WWGBD?

Buzzflash is angry. This isn't anything new -- the hyperpartisan Drudge alternative is always angry. They tend to make Lewis Black seem mellow.

Yet even by Buzzflash standards, this seemed to stand out:

Despicable: Fed Reserve Says Banks Can Continue to use Hidden or Delayed Notice Overdraft Charges to Rip-Off "poor and middle-income people;" Rich Folks Usually Get Overdraft Protection for Free

If you follow that link, you'll see why they're so angry. It takes you to Alex Berenson's New York Times report "Federal Reserve Says Banks Can Continue Overdraft Plans."

That sounds pretty dry until you read beyond the headline:

The Federal Reserve said yesterday that banks could continue controversial programs that consumer groups say function as high-cost loans used mainly by poor and middle-income people.

The programs enable, and in some cases encourage, customers with low balances to overdraw their checking accounts, allowing the banks to skirt credit laws and collect billions of dollars in fees. They are generally marketed as "overdraft privilege" or "bounce protection" and have grown very rapidly in the last five years, with at least 1,500 banks now offering them. ...

Each time a person overdraws his account, he is charged a fee of $15 to $35, and the overdraft must be paid back in a matter of days or weeks. Some programs also add a daily fee if the overdraft remains outstanding for more than a few days.

When the overdraft occurs as a result of a debit card or A.T.M. transaction, banks generally do not immediately inform their customers or give them the option to reverse a transaction. Instead, they mail a notice out. So a person who uses a debit card may incur several overdrafts before realizing what has happened.

Getting hit with a $25 fee for every transaction would make one extremely cautious about monitoring the balance on one's debit card -- which is why the banks running this scam take care to misrepresent that balance and thereby encourage more overdrafts:

The Federal Reserve proposal also does not bar banks from programming their A.T.M.'s to display a balance that includes both the amount available under the overdraft program and the consumer's own balance without distinguishing between the two. For example, some banks tell a person with $100 in his account that he has an "available balance" of $400, including a $300 overdraft program. They then charge an overdraft fee for any withdrawal of more than $100.

This isn't nickel-and-diming, this is $15-$35 a day from people who are only taking home $60-$70 a day to begin with.

Here again it's helpful to ask the question WWGBD? -- what would George Bailey do? Bailey is, of course, the hero of Frank Capra's It's a Wonderful Life, played by Jimmy Stewart. His nemesis is the avaricious banker Old Man Potter (Lionel Barrymore). Nearly all policy disputes in America can be viewed in terms of the clash between George Bailey and Old Man Potter.

But as heartlessly predatory as Old Man Potter was, he never dreamed of anything like this "overdraft privilege" scam:

The effective interest rates on the programs are enormous; someone who pays a $20 fee for a $100 overdraft that is outstanding for two weeks is paying the equivalent of an annual interest rate of 520 percent. Industry consultants who help banks create and market the programs have said that the fees are paid disproportionately by low- and moderate-income people.

One consultant has advised banks to maximize the fees by opening branches "in supermarkets, particularly supermarkets with a middle to down market and a family target market." ...

Washington Mutual, the largest financial institution to promote bounce protection programs, ... charged customers more than $1 billion in overdraft fees last year, industry analysts estimate.

One bank in one year transferred $1 billion directly from the accounts of "middle to down market" families and into its own coffers. And they called it a "privilege" and a "service."

And our unelected leaders at the Federal Reserve have given this practice their blessing.

They sit around there and they spin their little webs and they think the whole world revolves around them and their money. Well, it doesn't. In the whole vast configuration of things, I'd say they were nothing but a bunch of scurvy little spiders.

Comments

[Reagan]

I've always thought that this was an awful practice, but no one seemed to care. I had a few rough patches right after getting out of college, and one miscalculation can cost you $80 easily.

You have to love that the people who never have to worry about such things are the ones who get to decide if it's OK or not.

[Constantine]

The sleaze in all of this is the act of covering up when a customer is overdrawing on his balance. Honestly, it's going to be hard to garner much sympathy from others when the problem is one of people being charged for a service that they know they signed up to be charged for. However, the acts of inflating balances and delaying notification of overdrafts for the purpose of encouraging overdrafts are pure slime.

