Protection racket

Here's an astonishing figure: $17.5 billion. That's what banks collect from their customers every year in "overdraft protection" fees.

It sounds so benign -- protection -- like it's there to look after your interest, but that's not how it works. What it means is that your debit card will never again be declined due to insufficient funds. Instead, the bank will cover the difference, subtracting the full amount from your account and charging you $30 more for the service. Miscalculate your balance on a day when you're running a handful of errands and these fees can snowball. And you may never know until you get your monthly statement. This happens often -- $17.5 billion often, to the tune of roughly $58 for every man, woman and child in the U.S. each year.

Some comparison is needed to put that figure into perspective. Banks take $17.5 billion from American wallets each year in overdraft protection fees. That's more than the annual GDP of Panama (about $17.1 billion). Think movie stars and professional athletes are overpaid? Banks collect more in overdraft protection fees each year than the combined payrolls of the NBA, the NFL and Major League Baseball plus Hollywood's total U.S. box-office take.

Here's Eileen Ambrose of The Baltimore Sun:

A few years ago lenders would return a check or deny an electronic transaction if you didn't have enough money in your account. Now they make an overdraft loan -- often without your consent -- and charge a hefty fee averaging $34, according to a recent study by the Center for Responsible Lending.

Overdraft loan fees now reach $17.5 billion a year, the study found. That's $1.7 billion more than the amount borrowed.

The American Bankers Association says overdraft loans help consumers avoid the embarrassment, inconvenience and merchant fees from a bounced check.

This "embarrassment and inconvenience" angle plays a big role in banks' sales pitch for this $17.5-billion protection racket. Hence the whole sub-genre of TV ads in which we see embarrassed and inconvenienced customers suffering from not having overdraft protection. Those ads usually have a sexual subtext that makes them indistinguishable from Viagra commercials -- "You don't have to be embarrassed about your puny, flaccid account balance. For just $17.5 billion a year ..." The idea there, I suppose, is to cultivate a kind of sexual shame that will make customers grateful to pay a $34 fee. Thank you, sir, may I have another?

The banker's association, Ambrose writes, also notes that consumers ought to be able to avoid such fees, and offers some good advice on how to do so:

It is possible to avoid overdraft loan fees. Banks and credit unions might not always make it easy. The Center for Responsible Lending reveals banking practices that can increase overdrafts. But a diligent consumer can sidestep this quagmire.

One of the first steps is to find out if your financial institution offers an overdraft program, and opt out if it does, said Eric Halperin, director of the Center for Responsible Lending's Washington office.

Or, see if your lender will allow you link your checking account to a savings account or credit card, said Jean Ann Fox, director of consumer protection for the Consumer Federation of America. This way if you overdraw, the money will be taken from savings or applied to your card. You'll pay a fee. Plus, you'll owe interest with the credit card.

"But when you cover an overdraft with your own money instead of the bank's money, it tends to be somewhat less expensive," Fox said. For instance, banks typically charge $10 to move money out of savings to checking. "That's better than $34," she said.

Here's more information on the Center for Responsible Lending's study, "Out of Balance: Consumers pay $17.5 billion per year."

The center also endorses H.R. 946, Consumer Overdraft Protection Fair Practices Act, which would make it easier for consumers to opt out of overdraft protection schemes, would allow consumers to cancel over-balance transactions rather than triggering the fees, and would "prohibit financial institutions from manipulating the order of check clearing or delaying the posting of deposits to increase customers' overdraft loan fees."

That last bit there is somewhat astonishing. The bill would prohibit such practices because, apparently, it is not currently illegal for banks to manipulate the order of check clearing or to delay the posting of deposits to increase overdraft fees. That helps to explain how overdraft protection came to be a $17.5 billion a year racket.

Comments

[forestwalker]

I must have a really top-tier credit union. I've never paid a single checking fee.

"'But when you cover an overdraft with your own money instead of the bank's money, it tends to be somewhat less expensive," Fox said. For instance, banks typically charge $10 to move money out of savings to checking. 'That's better than $34,' she said."

That's how my overdraft protection works--just draws from savings if checking zeroes out (or an overdraft protection line of credit @ 9% APR if savings is also at zero)--but there's no fee for either. Other banks really charge 10 bucks because their computers' had to use one additional if-then statement to make the transaction?

[aunursa]

The bill would prohibit such practices because, apparently, it is not currently illegal for banks to manipulate the order of check clearing or to delay the posting of deposits to increase overdraft fees.

