9 ms·

The most profitable source of income for banks? Overdraft fees

150 points by mrmirz 11y ago

stephengillie 11y ago
This is one of the financial barriers that severely impacts the ability of poor people to amass monetary wealth, but is invisible to the rich. Before they were overdraft fees, they were Non-Sufficient Funds fees for overdrafting, and these NSF fees still exist for those who can't even get the "overdraft loan". > Banks originally offered clients this service as a courtesy. Banks originally opted in at-risk customers. This was before payday loans became popular, and the market is one and the same. If you were short of funds this month, you'll probably be short next month too. Source: personally being an at-risk customer who was opted in without asking.
- noonespecial 11y ago
  The most egregious example that has happened to me: I had a checking account with a hidden $5 fee if the balance went below $5000 in a given month. I made a big purchase, left the account with about $3 in it and scheduled a transfer from savings for the next day... you know how it played out: $5 fee on the low balance, $50 charge to "borrow" the $2 all taken from the transfer the next day. They call that a "service". ha.
  - twistedpair 11y ago
    I had a similar fee for not having a transaction into my checking account for the month. I visited the branch to contest it. They waived the fee, and I asked the branch manager, "So I just need 'a deposit' each month, right? How about $0.01?" She didn't answer me, but I setup my ADP account at work the next day and BofA's been getting $0.01 into checking every month for years now. And you know what? I'm pretty sure it costs them more than $0.01 to process that direct deposit. ;)
    - CydeWeys 11y ago
      Hell, at that point I'd do one $0.01 deposit every week, just to cost them more.
  - fredkbloggs 11y ago
    Couldn't wait until the next day to make the purchase? Couldn't use cash or a credit card instead? You're an adult. You're obviously literate or you couldn't be posting here. Unless these fees were not disclosed to you (a MAJOR breach of the law if true), you had every opportunity to know that this would occur and to prevent it. Try taking responsibility for your own actions.
    - outworlder 11y ago
      And, as part of his adult responsibilities, he's obviously responsible for watching his bank account balance like a hawk. It's not like adults have to do anything else. Also, you're assuming the "purchase" was something superfluous that could wait.
    - mbrameld 11y ago
      You can't imagine a scenario where a responsible adult has had a checking account with a balance over $5000 for many years and has never run in to the charge for dropping below that level, eventually forgetting about that $5 fee? Now if you managed to picture that and believe it's possible for a responsible adult to forget about an obscure fee his bank has never charged him before, try to imagine your home's AC goes out in the middle of August when it's 100 degrees out. Now you're stressed out but you've got enough money in checking to cover the replacement that day, so you call somebody out to replace it and schedule a transfer from savings the same day. Can you maybe see just a little how a mistake like that could happen to a responsible adult? Do you have every possible fee your bank charges committed to memory? And finally, are you trying to add anything to this discussion or just displaying your self-righteousness?
      - fredkbloggs 11y ago
        I'm trying to provide something other than Progressivist claptrap, in the desperate hope that some young people will read this and understand that there's more than one viewpoint in the world, and that some of them actually treat people like human beings rather than victims. As for the substance of your complaint, I do not agree. Yes, I can certainly imagine various excuses. I can also imagine accepting that mistakes often have consequences, and that being $55 poorer is a rather modest one, all things considered. It's fine to curse a little and be upset. It's fine (good, even!) to change banks afterward. But the level of hatred and entitlement in this thread is simply not justified by the balance of behavior.
  - mikekchar 11y ago
    I once had a bank account with $100 in it. I went travelling and didn't access the account for a long time. Eventually, I returned back and found that they had sent me a letter saying that they had close my account for inactivity. The fee for closing the account was $120, which put the account at -$20. They were further charging me a $75 overdraft fee and informed me that my account was in arrears for $95 dollars. I did not pay them, but neither did I get my $100 back.
    - yohoho22 11y ago
      Did failing to pay up not put you in the bad graces of ChexSystems? Did it affect your ability to open other accounts later on?
      - mikekchar 11y ago
        I think I got lucky. This was a good 30 years ago, so my memory is a bit hazy, but I think what happened was that they deactivated my account, which incurred the charge. Since I didn't technically have an account any more, they couldn't do anything. I suspect that they weren't supposed to actually deactivate the account completely and screwed up. Back then banking systems were a lot less computerised so I think there were probably lots of errors.
- goldenkey 11y ago
  A different angle. But probably for the same reason. You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? It doesn't help when most people don't have any spending money to contribute because they are drained dry by the banks...
  - Spooky23 11y ago
    That's what credit unions are. You don't have many in the ghetto, because most aren't really communities, which is why they are what they are.
  - munin 11y ago
    > You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? They do: http://www.amazon.com/dp/0674030710 http://www.amazon.com/dp/0674030710 Is the service better? Unclear.
- delinka 11y ago
  Not only opted in without permission, but receiving derisive reactions when requesting to opt out. "You wouldn't want to be embarrassed by having your payment refused would you?" Sure, that's fine, because there's invariably some issue with the store network, or the electronic payment processor that randomly refuses payment anyway. What's the difference? "Are you sure you don't want this 'protection'?" I'm protecting myself from your fee. That's protection enough. Furthermore, I worked in IT at a bank for awhile and witnessed many wealthy customers coming through to cash large checks for which they hadn't the funds - a head teller would sign off on the cash, no fees charged, and the customer leaves with the money.
javajosh 11y ago
