According to today’s New York Times, the banking sector now makes more off overdraft fees on debit cards than it does off credit card penalties, or about $27 billion annually. The authors, Ron Lieber and Andrew Martin, do a good job of digging up some sad-sack cases–the guy who ended up with $238 in fees after a day of small purchases on an overdrawn account–and some disturbing accusations about banks reordering purchases chronologically to get higher fees.
That aside, color me asshole, but why shouldn’t banks charge overdraft fees? A debit card isn’t a complex financial instrument–you have money in your account or you don’t, and is it so callous to suggest that you should know how to manage that money? Or that, when you go over your limit, the bank should penalize you? Instead of looking at the fees merely as a source of revenue for strapped banks (which they are), shouldn’t we also see them as a teaching tool? I remember how shocked I was the first time I paid an overdraft fee; it didn’t happen too often after that.
The recent crisis uncovered a lot of chicanery behind the banking industry’s record profits in recent years. But those profits wouldn’t have been possible without some level of self-delusion on the part of consumers. Lenders shouldn’t offer home loans to people without checking their credit. But people also shouldn’t buy houses they know they can’t afford, no matter what the bank says.
What’s missing from the current rounds of reform is any attempt to boost consumers’ financial acumen. One proposal, pushed by economist Robert Shiller among others, would subsidize financial planning advice; the plan was pegged as a sop to the CFA industry and never got off the ground (it probably wasn’t too popular with banks, either). Reforming laws governing predatory banking practices is absolutely necessary. But empowering consumers to avoid such predation in the first place has to be part of the plan.
Clay Risen
Clay Risen, formerly an editor at The New Republic, is the founding managing editor of Democracy: A Journal of Ideas. He’s the author of A Nation on Fire: America in the Wake of the King Assassination and a frequent contributor to Smithsonian, ...
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Alec Appelbaum says:
Clay's argument here gets to the nut of most every argument in public life: our politics dictate that we choose either-or when our policy requires us to ask how. The fact of overdraft fees doesn't stink up the Times story, but the abuse of the practice by sloppy regulation and shameless trickery does. You could say the same about mortgage securitization, homeownership, health insurance and the burning of fossil fuels. But let's take Clay's provocation as a starting point: if banks are going to systematically charge overdraft fees, who should protect and empower the consumer to rein in abuse?
ron lieber says:
I have no problem with this line of thinking. The question is, should overdraft be something that I sign up for as opposed to something that's given to me (often without my knowledge -- say what you will but people simply don't read the fine print when opening accounts so banks should make it clear that this service is on offer)? And if it's automatic, shouldn't I be able to turn it off to protect myself from myself?
Ron Lieber/NYT
Ron Miller says:
Isn't the whole point of a debit card to allow someone to draw from funds in their bank account. Debit card holders don't necessarily know how much may be in their account, nor should they have to. If the funds are not there then the transaction should not go through. Period. Calling this overdraft "protection" is an insult. What's actually being protected here? This practice is a blatant scheme to bilk unsuspecting card holders. When the Mob does this they call it loan sharking. Oh, and by the way, they offer protection too.
Tykoto says:
Are we talking about standard bank debit cards or the ones that are branded with Visa/MC logos too? These cards are advertised to work like a credit card but are in fact debit cards. With these cards, what astounds me is that the vendor may authorize it for more money than you are debiting. So, if I am using the card to buy $40 in goods, the vendor may actually authorize the card for $200, thereby temporarily causing my account to be minus $200 for a few days. If any other charges go through during that time that cause the account to be overdrawn, it will be, even though the money is actually there...or at least it was, until they assessed overdraft fees.
dsiddy says:
I fall among the "14 percent" of repeat offenders mentioned in the /Times/ article. Though I'm an unabashedly slow learner when it comes to overdraft fees, I've /never/ tried to argue my way out of paying them. Like Mr. Risen and Mr. Lieber, I believe that managing my money is /my/ responsibility. However, to quote the latter, "shouldn't I be able to turn [overdraft protection] off to protect myself from myself?"
After incurring four overdrafts last April in a situation similar to Mr. Means's, I tried to do just that. I asked a Bank of America employee, point-blank, if I could cancel the overdraft protection on my debit card. Her response? To paraphrase: "No, we can't do that. No banks will let you do that."
If that's the case, then what should we make of Anne Pace's statement that Bank of America will turn off overdraft protection on a "case-by-case basis"? At the /very least/, this admission, taken together with my story, reveals that Bank of America either hasn't informed all of its employees about this policy or, worse, actively discourages them from bringing it up. At best, it entitles me to nothing more or less than a refund for all of the overdraft fees that I've incurred since making my inquiry last April.
My thanks to Mr. Lieber and Mr. Martin for a thorough and thought-provoking article, and to Mr. Risen for his comments.
B. David Mehmet says:
YOUR MADE A VERY IGNORANT STATEMENT
Mr. Risen, with all due respect, your comment contained some ignorant statements. Blaming consumers for the excessive overdraft fees assessed to them by the banks is pure ignorance. It witnesses your lack of knowledge of an actual bank scam that is being perpetrated upon innocent consumers.