Let's suppose you have $100 in your account, and outstanding checks in the amounts of $10, $30, $45, and $110. If the bank were to clear the checks from smallest to largest, only the $120 check would be subject to an overdraft fee. Instead, the bank clears the checks from largest to smallest, which which allows them to charge you for each one of your checks -- even the $10 check -- for the $30 overdraft fee. Instead of $30 for your mistake, your get stuck with $120 in fees -- more than the amount of the largest check!

[aunursa]

only the $120 check

I meant only the $110 check

[Eric the Read]

Where do these banks come from? I've had overdraft protection for at least a decade, in one form or another, and never paid a fee for it. One version I had at a credit union charged me interest if I didn't pay off the overdraft in 30 days, but that never amounted to much. My current bank transfers money from savings to checking for free-- if you do it "too often", they'll demote your savings account to a checking account, on the grounds that the bank will treat the account in the manner in which you do. But "too often" is fairly vague, and the one time it happened to me, they sent me an email first, warning me that I was getting uncomfortably close, and only had two or three more automatic transfers that month before they would act.

I know there must be banks like Fred talks about out there-- how else could they get such high aggregate fees-- but I honestly don't know where I could go to get treated that badly. I looked at the major banks in town; only Chase charged any fee, and that was only $10; now, that's a lot, I'll admit, for low-income families for whom that $10 may be what they spend for dinner in a week, but it's a darn sight better than $40+ for a bounced check. And that's the only bank that I could find that charged anything-- most of them charged nothing to transfer from your savings account, and only charged interest on the credit overdraft protection accounts if you kept a balance more than 30 days.

Seriously, where can you go to get treated that badly?

[Eric the Read]

Oh, FYI-- that $10 Chase charged was per day that things happened, not per occurrence. So in aunursa's case, even Chase, on its cheapest checking account possible, would charge you only $10, not $120, for all those checks.

[Meredith]

Well, Eric the Read, Wachovia does it, for one. Jerks.

[Drak Pope]

It's a good think that I stopped using the Hell Bank of the Damned for all my banking needs. They don't bother charging you for overdraft; they just include an invoice with thousands of little nonsensical letters like 'rcfic-28 fee' and punitive fees for not having enough money in your account for them to embezzle. I use Chevy Chase like the readers above now and I've never been not-homeless-er.

[Raka]

Eric: Seriously, where can you go to get treated that badly?

In Minnesota, the big three banks are TCF, Wells Fargo, and US Bank. Every single one of them has this "feature" set up by default. It's possible that their high-end checking plans don't, but I don't know about it. I believe they all also offer a form of protection that effectively functions as a line of credit accessed only when you exceed your balance, but you have to apply for it and qualify for it-- two things that are least likely to happen for the people most likely to face these fees on a regular basis.

Poor tax!

[Mike Timonin]

aunursa - it's actually even worse than that. Say you've got that $100 balance, and the $10, 30, 45, and $110 withdrawals - but also a $200 deposit. The bank can (and I've had this done to me) deal with the withdrawals first ($110 withdrawal first and etc) and THEN deal with the deposit - because, the other way around, no overdraft fees.

People that this tends to hit most regularly are students - many colleges have a single bank on campus, and so the students have accounts at that bank, for convenience. And all the student loan type business goes through that bank (initially - often then sold to Sallie Mae), so to accept a student loan, you need to use the bank on campus. And, because students are notoriously poor managers of their funds, it pays for such a bank to have some sort of overdraft program - to protect the students from embarrasment, naturally.

[Chris Koeberle]

As I understand it, the banks' side of the story on the "manipulate the order of withdrawals" thing is that, assuming overdraft protection doesn't take place, consumers want the highest dollar amount to go through first, because the penalties for a declined rent check are more serious than the penalties for a declined phone payment. So they let the largest amount go through first in order that it stands the least chance of being declined, not (they say) so that they can charge the most overdraft fees on the remaining amounts. And, presumably, since they spent all that money on the fancy "which number is larger"-o-meter, it just wouldn't be practical to handle things any other way when overdraft protection is active. Or... something. But they do at least offer a facial explanation for how their behavior benefits the consumer.

[Rosina]

But they do at least offer a facial explanation for how their behavior benefits the consumer.

Something that combines a sneer with a smirk, I suppose.