My father was dying and I'd moved home to help him out in his last days. He'd lasted longer than we thought, and so I was very low on money. But he wanted something from the store, and it was cheap, and I went to get it. It went through, but I got a $35 overdraft fee for something like $0.50 over. I was angry, and the woman at Wells Fargo chastised me for not checking my balance by phone before charging anything. Mind you, this was after I told my bank to just decline any charges that would put me over. I left Wells Fargo that day and have never been back to them or any other big national bank.
staunch 11y ago
The pain overdraft fees cause poor people is truly hard to comprehend unless you've been there. It's incredibly evil. You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account, putting your balance at -$9. Now you have to pay $35/day until you get enough money to cover the overdraft fees. You end up paying $100+ for a $9 forced loan. The bank could have just declined the charge and let you deal with it, but even though you have overdraft "protection" turned off, they've decided to classify this transaction as an on-going contractual relationship, letting the charge through so as not to "inconvenience" you. Bankers are inventive at skirting the law. They know exactly what they're doing. They're rich bankers robbing poor people. I won't be satisified until Bank of America, Wells Fargo, and all these other evil American banks pay back every single dime to their victims. Until then, no one should even consider helping these evil banks when there are good ones available. USAA is great.
- deleted 11y ago
  [deleted]
- mkaziz 11y ago
  USAA - The United Services Automobile Association?
  - nkozyra 11y ago
    https://www.usaa.com/ https://www.usaa.com/
    - artursapek 11y ago
      I highly recommend USAA for checking/savings accounts. Been with them for 5 years or so.
      - MBCook 11y ago
        I've been with them a lot longer, my parents decades. Never had a problem with them.
Johnie 11y ago
Here's a good breakdown of checking account profitability: http://www.bankdirector.com/index.php/issues/retail/the-profitability-of-the-average-checking-account/ http://www.bankdirector.com/index.php/issues/retail/the-prof...
stevewepay 11y ago
This is a quote from Michael Lewis' The Big Short, I'll never forget it: Obsessing over Household [Finance Corporation], he attended a lunch organized by a big Wall Street firm. The guest speaker was Herb Sandler, the CEO of a giant savings and loan called Golden West Financial Corporation. “Someone asked him if he believed in the free checking model,” recalls Eisman. “And he said, ‘Turn off your tape recorders.’ Everyone turned off their tape recorders. And he explained that they avoided free checking because it was really a tax on poor people — in the form of fines for overdrawing their checking accounts. And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.” Eisman asked, “Are any regulators interested in this?” “No,” said Sandler. “That’s when I decided the system was really, ‘Fuck the poor.’”
- Touche 11y ago
  > form of fines for overdrawing their checking accounts. Why in the world shouldn't you be fined for overdrawing your checking account? A checking account is not a loan, am I wrong in thinking this quote is B.S.?
  - selectodude 11y ago
    The charge should be declined, no different than a credit card. Allowing it to go through and then charging usurious fees is wrong.
    - Touche 11y ago
      Fine, say it's wrong. Don't say it's a "tax". You have no choice with regard to taxes; you have a choice to not overdraw your account.
      - themartorana 11y ago
        What is the purpose of being so overly pedantic? It's all over this thread. "A rose by any other name would smell as sweet..."
onion2k 11y ago
I'm not saying this isn't true, but the post is on the blog of a short term loans company who have a vested interest in people believing a short term loan would be preferable to an overdraft fee, and there's no cited report or study that suggests banks make most of their money from fees. A couple of articles that make me wonder; http://www.businessinsider.com/chart-of-the-day-how-a-bank-makes-money-2011-5?IR=T http://www.businessinsider.com/chart-of-the-day-how-a-bank-m... http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980 http://www.wsj.com/articles/banks-fee-bonanza-dries-up-14096...
- mrmirz 11y ago
  "In fact, roughly half of respondents to the ICBA survey say that overdraft fees constitute their most profitable non-depository and non-lending product, despite regulatory changes that have crimped their income potential." http://independentbanker.org/2014/01/finding-more-fee-income/ http://independentbanker.org/2014/01/finding-more-fee-income...
  - morgante 11y ago
    So basically the article is completely wrong when it says: > The most profitable source of income for banks is not mortgages, credit card fees or mutual funds, but the fees they charge clients for these short-term loans.
some-guy 11y ago
About five years ago I worked at Wells Fargo as a teller while in college. During that time Congress passed a law prohibiting debit transactions from going through if there weren't enough funds in the account. Shortly after that we were told to start telling our customers about a new service called Debit Card Overdraft Service which was marketed as a "convenience" for customers when they were in a bind. When I asked my branch manager about this service in person, he said he was told by his manager that the company was going to lose billions of dollars due to the new law and that this service was meant to alleviate those losses. I filed an ethical complaint since I believed that it violated one of their Team Member Codes of Ethics regarding "encouraging reckless financial behavior". It pissed off my manager, which pissed off his boss, and then I had a round table meeting with them. My manager then claimed that he never said anything about losing money, and that the new service was unrelated to the new laws passed in Congress. Since I couldn't prove he said those things I decided to drop it, but he told me I no longer had to advertise the service. It still irks me that there was absolutely nothing I could do about the situation. After I quit some of my co workers told me that they were told that the service was used to make up for lost revenue also, but they were afraid of speaking up since they didn't want to lose their jobs. I had less to lose because I was a college student studying CS.
- eru 11y ago
  I guess the moral of the story is that ethical complaints should be anonymous?
  - kelukelugames 11y ago
    The moral of the story is to gather evidence. When you go report something to HR, the HR rep always writes things down on paper. Why do they do that? In case things go to court. Write down on paper what everyone says. Otherwise is your word vs the manager's. Employees will not win in a case of he said she said.
    - shard 11y ago
      How does writing it down make any difference, unless there was a corroborating witness during the conversation? It seems like it would still be he said she said. Is it just a case of writing it down being more unlikely for the memory of the words to be distorted by time passing?