Your ignorance of what the banks are doing with the overdraft fees is a classic example of why the banks have been getting away with cheating consumers out of their hard earned money. A bank customer service employee would never tell the consumer that the bank used a creative accounting practice to manipulate their accounts to create additional overdraft fees when no additional overdrafts were created by the consumers themselves. The additional overdraft fees are created from a pre-existing overdraft in their accounts and without this pre-existing overdraft, it is IMPOSSIBLE for the bank's creative accounting practice to create additional overdraft fess. This is why the banks engages in a practice of inducing the consumers to create an initial overdraft in their accounts. This is done by delaying the posting of the correct available balances, delaying debit postings and dropping holds to only later debit the amount of the hold from the available balance. The consumers believe they have more funds in their accounts, and thus, create the initial overdraft that the bank needs to create the additional overdraft fees through its creative accounting practice.
First, the banks have been lying to consumers when they tell them that the "condition precedent" for "additional" overdraft fees is insufficient funds. This is false. The actual condition precedent is a pre-existing overdraft in the consumers' checking accounts. For example, consumers would overdraft their accounts by one debit and expect to pay one overdraft fee. However, the bank takes that pre-existing overdraft and uses it to add additional overdraft fees by utilizing a creative accounting practice even when there were sufficient funds to pay the remaining debits. The bank does this by delaying and then paying debits from high to low. However, without a pre-existing overdraft in the consumers' accounts, it would be impossible for the banks to add additional overdraft fees through their creative accounting practice. So, the bank, as discussed above, engages in practices to induce the consumer to create the initial overdraft. Thus, even though the consumer creates only one overdraft, the banks use that one overdraft to manipulate their accounts to add additional overdraft fees even when there were enough funds to pay the remaining overdrafts. Therefore, the true condition precedent to the assessment of additional overdraft fees is a "pre-existing" overdraft not insufficient funds.
The banks have failed to inform consumers that the "condition precedent", which causes the assessment of additional overdraft fees is a pre-existing overdraft and NOT insufficient funds. This is in violation of 12 U.S.C. 4303(b)(1). The banks became so bold in their scam that they lobbied politicians to insert into the law books a law that allowed them to resequence and pay debits from high to low (hereinafter, creative accounting practice). The banks stated that they wanted to pay the largest debits first because that was the most important debit for the consumers. They falsely stated that they were watching out for the consumers' benefit even when they knew their practice was harming them. Furthermore, their logic is flawed because the "payee" dictates which payment is important and not the amount of the debit. Please review the case of White v. Wachovia, which touches on this claim. Wachovia lost a motion to dismiss and they immediately settled the case in 2008.
IF YOU CANNOT UNDERSTAND THIS BANK SCAM, HOW IN THE WORLD IS AN AVERAGE CONSUMER GOING TO UNDERSTAND IT. They can't.
This is the purpose of the consumer protection provision of 12 U.S.C. 4303(b)(1), which requires the banks to disclose the "condition precedent" that causes the additional overdraft fees. The true condition precedent is a "pre-existing" overdraft; but the banks falsly tell consumers its "insufficient funds". Consumers are no wiser because of this complex bank scam.
For more information about this major bank scam, you can visit http://www.Badis
YOUR MADE A VERY IGNORANT STATEMENT
Mr. Risen, with all due respect, your comment contained some ignorant statements. Blaming consumers for the excessive overdraft fees assessed to them by the banks is pure ignorance. It witnesses your lack of knowledge of an actual bank scam that is being perpetrated upon innocent consumers.
Your ignorance of what the banks are doing with the overdraft fees is a classic example of why the banks have been getting away with cheating consumers out of their hard earned money. A bank customer service employee would never tell the consumer that the bank used a creative accounting practice to manipulate their accounts to create additional overdraft fees when no additional overdrafts were created by the consumers themselves. The additional overdraft fees are created from a pre-existing overdraft in their accounts and without this pre-existing overdraft, it is IMPOSSIBLE for the bank's creative accounting practice to create additional overdraft fess. This is why the banks engages in a practice of inducing the consumers to create an initial overdraft in their accounts. This is done by delaying the posting of the correct available balances, delaying debit postings and dropping holds to only later debit the amount of the hold from the available balance. The consumers believe they have more funds in their accounts, and thus, create the initial overdraft that the bank needs to create the additional overdraft fees through its creative accounting practice.
First, the banks have been lying to consumers when they tell them that the "condition precedent" for "additional" overdraft fees is insufficient funds. This is false. The actual condition precedent is a pre-existing overdraft in the consumers' checking accounts. For example, consumers would overdraft their accounts by one debit and expect to pay one overdraft fee. However, the bank takes that pre-existing overdraft and uses it to add additional overdraft fees by utilizing a creative accounting practice even when there were sufficient funds to pay the remaining debits. The bank does this by delaying and then paying debits from high to low. However, without a pre-existing overdraft in the consumers' accounts, it would be impossible for the banks to add additional overdraft fees through their creative accounting practice. So, the bank, as discussed above, engages in practices to induce the consumer to create the initial overdraft. Thus, even though the consumer creates only one overdraft, the banks use that one overdraft to manipulate their accounts to add additional overdraft fees even when there were enough funds to pay the remaining overdrafts. Therefore, the true condition precedent to the assessment of additional overdraft fees is a "pre-existing" overdraft not insufficient funds.