[nekouken]

17.5 billion? I feel like that's how much I've personally paid in such fees. They're horrible, and when you say they'll snowball, you're not kidding; you might even be understating. I've paid $150 in overdraft fees for 5 overdrafts on one day amounting to $20.

I now have an account with Amcore bank, an overdraft protection credit account for which I ONLY pay the APR, plus $25 a year. It's with this account that I've been able to stop paying overdraft fees and start getting caught up with my finances. I just paid off a credit card and another will be paid off next month.

The worst part of it, though, is how, after taking 2000% interest on what they referred to as an overdraft protection "loan," they insist that I be grateful for the service. They also insist that you not call them "loan sharks."

[Jesurgislac]

A recent legal decision in the UK: where banks make unreasonable charges of this kind, and customers fight them and win in the small claims court, the judge ordered the bank to pay all costs.

(I have an agreed overdraft limit with my bank, which charges unreasonable amounts if you go over it - but, not least because they are scarily willing to up my overdraft limit whenever I come in for a financial review, I've never come anywhere near to going over it. OTOH: the amount of money they're happy to let me owe them scares me at times. Even if I've never borrowed it.)

[Rosina]

A recent legal decision in the UK: where banks make unreasonable charges of this kind, and customers fight them and win in the small claims court, the judge ordered the bank to pay all costs.

Which would be a heartwarming tale of how things are done on this side of the water, if not for the almost immediate rumblings in the bank world that free current accounts will become a thing of the past, all transactions will be charged, overdraught rates would be raised - until the bank had a) made up the shortfall from not being able to overcharge its customers, and b) met the costs of the court case that told them that.

Coming soon to a bank near you - Heist of a Thousand Days.

[Mnemosyne]

The bill would prohibit such practices because, apparently, it is not currently illegal for banks to manipulate the order of check clearing or to delay the posting of deposits to increase overdraft fees.

Any Bank of America customer in California could have told you that. They are notorious for processing your checks before your deposits, even if they come in on the same business day. Hell, even if the deposit happens first, they'll hold it if they think there's any chance they can get an overdraft fee out of you.

Or, as a friend of mine said to her B of A branch's manager the day she closed her account, "My money would be safer in a mattress than it is with you people!"

[Jesurgislac]

Rosina: if not for the almost immediate rumblings in the bank world that free current accounts will become a thing of the past, all transactions will be charged, overdraught rates would be raised - until the bank had a) made up the shortfall from not being able to overcharge its customers, and b) met the costs of the court case that told them that.

Oh, sure. But it's still nice to hear about a bank getting kicked.

[J]

In direct, converse relationship to the decline in the number of real things and services we produce in this country, there is a growth in the number of industries predicated on giant but totally legal scams. Like those $5 and $10 checks I'm constantly getting in the mail which, if I cash, I thus sign myself up for some useless sort of credit card insurance. Or notional home "ownership" loans in which you pay nothing the first year, almost nothing the second, and sell your first three children's kidneys on the third. Or those cultish magazine sales crew kids who as much as say, "Please sign up for a 51-year subscription to Newsweek or they'll break my legs!"

We're way past the Service Economy and the Information Economy. Now we're into the Clusterfuck Boondoggle Predation Economy.

[Joy]

My bank will do the "overdraft protection" fee thing for a *check* but my attempts at overdrafting the account by debit card have never succeeded. They prevent that through the electronic authorization. Yes, I am the one who tried to debit $305 at Costco when I had $300 in my account. These things do tend to snowball but it's better than my husbands's old "overdraft protection" -- everytime he overdrafted, even if by only a few bucks, they deposited $50 from a line of credit into his bank account. That was the first $1000 debt we paid off.

[Freeze Rabbit]

Washington Mutual does this, too. The first time it happened to me, I told them to remove the overdraft protection from my account, and just decline the transaction if I didn't have the money. They agreed. Then they did it again. At that point I figured, screw 'em. I'm going to leave my account negative, and just wait for it to fall off the bottom of my credit report in seven years, or fifteen, or whatever it is.

I'm probably foolish for putting my principles before my good sense on this, but, eh.

[Drak Pope]

I'm going to leave my account negative, and just wait for it to fall off the bottom of my credit report in seven years, or fifteen, or whatever it is.

You brave, brave person. There are banks who will simply give your name and address to Al Qaeda when they realize you're planning on waiting them out.