wnevets 11y ago
Why bother with a bank? Find a local credit union
boling11 11y ago
Bank overdraft and NSF fees are definitely odious. It's part of the reason why so many poor people have switched over to prepaid and are opting to pay the $5-$10 monthly fee for those accounts - it comes out to less for many people and at least it's predictable. These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).
- fredkbloggs 11y ago
  > These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread). Maybe the lesson is that over-regulation and financial repression aren't so good for the people. These guys are going to make money somehow. You can create a system that allows them to do so with minimal harm while providing valuable services or you can take away every stream of revenue except the evil things they haven't thought up yet. America is clearly opting for plan B, and it's working about as well as you'd expect.
  - rev_bird 11y ago
    This seems like a politically motivated conclusion -- I just can't find any evidence that it's necessarily true. I really can't see how "over-regulation" is the cause of banks behaving badly -- their core business is ostensibly to charge interest, right? That's still legal and, in the US at least, loans (for school, homes, etc.) are an almost celebrated social rite of passage. I just can't look at banks knowingly screwing their customers and react with "they need less rules." If anything, this behavior is evidence that banks cannot be trusted to act in the public interest, if only because there are much more substantial financial incentives to act like assholes. Regulation is in place because it's absurd to just say, "oh, they'll be nice, why would anyone be mean to people in exchange for huge sums of money?" It fills in the moral gaps that the market doesn't enforce.
    - fredkbloggs 11y ago
hippich 11y ago
I was bitten by overdraft fees few times, and after much complaining all fees were waived. BUT, every time I insisted on disable all kind of overdraft protections and simply dishonor ACH charge or paper check if balance is not enough. I've been told that even in that situation they will still charge NSF fees if check was authorized (and yes, recurring transactions are authorized.) They also offered to stop specific check. This will cost... same amount as NSF fee. Also, they can freeze account, it will cost... same amount as NSF fee, (and same amount to unfreeze) This is local smallish CU...
Cacti 11y ago
It's important to keep in mind that "overdraft fees" is a complete horseshit of a term. The banks could easily just deny the transaction... there's nothing in the universe that says you have allow your customers account to overdraft. As the link says, these really are not fees, but short-term high-interest loans, extended by the bank to the customer, with an intent little different from other high-interest short-term loan places. These are LOANS, not FEES, at HIGH INTEREST rates, and they're aimed SPECIFICALLY at the poor, because they're the only ones without other options or recourse, and the least likely to fight the issue when it happens.
- MereInterest 11y ago
  In addition, the fact that they label it as "overdraft protection" is thoroughly ridiculous. Overdraft protection should protect me from overdrafts by denying a transaction. Instead, the worst effect of the overdraft, being charged an additional fee, is applied.
  - ceejayoz 11y ago
    Bingo. It makes the overdraft worse.
fredkbloggs 11y ago
We could read 100 sob stories, or we could recognize that every single overdraft (other than errors and fraud, which do happen but are rare and these days invariably corrected) is voluntary. Yes, banks will make money any way that they can. Yes, they will happily take your last dollar, or even dollars you don't have and never will. No, they do not give one flying fucking rat's ass about you, your sister, or the homeless Vietnam War veteran who saves orphaned children on weekends and singlehandedly saved the world from nuclear annihilation last week. Twice. They don't care. Not one tiny bit. They're probably bastards. So why in the name of all that's sane and holy would you give them money by falling into the traps that they set for you? You choose to write checks you don't know for sure are good. You choose to use your debit card instead of cash. You choose to keep poor records of your own accounts. These are choices that you make, or not, despite 13+ years of free public education that includes all the basic skills necessary to avoid this problem. And then you complain that the bankers are making too much money charging you a fee that you agreed to as a direct result of a transaction that you deliberately initiated against your account. You. Not the bankers. If you can't or don't care to keep good records, you should use your checking account for only the bare minimum of transactions that you know for certain you can keep track of, only when you are absolutely sure you have enough in your account, and use cash for everything else. Basically, if it is at all possible to use cash for something, use cash. If you aren't sure of the terms on your account, get out your paperwork. If you lost it, call the bank and get them to send it to you again; they're required to do so. If you don't like the terms, find someone else; there are over 7,000 commercial banks in the United States. There are thousands of pages of banking law and regulations devoted to making sure that you are aware of these fees, limiting them, obligating banks to refund or cancel them in certain situations, and on and on. It's your choice to pay them. It's your choice to hand those bastards a bunch of money for lending you literally a few bucks for a few days. Yours. Not theirs. And they're not even grateful for it. You really oughtta cut those bastards off.
- Karunamon 11y ago
  And the best part is, you're being downvoted for this.. I dunno, apparently a lot of HN thinks that it's impossible to believe that banks are generally run by bastards while simultaneously believing that 99% of these instances are completely voluntary and completely avoidable? If you keep track of what you're spending your money on, it's not a problem you're gonna have to ever deal with - and I say this as someone that's played this game with Wells Fargo in the past. But apparently, advocating for people to be responsible for their own actions is a radical and terrible thing nowadays.
Kinnard 11y ago
This is all the more frustrating—no, enraging, when you learn how banks create money.
- vonklaus 11y ago
  Underrated comment. I was just listening to a bitcoin podcast with the Bank to the Future author discussing this. Bit one sided, but really interesting essentially he posits that capitalism is somewhat problematic but still a great way to organize actors in a market, however the ability for banks to create money and the false assumption that they are intermediaries has lead to the problems we're in now.