[nate]

I think they must have learned it from the credit cards (or rather, moved it, since they are the credit cards). Remember when, if at your credit limit, you'd get denied when they swiped the card through? Now it's just the "convenience" of going over your limit for the low low price of $29.

[JRoth]

And that goes for Greenspan, too!

[emjaybee]

We have WAMU accounts, and this has happened to us; we have just learned not to trust ATM balances, as they vary wildly. We just assumed that since ATMs belong to different contractors, their information is not accurate.

However, WAMU has frequently "allowed" us to purchase/withdraw over our balance, even on debit card transactions, thus resulting in an overdraft fee. Instead of just refusing our card at the time of purchase. That's pretty low, and I think it should be illegal.

All I can say in their defense is that when we check our balances by phone or computer, they're accurate. So it is possible to keep yourself out of trouble if you're careful. We've learned to check the balance that way before we purchase if we think there's any possibility it's running too close to the line.

[Tim]

This used to happen to me shortly after college and it cost me several hundred dollars and after that I sez to myself, "Tim", I sez, " you gotta buckle down and keep track of your balance yourself"

[Buhallin]

On an unrelated issue, I read the initials differently (I'm not a big fan of older movies, and Christmas movies are too sweet for me).

I came up with an entirely different GB in my head, and thought Fred had lost it. Heh.

It does make for an interesting point, though: What WOULD George Bush do?

[Kevin Carson]

This is just a more respectable version of the payday loan service. Credit card companies, at the same time they have jacked up late fees, have also drastically shortened the time between when you get your bill and the payment is due. They get a larger portion of their profits from late and over-limit fees than from their usurious interest rates.

The key to all these things, however, lies not what government currently "allows." The solution lies in changing what the government currently does NOT allow.

Usurers are able to screw working people because the bankers use the power of the state to legally cut us off from alternative sources of credit. Because of capitalization requirement, licensing, and other entry barriers that prohibit us from mortgaging our own property interest-free through self-organized mutual banks, bankers are able to charge a monopoly fee for the service of a risk-free "loan" against collateral.

Imagine if any group of ordinary people were allowed to organize a mutual bank to issue banknotes against any form of property the members agreed to accept, with "interest" set at a level just sufficient to cover overhead cost. One term of such a "loan" would be the requirement of accepting such banknotes as tender for one's own goods and services. The competition from such interest-free loans would force capitalist banks to lower their own interest rates drastically. And the availability of such interest-free capital would radically increase the independence and bargaining power of the working class. More people would retire early or cut back their work hours, more people would pay off their mortgages and other debt, and more people would start their own businesses. Jobs would be competing for labor, instead of the other way around.

In every class system in history, a privileged class has relied on state coercion to control access to the means of production and subsistence, so that labor had to pay a premium for working by accepting less than its product. In a totally free market, where ownership of land and capital are not privileged by the state, the natural wage of labor is its product.

[David Chase]

Friend of mine has a schizophrenic brother who's been bit by this multiple times. He gets money metered into an ATM-accessible account so as to avoid wild spending sprees, but (many) supermarket point-of-sale ATMs will honor a too-big transaction that sends the account negative. It's great for business -- the supermarket tacks on their fee, the bank tacks on their fee, and eventually the account becomes positive again (after enough money has been metered in).

It's complete and utter thieving horseshit. The friend eventually got it arranged so that his brother's account would not do that any more (i.e., if insufficient funds, then no sale) but it took taking time off, flying into town, and spending a week talking to bank officers and lawyers. It shouldn't require that kind of intervention just to get basic civil behavior from a bank (or a supermarket -- they're in on it, too).

[kathryn from Sunnyvale]

Two related profit-maximizing, people-hurting activities banks do by choice, not chance:

1. Banks can and will choose in which order to process checks to maximize the penalties. For example, if you had $100 in your account and 4 outstanding checks- 3 for $30, 1 for $80- they will always process the $80 check first. This way they get 3 cases of overdraft protection, not just one. If on that day you put in a deposit for $70, they can still ding you because the deposit can be processed last.