[Drocket]

A number of years ago, I had a dispute with Amazon.com wherein I purchased an item from them, and their computers, for some reason, decided to make that a couple of dozen (Amazon's mistake, not mine.) At this point, I'm not quite sure exactly what happened - this charge went over the amount of money in my bank account, so my bank helpfully 'loaned' me money to cover it. And then they denied the charge anyway. So, they withdrew the money they loaned me back out of my account, plus $60 ($50 for the overdraft fee, plus $10 in interest for the 0.1 milliseconds that they loaned me the money.) This caused my account to go into the negative again, so they charged me ANOTHER overdraft fee.

I spent WEEKS on the phone arguing with them before they finally agreed to drop the charges...

[Jos]

Gosh.

All these stories kinda make me happy that I can't spend money I don't have. That way, at least, my bank can't screw me over THAT much.

[Chuck]

Freeze Rabbit: I'm probably foolish for putting my principles before my good sense on this, but, eh.

Umm...yeah. You're very foolish. You should send them a certified letter explaining the situation, demanding that they erase the debt, and informing them that you won't be banking with them any more. A customer service person from India will contact you in 2-3 months to tell you to fuck off. THEN you can ignore them in good conscience.

[Nick Lamb]

Operating a current (check) account costs quite a lot of money. The bank needs to recover this money somehow or it becomes uneconomic which isn't acceptable even for a mutual society or similar institution, let alone a commercial bank. An account which is overdrawn or which frequently requires intervention (for example to remind the owner of their obligations to pay debts) is even more expensive to run.

In the past in the UK much of these costs were recovered, disproportionately, from customers whose financial planning was awful. I felt that this was "fair" in the sense that it taught people the proper respect for money. If you don't know whether the cheque will bounce before you write it, what's the chance that you know whether your monthly expenditure is more or less than your take-home pay? The current situation seems to be that these charges will probably be declared unlawful (there will be a test case argued in court later this year and it will effectively decide all the major issues). At that point it no longer makes any sense to operate those accounts, without income from charges they're basically just a discounted loan, a sure loss to the bank. Some banks will offer these customers a choice, pay say $100 per year up front to operate their account or lose it.

Unfortunately there isn't much of a rational debate going on. Most people seem to expect banks to just eat the cost of servicing their incompetent planning. Banks have operated other schemes that worked at a loss (in the expectation of attracting customers who'd be profitable in the long term) but it's not clear that the same logic would apply. So most likely you'll be able to get away with it if you're rich, or if you can afford to switch banks every time you annoy them by exceeding your agreed terms. The poor and those who don't spend every waking hour trying to "play the system" will lose out.

In fact this creates quite a dilemma for the government of the day. Brown's concept was to get the British to learn how to save money, instead of following the US model of acquiring mountains of debt. Schemes like ISA encouraged some people, but the poorest citizens, those who'd benefit most from avoiding debt, needed more encouragement. To this end citizens who receive most types of benefit from the government must have a bank account to pay it into, the idea being that if they're not actually walking around with the money in their pocket they might not spend it all at once and then borrow more. Of course if free bank accounts are no longer economic for the banks to run then the government is left holding the bag. It will have to provide (at tax payer's expense) bank accounts for all the least financially sound citizens. This could prove very expensive indeed.

None of this affects me, as a high earner with savings my banks make a modest profit on operating my account already. I have an agreed overdraft facility at 0% for short intervals in case of emergency, and credit cards that are paid off automatically by the bank before they attract interest. I can't recall the last time I was even threatened with charges, let alone had to pay any. So I have no vested interest in the outcome of this, yet I still think that the incompetent planners who are pushing for the charges to be made illegal (most of whom have a comfortable income but just can't be bothered to check whether the money is in the bank before they spend it) are basically punishing the poor instead of themselves here.

[Nenya]

*gnnn five dollars overdrawn gnnn sixty dollar overdraft gnnn where the hell am I going to get that kind of money this week before they charge me ANOTHER thirty bucks for not being able to pay off the old O/D protection in time??*

Hem. Yes. Quite timely post, Fred!

*sigh*

[everstar]

Yep, this happens to me all the time. Last week, in fact. I was over by three dollars so I ran down to the bank and deposited $150 in cash at a quarter to six in the evening. The next morning I got a notice that I was overdrawn, and when I checked my balance, I had $112 available. The deposit was pending, but more things had posted. They ended up soaking me for $132 in overdraft fees.