pedro50 11y ago
Fuck the banks.. when u down they will punish you.. and even creating a new bank means you can punish.. FUCK THEM ALL
worldadventurer 11y ago
Bank of America had some pretty bad practices where they would reorder the sequence of debit transactions, largest amounts first, to maximize the number of overdraft transactions: "the bank mixed up the order and delayed the timing of debits and transactions to maximize the possibility customers will overdraft accounts". They got sued and settled for $410 Million in 2011: http://www.bloomberg.com/news/articles/2011-02-05/bank-of-america-to-pay-410-million-to-settle-overdraft-case http://www.bloomberg.com/news/articles/2011-02-05/bank-of-am... [edit: spelling mistake]
- zacwest 11y ago
  Their argument for doing is compelling. They figure larger purchases like rent or car payments should go through above smaller ones. It feels like the person doing the reordering was a different person from the one setting charges.
  - meric 11y ago
    That's a ridiculous argument by the bank. 1. A person has many payments to make, some very large ones, but also some very small ones - and yet the variance in utility of making many of the payments is a lot smaller than the variance in the size of the payments to be made. 2. The utility of a creditor in receiving the majority of their payments is a lot higher than the utility of a creditor in receiving none of their payments. A person requires BOTH shelter and food. This month, your payments are: 1. The food payment is $20. 2. The rental payment $1000. Let's say you have only $1000 for the month, and overdraft is turned off. If the rental payment goes through, you have zero dollars remaining for food, leaving you hungry for the month, and will starve to death without assistance. If the food payment goes through, you have $980 left. Send the $980 to the landlord and apologise and promise $20 will be sent the next month. Your landlord won't kick you out. Ergo, largest payments should not go through above smaller ones, if we want to order in a way for the customer's benefit. Therefore, taking into account of both parties, utility is maximised when a couple of percent of a large payment is skipped rather than when the entire amount of a small payment is skipped. From the point of the view of the bank where they are usually the ones receiving the largest payments in mortgages and car loans, they will require a lot more customer support staff if there are lots of instances where people pay only 98% of their payments, because that's not a good reason to foreclose on somebody and at the same time they don't want them to continue skipping 1-2% of their payments. What the bank is saying: Largest payments should go through above smaller ones, for the benefit of the bank!
outworlder 11y ago
As a Brazilian, the whole concept of "overdraft fees" feels truly alien. I am not aware of any banks that will charge you like that and wouldn't be surprised if it were forbidden by the central bank. Some of them will even charge you nothing even if the account sits in the negative for a set number of days (10 usually). The others will just charge as if it were a loan, by the month's end. Now, here is the interesting part. You can expect to pay, currently, over 10% per month on any outstanding loans. In the case of a negative balance, charges upwards of 30% are common. So it's not like they aren't robbing people either. They are just doing it in a less visible way.
colanderman 11y ago
If you're in the US, ditch your bank and find a credit union (or failing that, a cooperative bank). They are financially beholden to their customers (what a novel idea!~), so they don't pull this kind of shit. Ever since dealing with unwanted overdraft shit from Citizens Bank (may they rot in hell), I swore off the adversarial relationship of commercial banks and found a nice credit union. With them, I once overdrafted my account slightly (forgot about an ATM fee or some such), and they ignored it for months. I only found out about it because they casually mentioned it when they called me about something else. No fees whatsoever.
ajmurmann 11y ago
When I first moved to the US as a student from Germany I kept most my money in Euro cache and only covered what I needed in the coming weeks because the Euro kept going up pretty quickly. I will never forget how furious I was when I got an overdraft fee. It took my wife quite a while to even explain the concept to be because it seemed so completely nonsensical coming from Germany. In Germany the bank would be set on fire for this by leftists.
iamchmod 11y ago
I'm really not sure why this is news. It's been covered all the web previously that banks make a lot of their net profit from overdraft fees. Here's a couple recent articles: http://www.fool.com/investing/general/2015/06/17/bank-of-americas-overdraft-policy-is-clearly-impro.aspx http://www.fool.com/investing/general/2015/06/17/bank-of-ame... http://247wallst.com/banking-finance/2015/06/17/banks-making-the-most-from-overdraft-and-atm-fees/ http://247wallst.com/banking-finance/2015/06/17/banks-making...
polishninja 11y ago
I've worked at a credit union for many years. The fees from overdraft charges probably come in second or third behind loan interest income. There are a few community banks / credit unions that don't charge a fee if your overdraft is less than $5 or if you bring the account current within 24 hours. I think this is a step in the right direction. If you overdrafted at the credit union, we gave you a $500 limit and 30 days to pay it back. For $35 you could borrow $500 for a month. The problem is, people would pay the $500 back and the next day withdrawal it again. They would be caught in a cycle of this, very similar to payday loans, for months or years. There we so many fee reversals at the credit union I was at the instituted a policy that said any fee reversal had to be approved by the CEO or VP of Retail operations. We were refunding millions of dollars in fees a year. That cut down on the reversals for sure but didn’t help the consumers. I have an overdraft loan ($500) that just draws (transfers) funds to the checking if I go over. The only thing I pay for is the interest, which is a lot less than an overdraft fee. That's if you can qualify for a loan though, which can be tough if you don’t handle your finances properly.
rdtsc 11y ago
Another take on the ridiculousness of overdaft fees is presented by Louis CK in this "I am broke" skit. https://www.youtube.com/watch?v=-n4DRcGJQo8 https://www.youtube.com/watch?v=-n4DRcGJQo8 Some quotes: "Did you ever get so broke that the banks starts charging you money because you don't have enough money" "Sir you only have $20? How can you only have $20. -- Look, I am not being broke just to fuck with you, I really just don't have any ... money. I am not trying to be a dick" "So they charged me. They charged me $15. That's how much it costs to have $20. Here is the fucked up part, now I only have $5. What did I pay the $15 for if I don't get to have my $20!?".
