David Kirkpatrick

November 6, 2009

Overdraft fees — consumer banks v. consumers

Consumer banking has largely been about screwing the customer for a long time — at least as far as the large, national, impersonal banks (you know, the ones that advertise on television) go. Long ago, something like 15 years ago, I wrote an article for a business magazine on some of the underhanded techniques consumer banks were using to gouge customers.

Back then one of the growing trends was charging a premium for what was called a “meatspace transaction.” Although it sounds vaguely pornographic, a meatspace transaction was anything that involved a living teller, either face-to-face or through drive-up banking. Happily that bit of foolishness didn’t have any legs. One troubling practice that did, and still does, is overdraft fees and how they are processed.

They are almost unavoidable in terms of the bank will happily let you go below your balance instead of declining the transaction.

From the link:

Ever write a check thinking you had plenty in your account to cover it? Make a debit card purchase before your paycheck cleared? How about the time you withdrew $5 too much from the ATM?

Sure, your bank was happy to cover the amount. Why not? Although touted as a customer “convenience,” overdraft fees have been soaring. Last year, overdraft charges generated nearly $24 billion dollars for banks and credit unions. That’s 35% more than just two years earlier, according to the Center for Responsible Lending.

Warning! No Warning

The first problem with overdraft fees is that you don’t receive any notice that the transaction you’re about to make will exceed the balance in your account. If you did, at least you’d be able to choose whether you want to continue with it or not.

In some cases you can trigger overdraft charges even if your online statement shows you have plenty in yourchecking account! That’s because your balance is “theoretical” and doesn’t reflect the fact that a recent deposit may not have been in your account long enough for the funds to “clear.”

But the really dirty part of the process is how your incoming transactions are handled:

The Re-ordering Trick

Another criticism is that financial institutions can play games with your transactions in order to trigger a cascade of overdrafts.

For instance, say you make four debit card purchases in a day. Your available balance was $90. The first three transactions were for $25, $20, and $40. The last one was for $100. If taken in chronological order, there is adequate money in your account to cover the first three purchases. Only the last one would result in an overdraft charge.

But that’s not the way your bank computer system is programmed. Instead, it will change the order of your purchases in order to deplete your account sooner by subtracting the largest transactions first.

In the above example, your $100 purchase would come out of your account ahead of the other three. Since it exceeds your balance by $10, it generates a $35 charge. Next, with your account already under water (according to the bank’s math), your other three purchases are posted. You end up paying $140 (4 x $35) for the “convenience” of overdraft protection.

Quite the trick there. Consumer banks have been playing so dirty for so long, and were on the receiving end of so much government bailout money Congress is stepping up to the plate for the consumer at long last.

We’ll see where this ends up, but I think it’s about time Main Street was given a little protection from practices that should have been illegal from the get-go. I guess we ought to be happy consumer banks didn’t go around breaking kneecaps like Vinny from the corner might have. Because really, that’s about the only difference between usury and a typical consumer bank.

Also from the link:

Kathleen Day, a spokesperson for the Center for Responsible Lending, calls the current state of overdraft fees “ridiculous” and an “outrage.” The Center and other consumer protection organizations place the blame squarely at the feet of the Federal Reserve, which regulates most large financial institutions in this country.

“The Fed has known for years these practices are hurting customers and they’ve failed to act,” charges Day. The Senate Finance Committee has drafted the “Fairness and Accountability in Receiving Overdraft Coverage Act,” or the FAIR Act, which would limit overdraft fees banks can impose.

October 13, 2009

Health care reform one step closer …

… and officially becomes bipartisan with Olympia Snowe’s GOP vote in the Senate Finance Committee.

From the link:

The Senate Finance Committee voted on Tuesday to approve legislation that would reshape the American health care system and provide subsidies to help millions of people buy insurance, as Senator Olympia J. Snowe, Republican of Maine, joined all 13 Democrats on the panel in support of the landmark bill.

The vote was 14 to 9, with all of the other Republicans opposed.

Democrats, including President Obama, had courted Ms. Snowe’s vote, hoping that she would break with theRepublican Party leadership and provide at least a veneer of bipartisanship to the bill, which Mr. Obama has declared his top domestic priority. Ms. Snowe was a main author of the bill but she had never committed to voting for it.

July 9, 2009

Paying for health care reform

Filed under: Politics — Tags: , , , , , — David Kirkpatrick @ 3:16 pm

Make no mistake about it, the Obama White House will accomplish some measure of health care reform. There are simply too many of the major players sitting at the table and willing to deal for nothing to make it to Congress. The big two health care questions are: how much service and how will the bill get paid?

Looks like in the early go the paying-for-it part is already a little sticky.

From the link:

Sen. Max Baucus, chairman of the Senate Finance Committee, has said repeatedly that health reform would be paid for with a combination of spending cuts and tax increases.

Baucus and others have made some progress through savings in Medicare, Medicaid and other programs.

On Wednesday, for instance, Vice President Biden said hospitals would reduce costs by $155 billion over 10 years. But nothing is final until that deal between the White House and business — and a similar one reached with drugmakers last month — is written into legislation.

And on the revenue side of the equation, there is still no apparent consensus.

This much is certain: Lawmakers must find ways to raise a lot of money.