[Francis]

One of the problems is that in the UK, banking costs are utterly opaque. For instance, I pay no banking charges at all (as is usual) - but in return the rate of interest I get on the money in my bank account is absolutely pathetic (I have some idea how much this gains them - but not a clear one). I have no clue how much it costs a bank to process a cheque for me (it costs me nothing) or how much for a transaction using my debit card. Greater transparency in banking would, I think, help deal with a lot of these problems.

[Jesurgislac]

Nick Lamb: In the past in the UK much of these costs were recovered, disproportionately, from customers whose financial planning was awful.

From customers who were living at the poverty level, you mean. Or perhaps you're just conflating the two, and figuring that "awful financial planning" obviously equates to poverty?

I'm seldom out by more than £10 over a month in how much I meant to spend.

Which is fine these days, because being wrong by £10 just means being wrong by £10. I have a broad overdraft limit, a savings cushion, and regular income which is enough to live on.

Back when I was living on £51 a week or less, I was seldom out by more than £5 over a month. In fact, I remember vividly the twice I slipped up and made an error of more than £5, because each time it cost me £30: more than half my weekly income. You don't forget losing half the money you have to live on in hurry.

Now, in a sense, my financial planning was "awful": I hadn't planned ahead and got myself born into a family that could endow me with a trust fund.

But, in another sense, my financial planning during that period of my life was superlative - it had to be, to survive at all. Yet you think it must have been bad, or I wouldn't have been socked with £30 bank fees? Crap.

[Jesurgislac]

Nick Lamb: Schemes like ISA encouraged some people, but the poorest citizens, those who'd benefit most from avoiding debt, needed more encouragement.

Oh, yeah: I remember that pseudo-Victorian line of crap. Nick, babe, the best encouragement anyone can have to "save" is to have more money than you actually need to live on each week. There's no use recommending ISAs to someone who is living right at the edge of financial survival. People who've never known financial hardship have no notion of what that means.

[hapax]

"People who've never known financial hardship have no notion of what that means."

Mmm. Not quite fair, Jesu. Some people who HAVE known financial hardship and were lucky enough to survive it, tend to think that they succeeded by their own hard work and virtue, and therefore have the right to punish those who are still stuck.

[twig]

Dear Nick;

17.5 billion dollars.

love,
t

[MichaelR]

Nick: Schemes like ISA encouraged some people, but the poorest citizens, those who'd benefit most from avoiding debt, needed more encouragement.

And yet those who most need to avoid debt are the least capable of doing so. Funny how that works, isn't it?

[alsafi]

I am bitterly amused by Nick Lamb's construction here: the poorest citizens ... needed more encouragement. As though all that the poor need to start saving their non-existent money is a better life-coach. It couldn't possibly be that they have no savings because every penny that comes in (and sometimes then some) goes right back out again, applied to the immediate concern of keeping themselves and their families in bread (and yes, some roses too). It's just that they're not "encouraged" enough.

Whether Jesu is right and Nick Lamb has never known what it means to be poor, or hapax is and he's conveniently decided that escaping poverty was all due to the intelligence, pluck, and specialness of being Nick Lamb, there's an awful lot of self-righteous asshattery packed into those few paragraphs.

[Raka]

As usual, I disagree with everyone. The poor very often are poor financial planners. It's almost always possible (at least in First World countries) to live on a little less than whatever is earned, thus building up the resources to allow one to move forward. It's not fast, not easy, not the least bit pleasant, and by no means certain (it's devastatingly easy to get knocked back down to square one at any point). But it is possible, and most of us don't make the attempt -- we live the highest standard of living our income will support (and beyond).

Stereotypical conservatives view this tendency as proof that the poor deserve to be poor, since they lack the moral fortitude to continue that arduous process for however long it takes. I imagine we would all agree that this is a morally, ethically, and factually flawed perspective. But the flip side, the stereotypical liberal myth that the poor are almost completely prevented from altering their own circumstances, is just as wrong and just as insulting. It denies agency to the victims and frankly degrades the ability of those who were able to climb free, dismissing it as "luck".

Denying that the poor could possibly have any degree of responsibility for their own circumstances actually buys into the conservative mindset that this responsibility connotes terrible things about the poor. Can we admit that many, probably most, people in poverty can in fact do more to alter their own situation, and yet this does not mean that they are worthless individuals, do not deserve help, or in any way deserve suffering? Why are these concepts seen as contradictory?