raz32dust 11y ago
Wow, this is truly ridiculous. I recently moved to the US (yet to set up a bank account here) and did not know about this. Back in India, if you don't have funds, your transaction is declined. Plain and simple. And no fee for that, either. This is pure unleashed greed. Now I know why bankers are so hated out here. Banks have way too much power, way more than the benefit they provide. This whole system needs to change. Horrible! And I am sure we are going to find this kind of shit in India soon, because from what I see, we are blindly copying the American way over there. The good, the bad, everything.
rokhayakebe 11y ago
If you don’t want your account to come with overdraft services, clearly tell your bank or credit union to decline purchases that exceed the money in your account. Well, Wells Fargo charges $35.00 overdraft fee. Or if you choose to decline, they charge $35.00 for unaccepted charge. Either ways you'll be paying Wells. Oh well.
yuhong 11y ago
I wonder what would happen if for profit banks didn't have savings accounts that accumulate interest.
EGreg 11y ago
Many times in the past, I've learned the hard way that when you ask the bank to STOP paying any charge that would take the account negative, they say OK but then have enough loopholes that the request is essentially meaningless. They STILL apply the overdraft and there's no way to turn it off! I thought laws were recently passed to prevent this behavior, but I guess not.
joshuak 11y ago
A. Use small claims court. I have. It is very successful. The more who do it the harder this abuse will become. B. It is the banks responsibility to maintain an accurate accounting of funds deposited with them. A customer has no mechanism to instantaneously check their balance, and 'hold' funds for a transaction, or if unavailable avoid the transaction. The bank does. It is the debit card system. They, not you, are responsible for using the systems they have to avoid accounting errors. No one should be made to feel guilty because they are poor, or for failing to keep a ledger that only a bank has the ability to keep.
kevinSuttle 11y ago
I remember when these were added to my account as a poor college kid. Devastating. It used to be, swipe -> no money? No purchase.
deleted 11y ago
[deleted]
morgante 11y ago
This title should be changed, as it is not the title of the article and even more importantly seems to be pure clickbait. No source is cited for $37 billion in overdraft revenue and even if that number is accurate I'n highly skeptical that it's the most profitable line-item in a $1.26 trillion dollar industry.
codezero 11y ago
Overdraft fees are maddening. I can't even imagine how bad they would be if I were strapped for cash. I admittedly am not great at managing my accounts, but, it blew my mind that the following situation could (and did happen): I got paid monthly, let's say it was $5k USD. At the end of the month, I may or may not have enough money in my account, for, say, a day or two. So, I go to buy a coke at the university shop. No problem, costs me $1.25, but I used my debit card. Now I get a $35 fee because my account was at $.75 That makes sense right? Given that the bank has significant historical information that I will get paid in less than 48 hours, how am I a risk? OK, so I bought another soda, later in the day, another $35. Whoa! $70 for two sodas. Kill me now. What's worse... I couldn't set my account to reject these transactions. Either I had to always monitor my account, AND make sure that none of the services I subscribe to ever charge me in this specific time period. It wasn't until specific laws were passed that I could make my account follow these rules, and this was about 2009, or 2010. I paid at least $1000 to the bank in overdraft fees over the course of a few years. In fairness, these are the only fees I paid to the bank, and probably, if this were the cost of banking (less than Spotify!) I probably would have paid them happily. The problem with these charges is that they were volatile, a surprise, and scraped the bottom of the barrel when I was least capable of handling the charges. It's maddening, and I feel strongly for those who weren't as well off as me who got fucked over by banks under the scheme, and likely continue to get fucked over because the banks still don't make it easy to set your account up in such a way that you reject overdraft charges.
switch007 11y ago
Pre crisis overdrafts used to be cheap. There was just a monthly interest amount (fairly low - IIRC mine was about 12%). Post crisis, many banks in the UK "simplified" overdraft fees by charging rediculous daily/monthly usage charges and increased interest rates. It really is a massive swindle when being £100 overdrawn for one day can cost between £5 and £40 [1]. You used to just have a monthly interest rate like a credit card, often paying a few pence for going overdrawn for a day. Of course being British, we just rolled over and took this (I did close all my Natwest accounts after being charged £5 for being £1 overdrawn for one day, but most banks are the same now). The people with the power have large amounts of money in the bank and had no need to complain. With blllions in PPI being reclaimed (Lloyds alone supposedly have a bill of £13 bn [2]), this isn't a surprise. The banks always win. [1] http://www.moneysavingexpert.com/banking/bank-charges-compared http://www.moneysavingexpert.com/banking/bank-charges-compar... [2] http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds-ppi-mis-selling-bill-tops-13-billion http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds...
greggyb 11y ago
>According to an ICBA survey of 200 bankers nationwide, overdraft fees constitute their most profitable non-depository and non-lending product. Emphasis mine. This is an inflammatory title, not matching the article's or any statements I see made therein. This statement is buried in there, but if we want the title to at least be accurate, it should be along the lines of "The third most profitable source of income for banks? Overdraft fees - behind their two core services, depository and lending services."
bryanwbh 11y ago
This is not at all, correct. The most profitable source of income for banks is non-interest bearing checking accounts. On an overnight basis, Fed Fund Rate is 0.25% and Overnight USD LIBOR is at 0.133%. However these checking accounts pay nothing to customers. So, whenever customers deposits any amount of money, banks easily earn at a minimum 13bps out of it. That is free income for the bank. Other lucrative source of income for banks are interest bearing checking account and savings account as they pay peanuts to customers compared to what they can lend out to the interbank market. Disclaimer: I work for a bank in the treasury dept