2. If you have multiple interest rates on a credit card- and overdraft protection from the CC will almost always much higher rate- the credit card will always be paid off lowest interest rate first. For example, say you have $1000 in regular credit card debt at 10% and also had $300 from overdraft protection at 20%. Lets say that the $300 just happened this month. You'll still have to pay off all $1000 of the regular cc debt before any of your payment applies to the highest interest rate debt. Maximizes their money, minimizes yours.

[Amanda]

It used to be illegal to process credits after debits in the nightly clearing, but I guess they managed to get that changed, to look at the ordering on my statements. Banks are pure, unadulterated, evil institutions and trust nothing they say. Believe me, I used to work for one.

[Patrick Mullins]

In a period when I was really short of cash, and needed it quickly, I had several checks coming in. If I deposited two together, they would clear $100 out of the combined deposit by the next business day--never mind whether the checks were in-city or out-of-town--and the remainder 4 business days later. If I deposited one of the checks the first business day, though, and the second the next business day, they would clear $100 off the first check the next business day, and then a second $100 off the next business day after that--so that I had $200 cash from the same two checks in 3 days or $100 cash on the second business day and no more for 3 more business days. I brought this up to an officer, who told me they would release funds for me from the combined deposit for a fee of $15! This was at Chase, I think, about 1995 or 1996, and that may be before or after Chase was bought by Chemical Bank--I am not sure about that (I would have looked it up, but it probably doesn't matter.)

What nate posted about credit cards and no longer "declining" the card if the available credit does not cover the purchase I last remember getting a "Declined" in 1999. In 2003, I accidentally used one of 2 Capital One credit cards I have, but it was the wrong one--one where I had very little available credit on the card. They put it through anyway, and charged me that crooked fee; although I did call them up and persuade them to waive it, since I had no history of going over-limit (and didn't think you could), I agree that the practise is appalling, and it's idiotic to have to watch things like that like a hawk all the time.

I do think automatic payment for credit cards for the minimum payment due is the way to go when possible, since you can always send in more when you can, so I have auto-pay on all my cards.

[Michael Bowen]

I no longer have a checking account. Any money that I have that isn't invested, I keep in cash and I pay all my bills with money orders. I figure I'm far less likely to be mugged than I am to be screwed over by bank fees.

[sfbuck415]

Not only was Washington Mutual charging me $100 for overdraft fees, they closed down my bank account when I was a couple weeks late in paying. You'd think with all the money they made off me they'd be eager to keep me as a customer. Now they're saying I owe about $350 and I have no way of knowing how they came up with that number, or disputing it.

[Socrates at Wrigley]

You only need $5,000,000.00 to charter a bank in Pennsylvania. I myself got nailed $150 in one day for gas, cash, groceries, movie tickets, and WaWa coffee ($31.85 for a $1.85 16 oz.) because my direct deposit was late. If all of us who have been whacked several hundred dollars for this usurial practice pitch in, we might just have enough to start the bank. How about "WWGBD Savings Association"?

Anyone want to apply the adage:

If you can't beat 'em, join 'em?

[stuntmidget]

SUE THOSE BASTARDS! This stuff is crazy-bad. I think I can top the above, though: I just got a bill for $225 from Washington Mutual regarding a checking account I closed in --ready?--1999! This account was never overdrawn. Instead what seems to have happened is, after I closed it, or asked that it be closed, the bank dunned me for $20 "annual fee" for the "line of credit" associated with the account. Naturally that put the account into the red, triggering more fees. Then there was interest. I spent some time on the phone in the fall of '99 and the thing was supposedly straightened out. Now comes this bill. So, great. I've moved twice since then. Here's the kicker: week I get this crazy bill, another bill comes from my last bank, Sovereign. Same thing--account closed months ago, THEN they hit it with fees. That one is now $55 and--right--I already had a conversation with a 1-800 monkey which supposedly erased the fee. Apologized and everything. Now it's class action time, I think. Any lawyers out there want a piece of this?

[Kate]

My bank is saying I owe them $687 in overdraft fees. It jumped from $329 to $687 in one month, and they closed my account.What will happen if I can't pay this bank these fees?