[Raka]

Whoops, forgot the part where I disagree with Nick and his ilk.

Poor people often do contribute to their own poverty to some extent, at least by not doing everything reasonably possible to alleviate it. But there are far too many elements in our financial system that function in a punitive or outright predatory way to people in poverty. There's no educational value in being kicked in the teeth when you're down, and even people who could use some "encouragement" in learning stronger financial planning abilities don't deserve rapacious patronization that prevents them from helping themselves-- and if that doesn't describe the $30/incident "protection fee", I'd like to know how it's different.

Banks are under no obligation to provide services at a loss, it's true. I just don't buy that they need 17.5 freaking billion dollars in one very particular form of fee to keep their checking services profitable. There are plenty of other options, from the line-of-credit that I like and Joy appears to despise, all the way to simply denying any overdraft protection to accounts and letting the overdrawn amounts bounce. The situation as it exists is just a way for them to subsidize the programs they use to attract wealthy clients by shifting the fee burden to those who are least likely/able to protest effectively. That may be legal, but it's deplorable, and it's the duty of any moral individual to do their part to make it unprofitable by refusing to support such institutions with their patronage.

[Raka]

Joy: it's better than my husbands's old "overdraft protection" -- everytime he overdrafted, even if by only a few bucks, they deposited $50 from a line of credit into his bank account

I don't understand why this is a bad thing. If he overdrafts by $2 and the LOC (line of credit) deposits $50 in his account, doesn't that mean he has $48 in his account and only needs to contribute $2 to have the money he needs to pay off the LOC? Unless each transaction is accompanied by fees, I don't see the problem.

[Steve]

That's an amazing $ amount per man, woman and child...especially since a lot of people probably never overdraft and therefore don't incur these charges, and if you took out kids, that means the average adult getting charged is much higher than $58/person.

I know for many people, financial literacy is an issue...and banks should ideally be seeking to teach people to be better managers of their money, not taking advantage of them.

YET, I'm really surprised how many of my well-educated friends, don't really track their bank balance. Either they don't balance their check book monthly to see if they or the bank made any mistakes, or they don't even keep a check register, they just go by their ATM machine balance (which obviously doesn't take into account outstanding checks).

[Steve]

Also, I think this post adds to the reason why check-cashing places thrive. Banks often won't help you with cashing checks unless you are a customer there. But managing a bank account can take some work, especially if you've never been trained how to do it. I saw my parents doing it, but they never really sat down with me and went over it. But in 11th grade, I took some throw away business course to fill some elective credits. It was very easy, but probably the most practically helpful course I took in high school teaching me the basics of money management, writing checks, maintaining a check register, balancing your checkbook, etc. Basically, some simple skills that have really helped me in life.

So many people don't know how to work with a bank or manage a bank account, but they still occasionally need a check cashed or a loan. We need to hold the check-cashing places accountable to avoid their excesses...but also educate people so that they won't need to use them.

[Steve]

Poor people often do contribute to their own poverty to some extent, at least by not doing everything reasonably possible to alleviate it. But there are far too many elements in our financial system that function in a punitive or outright predatory way to people in poverty.

Raka, this is an excellent point. My job is helping homeless families learn to become financially self-sufficient. The families I work with make a lot of bad decisions...but often because they've never be taught or shown things I took for granted growing up (for a variety of reasons...like parenting and schooling). Anyway, its not that people shouldn't take personal responsibility, but at the same time the system shouldn't be gamed against them suceeding.

[Raka]

I call sanity check on the 17.5 billion figure. $58 per person is about two overdrafts per year, assuming "every man, woman and child in the U.S." has a bank account, which they obviously do not. Not all bank accounts have these fees, which means that the pool of potential payers is even smaller, which means that the average paid by each is even higher. Assume that a majority of account holders do not overdraft every year, and the burden of payment on those that do is in hundreds of dollars. Every year.

I personally have paid hundreds of dollars in overdraft fees in a single year, but I certainly didn't keep doing it year after year. I wouldn't have been able to, frankly. And I don't think enough of my compatriots in financial sloppiness can or do pay hundreds of dollars each and every year to account for this figure.

I'm not saying the number is fabricated, but I suspect it has to include amounts we're not considering. Annual fees for the potential of covering overdrafts are one possibility; interest paid on overdraft LOCs are another. But that's still a dubiously large figure.