150 points by mrmirz 11y ago

This is one of the financial barriers that severely impacts the ability of poor people to amass monetary wealth, but is invisible to the rich. Before they were overdraft fees, they were Non-Sufficient Funds fees for overdrafting, and these NSF fees still exist for those who can't even get the "overdraft loan". > Banks originally offered clients this service as a courtesy. Banks originally opted in at-risk customers. This was before payday loans became popular, and the market is one and the same. If you were short of funds this month, you'll probably be short next month too. Source: personally being an at-risk customer who was opted in without asking.

noonespecial 11y ago
The most egregious example that has happened to me: I had a checking account with a hidden $5 fee if the balance went below $5000 in a given month. I made a big purchase, left the account with about $3 in it and scheduled a transfer from savings for the next day... you know how it played out: $5 fee on the low balance, $50 charge to "borrow" the $2 all taken from the transfer the next day. They call that a "service". ha.
- twistedpair 11y ago
  I had a similar fee for not having a transaction into my checking account for the month. I visited the branch to contest it. They waived the fee, and I asked the branch manager, "So I just need 'a deposit' each month, right? How about $0.01?" She didn't answer me, but I setup my ADP account at work the next day and BofA's been getting $0.01 into checking every month for years now. And you know what? I'm pretty sure it costs them more than $0.01 to process that direct deposit. ;)
  - CydeWeys 11y ago
    Hell, at that point I'd do one $0.01 deposit every week, just to cost them more.
- fredkbloggs 11y ago
  Couldn't wait until the next day to make the purchase? Couldn't use cash or a credit card instead? You're an adult. You're obviously literate or you couldn't be posting here. Unless these fees were not disclosed to you (a MAJOR breach of the law if true), you had every opportunity to know that this would occur and to prevent it. Try taking responsibility for your own actions.
  - outworlder 11y ago
    And, as part of his adult responsibilities, he's obviously responsible for watching his bank account balance like a hawk. It's not like adults have to do anything else. Also, you're assuming the "purchase" was something superfluous that could wait.
  - mbrameld 11y ago
    You can't imagine a scenario where a responsible adult has had a checking account with a balance over $5000 for many years and has never run in to the charge for dropping below that level, eventually forgetting about that $5 fee? Now if you managed to picture that and believe it's possible for a responsible adult to forget about an obscure fee his bank has never charged him before, try to imagine your home's AC goes out in the middle of August when it's 100 degrees out. Now you're stressed out but you've got enough money in checking to cover the replacement that day, so you call somebody out to replace it and schedule a transfer from savings the same day. Can you maybe see just a little how a mistake like that could happen to a responsible adult? Do you have every possible fee your bank charges committed to memory? And finally, are you trying to add anything to this discussion or just displaying your self-righteousness?
    - fredkbloggs 11y ago
      I'm trying to provide something other than Progressivist claptrap, in the desperate hope that some young people will read this and understand that there's more than one viewpoint in the world, and that some of them actually treat people like human beings rather than victims. As for the substance of your complaint, I do not agree. Yes, I can certainly imagine various excuses. I can also imagine accepting that mistakes often have consequences, and that being $55 poorer is a rather modest one, all things considered. It's fine to curse a little and be upset. It's fine (good, even!) to change banks afterward. But the level of hatred and entitlement in this thread is simply not justified by the balance of behavior.
- mikekchar 11y ago
  I once had a bank account with $100 in it. I went travelling and didn't access the account for a long time. Eventually, I returned back and found that they had sent me a letter saying that they had close my account for inactivity. The fee for closing the account was $120, which put the account at -$20. They were further charging me a $75 overdraft fee and informed me that my account was in arrears for $95 dollars. I did not pay them, but neither did I get my $100 back.
  - yohoho22 11y ago
    Did failing to pay up not put you in the bad graces of ChexSystems? Did it affect your ability to open other accounts later on?
    - mikekchar 11y ago
      I think I got lucky. This was a good 30 years ago, so my memory is a bit hazy, but I think what happened was that they deactivated my account, which incurred the charge. Since I didn't technically have an account any more, they couldn't do anything. I suspect that they weren't supposed to actually deactivate the account completely and screwed up. Back then banking systems were a lot less computerised so I think there were probably lots of errors.
goldenkey 11y ago
A different angle. But probably for the same reason. You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? It doesn't help when most people don't have any spending money to contribute because they are drained dry by the banks...
- Spooky23 11y ago
  That's what credit unions are. You don't have many in the ghetto, because most aren't really communities, which is why they are what they are.
- munin 11y ago
  > You kinda wonder why these poor communities don't have community-owned businesses. Crowdfunded works so well, why not in ghettos? They do: http://www.amazon.com/dp/0674030710 http://www.amazon.com/dp/0674030710 Is the service better? Unclear.
delinka 11y ago
Not only opted in without permission, but receiving derisive reactions when requesting to opt out. "You wouldn't want to be embarrassed by having your payment refused would you?" Sure, that's fine, because there's invariably some issue with the store network, or the electronic payment processor that randomly refuses payment anyway. What's the difference? "Are you sure you don't want this 'protection'?" I'm protecting myself from your fee. That's protection enough. Furthermore, I worked in IT at a bank for awhile and witnessed many wealthy customers coming through to cash large checks for which they hadn't the funds - a head teller would sign off on the cash, no fees charged, and the customer leaves with the money.

javajosh 11y ago

My father was dying and I'd moved home to help him out in his last days. He'd lasted longer than we thought, and so I was very low on money. But he wanted something from the store, and it was cheap, and I went to get it. It went through, but I got a $35 overdraft fee for something like $0.50 over. I was angry, and the woman at Wells Fargo chastised me for not checking my balance by phone before charging anything. Mind you, this was after I told my bank to just decline any charges that would put me over. I left Wells Fargo that day and have never been back to them or any other big national bank.

staunch 11y ago

The pain overdraft fees cause poor people is truly hard to comprehend unless you've been there. It's incredibly evil. You've got $16 left for food and then then the Flickr account you forgot to cancel gets charged to your account, putting your balance at -$9. Now you have to pay $35/day until you get enough money to cover the overdraft fees. You end up paying $100+ for a $9 forced loan. The bank could have just declined the charge and let you deal with it, but even though you have overdraft "protection" turned off, they've decided to classify this transaction as an on-going contractual relationship, letting the charge through so as not to "inconvenience" you. Bankers are inventive at skirting the law. They know exactly what they're doing. They're rich bankers robbing poor people. I won't be satisified until Bank of America, Wells Fargo, and all these other evil American banks pay back every single dime to their victims. Until then, no one should even consider helping these evil banks when there are good ones available. USAA is great.

deleted 11y ago
[deleted]
mkaziz 11y ago
USAA - The United Services Automobile Association?
- nkozyra 11y ago
  https://www.usaa.com/ https://www.usaa.com/
  - artursapek 11y ago
    I highly recommend USAA for checking/savings accounts. Been with them for 5 years or so.
    - MBCook 11y ago
      I've been with them a lot longer, my parents decades. Never had a problem with them.