The banks have failed to inform consumers that the "condition precedent", which causes the assessment of additional overdraft fees is a pre-existing overdraft and NOT insufficient funds. This is in violation of 12 U.S.C. 4303(b)(1). The banks became so bold in their scam that they lobbied politicians to insert into the law books a law that allowed them to resequence and pay debits from high to low (hereinafter, creative accounting practice). The banks stated that they wanted to pay the largest debits first because that was the most important debit for the consumers. They falsely stated that they were watching out for the consumers' benefit even when they knew their practice was harming them. Furthermore, their logic is flawed because the "payee" dictates which payment is important and not the amount of the debit. Please review the case of White v. Wachovia, which touches on this claim. Wachovia lost a motion to dismiss and they immediately settled the case in 2008.
IF YOU CANNOT UNDERSTAND THIS BANK SCAM, HOW IN THE WORLD IS AN AVERAGE CONSUMER GOING TO UNDERSTAND IT. They can't.
This is the purpose of the consumer protection provision of 12 U.S.C. 4303(b)(1), which requires the banks to disclose the "condition precedent" that causes the additional overdraft fees. The true condition precedent is a "pre-existing" overdraft; but the banks falsly tell consumers its "insufficient funds". Consumers are no wiser because of this complex bank scam.
For more information about this major bank scam, you can visit http://www.Badis
B. David Mehmet says:
For more information about this bank scam, you can visit http://www.Badisse.com
Stephanie says:
I agree, people should take responsibility and know how much money is in their account. I think online banking has caused people pay less attention, as they are not keeping a bank register like some older people. However, they should also be aware of what charges can occur with their accounts.
http://www.newsy.com/videos/debit_card_woes
dsiddy says:
A follow-up: I just went over my last year's worth of checking account transactions. Color me naive, and rightly so, but it turns out that Bank of America used the greedy algorithm (a technical, but delightfully ironic, term) to determine the order in which withdrawals were deducted from my balance. This was a highlight of the /NYT/ article, but, seeing it for myself, I'm /appalled/ at how brazen these people can be!
Here's their equally brazen justification, taken from their Deposit Agreement & Disclosure ():
"We may determine in our discretion the order of processing and posting deposits, fees, charges, checks, debits and other items to your account. We may credit, accept, pay, certify or return deposits, fees, charges, checks, debits and other items arriving to your account on the same day in any order at our option. We may give preference to any fees, charges, checks, debits or other items payable to us. We may change our processing and posting orders at any time without notice to you."
In other words, "we have /carte blanche/ to rip you off on the regular." I've already pegged one overdraft that should never have been. This is shameless profiteering, and should be recognized as such.
dsiddy says:
For the sake of full disclosure, it turns out that Bank of America did refund two overdraft fees at my request back in November. Of course, while this does show generosity on their part, it doesn't change the fact that they refuse to refund the fees about which I posted earlier.
worried says:
I agree that banks should be able to assess overdraft fees. Paying the debt with no guarantee of funds is similar to a short-term loan, only way more expensive than other options like payday loans. I think many just wish that the debit card would be denied if there is not enough money to cover the charge instead of approving and using it as a way to assess several overdraft fees. Many would rather have this option on their debit cards instead of the automatic payment plus fee.
Alevia says:
70 dollars for one overdraft, you agree with this? Youre crazy! Bank of America charges 35 dollars for an overdraft and another 35 dollars for the same overdraft 5 days later. Thats ridiculous. A 5 dollar value meal at Mc Donalds ends up costing you 75 dollars.
Kristina says:
Personally, I agree in whole with Mr. Risen. Since when has it been okay to spend money that isn't your own. I feel it is the responsibility of the card holder to read the agreements disclosed in the first ten days of opening a checking account, Regulation CC and DD. These disclosures explain that your checks will be held, your funds may not be available and all fees that will be assessed to your accounts. Nowadays they have made it so convenient to get your available balance. You can call the number on the back of your card via telephone 24 hours of the day and you can even check it on the internet, but the question I ask is WHY must we rely on this? Why can't we just keep track of what we are spending? In regards to the order in which the bank pays your debits, I do not feel it is wrong because if you never over spent to begin with you wouldn't have to worry about additional charges. And in response to Mr. Mehmet, I don't see how this practice is in violation of 12 U.S.C. 4303(b)(1). which states: "A description of all fees, periodic service charges, and penalties which may be charged or assessed against the account (or against the account holder in connection with such account), the amount of any such fees, charge, or penalty (or the method by which such amount will be calculated), and the conditions under which any such amount will be assessed." Even though they may not specify the order that they will post your debits, they still inform customers that if you overdraft you will be charged x amount per debit.