[Nick Lamb]

Raka seems to get what this is about, recognising that it's bizarre and perhaps even insulting to imagine that poor people can't help themselves out of poverty and anyone who escapes is merely lucky.

Jesurgislac seems to have an unusual knack for wrongly calling me out on things, sorry again Jesu, I've been poor and it sucked. Was I just "lucky" as hapax suggests? Only to the limited extent that I am lucky to live in a country with a social safety net (in my case, "Job seeker's allowance" and "Housing benefit" as well as numerous free health care and other social programmes because I was also very ill when I was poor). Since I support the existence and funding of such a safety net I don't regard its helping me as mere luck. I took my obligation to seek work seriously (it would be nice to imagine that everyone on JSA does the same, but the facts on the ground don't agree) and found a job I could do between hospital appointments.

Anyway, to the point, Raka and others writing below are correct to focus on whether bank charges are exploitative. I don't believe the typical 2007 fees in the UK are exploitative. Some practices mentioned here (such as re-ordering credits and debits to effectively maximise income from fees) were earler practised in the UK and then outlawed, and I'd agree those were exploitative. Banks are now obliged to warn a customer before they apply each fee, giving the customer adequate time to ensure they submit funds to cover any unauthorised overdraft and the fee OR renegotiate with the bank if they're in financial difficulty. Of course people who never look at their balance before writing a cheque also don't read the fees advice notice when it arrives in the post. There's only so much you can do to help someone who won't help themself. As I understand it the point of law under which today's fees are being challenged is whether they reflect the actual cost of a service, which they do not (they're suspiciously round for a start) but that doesn't automatically mean they're exploitative.

Those arguing that any payment that would push an account overdrawn should simply be refused as a matter of principle are in danger of making the mistake Jesurgislac accused me of. For the rich, a failed payment or a bad cheque is merely an embarassment, but for those on the poverty line a missing payment may be vital, the phone may be disconnected, a credit card attracts a month's interest or perhaps the landlord might finally get a chance to legitimately start eviction proceedings. Sometimes it's better to be charged a one-off £10 fee than miss an important payment date. The bank has no way to tell which payments are vital and which not.

The mention of cheque-cashing is apropos. Right now, in the UK, practically anyone can qualify for a free bank account with a funds-limited debit card. A cheque from the soft of organisations recognised by cheque-cashers (government departments, large businesses, etc.) would almost certainly be enough to arrange a brief low-interest overdraft until the cheque clears. So there's no reason to use a cheque-cashing service unless you have a lot of bad debt (if you already owe your bank a lot of money paying them a cheque will just reduce your debts, and presumably you need cash now). But not everyone knows that, as has been pointed out previously on Slacktivist. Instead of trying to claw back bank charges for Daily Mail readers to spend on holidays abroad we could be making sure financial management is a part of the numeracy courses* in secondary and adult education, that cheque-cashing type businesses are associated with non-profit debt counselling services, and that people trying to break the cycle are getting the help they need.

* I notice that modern parenting guides suggest introducing financial management to children even at pre-school age, in this case not so much to ensure that they're wise about money in adulthood but in order to help them understand why they can't always have everything they want in a shop. The British government has a scheme that provides public money for every child with a savings account to encourage them (and their parents) to start early. The accounts can't (with rare exceptions) be spent until the child grows up, and so no doubt Jesurgislac and hapax disapprove because some people would like the money immediately ?

[Raka]

I believe I was wrong; the source report does restrict itself to overdraft fees alone (though it does include NSF fees where the withdrawal is not honored, but the accountholder pays for the attempt anyway). The 17.5 billion figure is an estimate, but I have no serious arguments with their methodology and no reason to believe their estimate is dramatically off.

It could be off; their method looked at the top 15 banks, and if this practice is less common in smaller institutions, that would skew the results significantly. But I have no evidence at all for that, and since the banks they look at account for 66% of transactions, the total would still be well above 10 billion.

[e. nonee moose]

And when the person who can't balance his checkbook gets slapped with multiple overdraft fees, what does he do? He goes to the nearest advance payday store and borrows enough to pay the fees at outrageous interest rates. Small wonder that the poor stay poor in this country.

[Chris_C]

Last time a bank got me with an overdraft fee was when I was in my early 20s. I wrote a check for something, got paid in cash and went to the bank to cover it. I had a check for a small amount banging around, so I put that in as well. Then I got hit for the overdraft fee. Why? Becuase my cash hadn't cleared. After three days. Becuase I didn't deposit the small check seperately from the cash, they hadn't cleared the cash. You know, just in case the cash bounced.

