dozey:

Someone should invent a debit card with a small LCD screen that displays the balance remaining on the account it's linked to.

Far out..:o

With my bank it takes forever to post some charges sometimes, it pisses me off. Maybe its every bank, but I haven't used enough to know.

Nick, get online.

I'm going to bed in 9 minutes! I have a busy day tomorrow and Thursday and need to be up early.

Well if you online bank with Bank Of America, the charges are there almost instantly!

Bank charges are good because it allows the rest of the people who are good with money and never get charged for going overdrawn to have fee-free banking.

 

It's banks making a killing with illegal charges, hence why the office of fair trading has taken the banks to court over them.

^ And they are still asking for bailouts in the US. How lame... :smash:

^ And they are still asking for bailouts in the US. How lame... :smash:

 

That's because they got forced to lend to the sub-prime market, to people who would never pay the money back. It's like lending £5 to the druggie, you know you will never get it back

That's because they got forced to lend to the sub-prime market, to people who would never pay the money back. It's like lending £5 to the druggie, you know you will never get it back

 

Also they won't sell a lot of their assets at market value because its too "low" so they're holding them for when things get "better" but its hurting them. They hold an asset worth 30 cents on the dollar and say no its worth 80 cents on the dollar and won't sell it for the market price and thats hurting them a lot too.

I'm not sure how other banks work, but I used to work for a bank, and it doesn't work exactly the way the article makes it sound. The posting order portion of the article is probably true - I never really paid that close attention to that part of the posting process.

 

The way my bank (the one I used to work at) works is that if you start the business day (after the cutoff time, like was mentioned in the article) with a negative balance on your account, your debit card will be rejected no matter where you go (ATM, store, online, etc.). However, if you start the day with a positive balance, it is possible that your debit card transaction could be approved because the ATM/POS/debit card processor doesn't necessarily communicate live with the bank's system. Plus, if that network is down for whatever reason, your transactions could get approved in circumstances that they normally wouldn't.

 

But I do know for a fact there are ways to prevent getting charged overdraft fees, like linking your checking account to another account to provide overdraft protection. You might get charged a transfer fee, but it should be measurably less than the overdraft fee ($5.00 vs $20.00 at my bank). And I also know that most overdrafts can be prevented by not spending beyond your means...overdraft fees can be a vicious cycle, and if you let it continue, you'll just get deeper and deeper into it.

 

But banks do charge off accounts that are constantly overdrawn. So they're not ALL bad. They could keep collecting fees from those chronically overdrawn accounts, but after 3 months or so, they decide to get rid of the "bad accounts." And yes, these accounts are considered bad - banks can actually lose a lot of money from them, believe it or not; sometimes they never even get the deposit loss back, much less the fees on the account.

 

This is all based on a community bank, though. I can't speak for the big ones like Chase and Bank of America.

My bank allows me a small overdraft of £100 of which I get charged £5 for every week if I need to use it. Above £100 and the fees sky-rocket