Bank Fees

I just read yet another article about bank's manipulating customers into paying outrageous fees. This time, it was Wells Fargo using an ingenious (though highly deceptive, and immoral) scheme to rank customers purchases in an order so as to maximize the overdraft fees charged. A quick google search revealed that Wells Fargo is far from alone in trying to make money off of their most irresponsible customers. 

New regulations, stemming from Obama's financial reform package, will allow consumers to choose the kind of overdraft protection they desire.  This step has been touted as monumental in fixing the "corrupt" banks. My question is simple:  Is this change really going to help the folks it is meant to?  The ones living paycheck to paycheck, with little financial knowledge, and who are actually at risk of overdrawing on a daily basis?

A look back at my college days, the only time in my life when I ever bounced checks and overdrew on my checking account, quickly reveals how flawed this logic is.  It didn't happen a lot, but when I did overdraw on my bank account, it was for little, necessary purchases, such as fuel or food.  And, because of how businesses clear their credit batches, these purchases sometimes went through 24-48 hrs after the fact.  During that time, more fuel, food, (and, lets be honest, fun, I was in college) could be purchased.  By the time all I had bought cleared, sometimes 5-6 items, each with a $35-$100 overdraft fee, had been charged to my already depleted account.

Now, with the new protections in place, folks will be able to opt out of allowing such purchases to proceed.*  Should you choose the option to have no overdraft protection, your debit card will be denied, just like if you had tried to use a maxed out credit card.

Reading about this new option made me wonder:  What would have happened during my less-responsible years if my attempts to purchase fuel and food via my checking account were denied?  The magical credit card would have been whipped out, of course. 

My point is this.  The folks who are spending more money than their accounts contain are still going to find a way to purchase what they need or want.  And banks will find a way to make money off of these transactions.  If it isn't via a checking account overdraft fee, it will be from a high credit card interest rate.  If banks, and the government, really wanted to protect the kind of consumers at risk of being bogged down with these charges in the first place, they would take a far different approach to this problem.

Furthermore, banks need to make money somewhere.  We always make them out to be the bad guys, and often times they are, but we must remember that they are for-profit institutions, not NGO's trying to manage everyone's finances for free.

Which leads to my final question  Isn't there a way to make it hurt a little less for the folks already hurting, without taking too much away from the upper echelon?

I will be the first to admit that when I was in college, I wasn't taking care of my finances like I do today.  But, I also didn't have as much "finances" to take care of.  I was working retail, going to school full time, paying all of my bills (except rent, thanks dad)  and living on Ramen and Mac and Cheese.  When an unexpected bill came up, or I just needed one extra fill up and a couple groceries before pay day, I could have used a break, not $500 in overdraft fees.  What would it have taken for my bank to make that same $500 another way?  Hopefully this new law, and the Consumer Protection Agency that comes with it, can help banks tackle this problem.   But with so many special interests involved, I foresee an ugly battle ahead. 


*Currently, when a retailer swipes your debit card, the purchase amount goes into the "pending" portion of your checking account.  The amount will clear from pending, and be deducted from your funds, when the store empties their credit batch.  This basically involves calling the credit card company and telling them about all of the purchases on their credit report for a set period of time.  When I worked retail, our batches were sent daily, but I do know of places that send every other day, or even weekly.   
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10/5
Living without a bank:  Fees and confusion galore  (Candice Choi, AP, October 4, 2010)

I couldn't imagine living without my check card.  Everything my husband and I purchase is done via debit or check.  Very, very rarely do we charge something.   I have never used Western Union, or a check cashing service that charges me a percentage of the check I am trying to cash.   The above linked article opened my eyes to a whole different world that I would be completely lost in. 

It's sad how lenders and check cashing services can make so much money from the people that can't afford the extra fees the most. 
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