Johnie 11y ago

Here's a good breakdown of checking account profitability: http://www.bankdirector.com/index.php/issues/retail/the-profitability-of-the-average-checking-account/ http://www.bankdirector.com/index.php/issues/retail/the-prof...

stevewepay 11y ago

This is a quote from Michael Lewis' The Big Short, I'll never forget it: Obsessing over Household [Finance Corporation], he attended a lunch organized by a big Wall Street firm. The guest speaker was Herb Sandler, the CEO of a giant savings and loan called Golden West Financial Corporation. “Someone asked him if he believed in the free checking model,” recalls Eisman. “And he said, ‘Turn off your tape recorders.’ Everyone turned off their tape recorders. And he explained that they avoided free checking because it was really a tax on poor people — in the form of fines for overdrawing their checking accounts. And that banks that used it were really just banking on being able to rip off poor people even more than they could if they charged them for their checks.” Eisman asked, “Are any regulators interested in this?” “No,” said Sandler. “That’s when I decided the system was really, ‘Fuck the poor.’”

Touche 11y ago
> form of fines for overdrawing their checking accounts. Why in the world shouldn't you be fined for overdrawing your checking account? A checking account is not a loan, am I wrong in thinking this quote is B.S.?
- selectodude 11y ago
  The charge should be declined, no different than a credit card. Allowing it to go through and then charging usurious fees is wrong.
  - Touche 11y ago
    Fine, say it's wrong. Don't say it's a "tax". You have no choice with regard to taxes; you have a choice to not overdraw your account.
    - themartorana 11y ago
      What is the purpose of being so overly pedantic? It's all over this thread. "A rose by any other name would smell as sweet..."

onion2k 11y ago

I'm not saying this isn't true, but the post is on the blog of a short term loans company who have a vested interest in people believing a short term loan would be preferable to an overdraft fee, and there's no cited report or study that suggests banks make most of their money from fees. A couple of articles that make me wonder; http://www.businessinsider.com/chart-of-the-day-how-a-bank-makes-money-2011-5?IR=T http://www.businessinsider.com/chart-of-the-day-how-a-bank-m... http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980 http://www.wsj.com/articles/banks-fee-bonanza-dries-up-14096...

mrmirz 11y ago
"In fact, roughly half of respondents to the ICBA survey say that overdraft fees constitute their most profitable non-depository and non-lending product, despite regulatory changes that have crimped their income potential." http://independentbanker.org/2014/01/finding-more-fee-income/ http://independentbanker.org/2014/01/finding-more-fee-income...
- morgante 11y ago
  So basically the article is completely wrong when it says: > The most profitable source of income for banks is not mortgages, credit card fees or mutual funds, but the fees they charge clients for these short-term loans.

some-guy 11y ago

About five years ago I worked at Wells Fargo as a teller while in college. During that time Congress passed a law prohibiting debit transactions from going through if there weren't enough funds in the account. Shortly after that we were told to start telling our customers about a new service called Debit Card Overdraft Service which was marketed as a "convenience" for customers when they were in a bind. When I asked my branch manager about this service in person, he said he was told by his manager that the company was going to lose billions of dollars due to the new law and that this service was meant to alleviate those losses. I filed an ethical complaint since I believed that it violated one of their Team Member Codes of Ethics regarding "encouraging reckless financial behavior". It pissed off my manager, which pissed off his boss, and then I had a round table meeting with them. My manager then claimed that he never said anything about losing money, and that the new service was unrelated to the new laws passed in Congress. Since I couldn't prove he said those things I decided to drop it, but he told me I no longer had to advertise the service. It still irks me that there was absolutely nothing I could do about the situation. After I quit some of my co workers told me that they were told that the service was used to make up for lost revenue also, but they were afraid of speaking up since they didn't want to lose their jobs. I had less to lose because I was a college student studying CS.

eru 11y ago
I guess the moral of the story is that ethical complaints should be anonymous?
- kelukelugames 11y ago
  The moral of the story is to gather evidence. When you go report something to HR, the HR rep always writes things down on paper. Why do they do that? In case things go to court. Write down on paper what everyone says. Otherwise is your word vs the manager's. Employees will not win in a case of he said she said.
  - shard 11y ago
    How does writing it down make any difference, unless there was a corroborating witness during the conversation? It seems like it would still be he said she said. Is it just a case of writing it down being more unlikely for the memory of the words to be distorted by time passing?

wnevets 11y ago

Why bother with a bank? Find a local credit union

boling11 11y ago

Bank overdraft and NSF fees are definitely odious. It's part of the reason why so many poor people have switched over to prepaid and are opting to pay the $5-$10 monthly fee for those accounts - it comes out to less for many people and at least it's predictable. These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread).

fredkbloggs 11y ago
> These types of fees have been especially egregious in recent years, because the bigger banks have had their traditional revenue sources drastically capped/reduced (interchange & interest spread). Maybe the lesson is that over-regulation and financial repression aren't so good for the people. These guys are going to make money somehow. You can create a system that allows them to do so with minimal harm while providing valuable services or you can take away every stream of revenue except the evil things they haven't thought up yet. America is clearly opting for plan B, and it's working about as well as you'd expect.
- rev_bird 11y ago
  This seems like a politically motivated conclusion -- I just can't find any evidence that it's necessarily true. I really can't see how "over-regulation" is the cause of banks behaving badly -- their core business is ostensibly to charge interest, right? That's still legal and, in the US at least, loans (for school, homes, etc.) are an almost celebrated social rite of passage. I just can't look at banks knowingly screwing their customers and react with "they need less rules." If anything, this behavior is evidence that banks cannot be trusted to act in the public interest, if only because there are much more substantial financial incentives to act like assholes. Regulation is in place because it's absurd to just say, "oh, they'll be nice, why would anyone be mean to people in exchange for huge sums of money?" It fills in the moral gaps that the market doesn't enforce.
  - fredkbloggs 11y ago

hippich 11y ago

I was bitten by overdraft fees few times, and after much complaining all fees were waived. BUT, every time I insisted on disable all kind of overdraft protections and simply dishonor ACH charge or paper check if balance is not enough. I've been told that even in that situation they will still charge NSF fees if check was authorized (and yes, recurring transactions are authorized.) They also offered to stop specific check. This will cost... same amount as NSF fee. Also, they can freeze account, it will cost... same amount as NSF fee, (and same amount to unfreeze) This is local smallish CU...