[Diogenes]

I came across “bounce protection” when I was doing research on another insidious practice affectionately known as “credit sloping” – credit card companies refuse to report a consumer’s credit limit to the credit bureaus claiming that the information is proprietary and that they want to guard their “good” customers from being snatched away by competitors. What they don’t tell you is that by not reporting a credit limit, the credit bureaus are forced to use a “high balance” which actinically inflates your utilization rate (available credit ro debt ratio) which then lowers your FICO score. In sum, they make you seem like a bad credit risk, so that you won’t be attractive to other companies and won’t receive more competitive credit solicitations. So if you still can get credit, you’ll be paying higher rates then you should...... And the target... sub prime borrowers. www.washingtonpost.com/wp-dyn/articles/A54727-2004Oct22.html
Epilogue – we filed class actions against Capital One and Target National Bank – two of the biggest proponents of this nasty practice.

Back to bounce protection — It seems to as big of a blight for the consumer as credit sloping.
Bounce Protection is sold by a handful of bank consultants that market BP programs as a way to dramatically increase revenues. To date over 1000 banks have implemented bounce protection plans.... and reaped the benefits. Banks aggressively market BP programs with deceptive advertising .... “run short of cash between paydays?” “Did the last check catch you off-guard,? Don’t worry, we got you covered.” BP is often imposed on unwitting consumers w/o their agreement and without Truth in Lending disclosures. Banks will not only attach it to checking accounts but to ATM transactions as well. Banks are so eager to get these fees, they will deceptively quote available balances at the ATM as a # that includes bounce protection. You thought you had $100 but it says you have $400..... The truth is by pulling out $120 you have entered the world of bounce protection and will face additional fees. (APR of 250% + ). The penalty is instantaneous and can often accrue daily yet the bank only gives notice through snail mail.... Good articles detailing the practice can be found at the National Consumer Law Center www.consumerlaw.org and the Center for Responsible Lending www.responsiblelending.org. In June of this year, seven gov agencies developed interagency guidelines to address the problem but as with all government actions, movement is slow. While there is potential for consumer class actions, I know that in 2002 the Ninth Circuit dismissed a case in which the plaintiff went over the limit, and the bank withdrew the penalties from SSI benefits. I’m hopeful that in light of the recent interagency guidelines, CA state courts will be more friendly to consumer class actions trying to stop this practice. That being said, after yesterday’s election results how much hope can one have....

p.s. Kate -- they will probably put you into collections. Watch out for some unfriendly calls.

[bv516]

I paid my bill for my credit card on the 1st of the month. Then I forgot that I had payed it and sent my credit card company another payment. This payment overdrafted me and I was thus charged an overdraft fee. Not being aware of this for a couple days, I had already made 4 more transactions. My local bank in NY charges a $28 overdraft fee per transaction. That puts me at 140$ that I just gave my bank for saving my ass, when I could have just accepted the embarassment (what embarrassment) of my card being declined and using an alternate payment. I asked my bank if I could decline this option and they told me that since I was in a different state, they can't do anything unless I come to NY and sign some papers. Screw them, I'll come back to NY and take all my money out and get a new bank to hang on to my money.

[Juanita Gorgona Ho]

TNB has no clue.

[Robert Mannarino]

I had just opened my new computer store this August. I had opened a business checking account with Wachovia, and it seems they did everything they could to deceive, cheat and ultimately steal from me. I called to inquire about some other fees and they hung up on me-I guess they didn't want to answer any more questions. They misrepresented my balance so I would think I had more so as to create an overdraft, and they charge to check your balance. They wait until the end of the month to tell you that s they get a whole month's worth of $1.50 charges for checking your balance. They are what I consider a worthless, trash company-one with no skill, no ability-and they need to steal to survive. These fees were getting to be so bad and so frequent I was concerned it was going to threaten my new business! I have submitted complaints and it seems the gov't looks out for them. Why are people scratching their heads over the dwindling economy? People aren't spending because they are tired of being screwed over-and large corporations ough to act like developed, civilized entities rather than money hungry vultures who are really not on our side. It is very unfortunate that they can not be trusted. But stay away from Wachovia-they're liars and criminals.