My current bank transfers money from savings to checking for free-- if you do it "too often", they'll demote your savings account to a checking account, on the grounds that the bank will treat the account in the manner in which you do. But "too often" is fairly vague, -- Eric the Read

Federal law states that you can't have more than 6 withdrawls per month from a savings account. The bank may not have had any choice.

[Jesurgislac]

Nick: Only to the limited extent that I am lucky to live in a country with a social safety net (in my case, "Job seeker's allowance" and "Housing benefit" as well as numerous free health care and other social programmes because I was also very ill when I was poor).

Ah. So, when you were on JSA and Housing Benefit, did you take your own advice and start an ISA (or whatever the equivalent was then)?

[amanda w]

The poor very often are poor financial planners. It's almost always possible (at least in First World countries) to live on a little less than whatever is earned ...

As long as you don't have any sort of medical condition, don't have children, don't live in a location with a high cost of living or severely restricted housing choices, and aren't, well, poor, black, female, or any other classification that can easily bring on discrimination no matter how right you conduct your life.

Yes, the poor are often poor financial planners. Because it is impossible to plan well financially when you don't have enough money to live off of. How hard a concept is this?

[amanda w]

But the flip side, the stereotypical liberal myth that the poor are almost completely prevented from altering their own circumstances, is just as wrong and just as insulting. It denies agency to the victims and frankly degrades the ability of those who were able to climb free, dismissing it as "luck".

Hast thou considered that perhaps there is more than one circumstance in which a person can find themself in this wide wide world?

Luck certainly plays a part in every case of mobility, up or down. How large a part depends. But it plays a part. Usually a pretty damn big one.

I don't know about you, but I didn't choose to be:
- Born to a single mother,
- a mentally ill mother,
- a poor family,
- with not much of a "support network" for advice,
- or money,
- or job offers,
- or any number of other things.
- Female.
- Physically disabled.
- Born into the place where I was, where I was dependent on others for what sort of formal education I received,
- how I was nourished,
- what sort of informal education I received,
- how much money was put away for me (I'll give you a hint here -- the number is round in a quite literal sense),
- or any other number of things.

You can come up with much of your own, surely.

I do not subscribe to determinism, but I know that each of these things has limited my mobility in this country from the start. It is just silly and foolish to pretend that none of these things matter and I can go anywhere and do anything I please, regardless. These are things I have to overcome. Some of them I can. Some of them I can't. Some I can overcome because the opportunity is available to me to put in the hard work required to do so. Some I cannot, because no such opportunity is available, no matter how hard I work.

This sort of "I can do it, so can you!" politic annoys the hell out of me.

[Jesurgislac]

Jesurgislac seems to have an unusual knack for wrongly calling me out on things, sorry again Jesu, I've been poor and it sucked.

Why? Surely you just needed to practice good financial management. Then you could have saved money, started an ISA, and so forth. No problem, right?

[Raka]

amanda w: As long as you don't have any sort of medical condition, don't have children, don't live in a location with a high cost of living or severely restricted housing choices, and aren't, well, poor, black, female, or any other classification that can easily bring on discrimination no matter how right you conduct your life.

If they aren't living on what they make (by whatever means), then they're dead. Fine, that's an oversimplification; but even with our broken public assistance and medical programs, it's vanishingly rare to have no cash flow at all. All the factors you list are definitely confounding factors that increase the difficulty of what I already acknowledge was a not-easy process, and you omitted plain old luck-- it does exist, and at that level it's a hell of a lot more likely to screw you over than to raise you up.

Point is, it's generally still possible. Ill, black, single mothers can and do bootstrap themselves, though the road is shamefully steep. Treating their circumstances as insurmountable is no more accurate or helpful than treating them as the proper punishment for an unworthy person. Serious discussion on what society can do to make the process more possible and less punishing is good and proper and long overdue, but ignoring what the impoverished can do (and/or stop doing) themselves is neither noble nor helpful.

Responsibility != blame.

[Arianna]

Ugh, I'll never forget the time our rent cheque bounced because my roommate deposited his paycheque the day before he wrote the rent cheque, but for some reason the rent cheque cleared before his paycheque... Funny thing that, since he worked for the gov't at the time, and I don't suppose any reasonable person would expect a government cheque to bounce.