Cacti 11y ago

It's important to keep in mind that "overdraft fees" is a complete horseshit of a term. The banks could easily just deny the transaction... there's nothing in the universe that says you have allow your customers account to overdraft. As the link says, these really are not fees, but short-term high-interest loans, extended by the bank to the customer, with an intent little different from other high-interest short-term loan places. These are LOANS, not FEES, at HIGH INTEREST rates, and they're aimed SPECIFICALLY at the poor, because they're the only ones without other options or recourse, and the least likely to fight the issue when it happens.

MereInterest 11y ago
In addition, the fact that they label it as "overdraft protection" is thoroughly ridiculous. Overdraft protection should protect me from overdrafts by denying a transaction. Instead, the worst effect of the overdraft, being charged an additional fee, is applied.
- ceejayoz 11y ago
  Bingo. It makes the overdraft worse.

fredkbloggs 11y ago

We could read 100 sob stories, or we could recognize that every single overdraft (other than errors and fraud, which do happen but are rare and these days invariably corrected) is voluntary. Yes, banks will make money any way that they can. Yes, they will happily take your last dollar, or even dollars you don't have and never will. No, they do not give one flying fucking rat's ass about you, your sister, or the homeless Vietnam War veteran who saves orphaned children on weekends and singlehandedly saved the world from nuclear annihilation last week. Twice. They don't care. Not one tiny bit. They're probably bastards. So why in the name of all that's sane and holy would you give them money by falling into the traps that they set for you? You choose to write checks you don't know for sure are good. You choose to use your debit card instead of cash. You choose to keep poor records of your own accounts. These are choices that you make, or not, despite 13+ years of free public education that includes all the basic skills necessary to avoid this problem. And then you complain that the bankers are making too much money charging you a fee that you agreed to as a direct result of a transaction that you deliberately initiated against your account. You. Not the bankers. If you can't or don't care to keep good records, you should use your checking account for only the bare minimum of transactions that you know for certain you can keep track of, only when you are absolutely sure you have enough in your account, and use cash for everything else. Basically, if it is at all possible to use cash for something, use cash. If you aren't sure of the terms on your account, get out your paperwork. If you lost it, call the bank and get them to send it to you again; they're required to do so. If you don't like the terms, find someone else; there are over 7,000 commercial banks in the United States. There are thousands of pages of banking law and regulations devoted to making sure that you are aware of these fees, limiting them, obligating banks to refund or cancel them in certain situations, and on and on. It's your choice to pay them. It's your choice to hand those bastards a bunch of money for lending you literally a few bucks for a few days. Yours. Not theirs. And they're not even grateful for it. You really oughtta cut those bastards off.

Karunamon 11y ago
And the best part is, you're being downvoted for this.. I dunno, apparently a lot of HN thinks that it's impossible to believe that banks are generally run by bastards while simultaneously believing that 99% of these instances are completely voluntary and completely avoidable? If you keep track of what you're spending your money on, it's not a problem you're gonna have to ever deal with - and I say this as someone that's played this game with Wells Fargo in the past. But apparently, advocating for people to be responsible for their own actions is a radical and terrible thing nowadays.

Kinnard 11y ago

This is all the more frustrating—no, enraging, when you learn how banks create money.

vonklaus 11y ago
Underrated comment. I was just listening to a bitcoin podcast with the Bank to the Future author discussing this. Bit one sided, but really interesting essentially he posits that capitalism is somewhat problematic but still a great way to organize actors in a market, however the ability for banks to create money and the false assumption that they are intermediaries has lead to the problems we're in now.

pedro50 11y ago

Fuck the banks.. when u down they will punish you.. and even creating a new bank means you can punish.. FUCK THEM ALL

worldadventurer 11y ago

Bank of America had some pretty bad practices where they would reorder the sequence of debit transactions, largest amounts first, to maximize the number of overdraft transactions: "the bank mixed up the order and delayed the timing of debits and transactions to maximize the possibility customers will overdraft accounts". They got sued and settled for $410 Million in 2011: http://www.bloomberg.com/news/articles/2011-02-05/bank-of-america-to-pay-410-million-to-settle-overdraft-case http://www.bloomberg.com/news/articles/2011-02-05/bank-of-am... [edit: spelling mistake]

zacwest 11y ago
Their argument for doing is compelling. They figure larger purchases like rent or car payments should go through above smaller ones. It feels like the person doing the reordering was a different person from the one setting charges.
- meric 11y ago
  That's a ridiculous argument by the bank. 1. A person has many payments to make, some very large ones, but also some very small ones - and yet the variance in utility of making many of the payments is a lot smaller than the variance in the size of the payments to be made. 2. The utility of a creditor in receiving the majority of their payments is a lot higher than the utility of a creditor in receiving none of their payments. A person requires BOTH shelter and food. This month, your payments are: 1. The food payment is $20. 2. The rental payment $1000. Let's say you have only $1000 for the month, and overdraft is turned off. If the rental payment goes through, you have zero dollars remaining for food, leaving you hungry for the month, and will starve to death without assistance. If the food payment goes through, you have $980 left. Send the $980 to the landlord and apologise and promise $20 will be sent the next month. Your landlord won't kick you out. Ergo, largest payments should not go through above smaller ones, if we want to order in a way for the customer's benefit. Therefore, taking into account of both parties, utility is maximised when a couple of percent of a large payment is skipped rather than when the entire amount of a small payment is skipped. From the point of the view of the bank where they are usually the ones receiving the largest payments in mortgages and car loans, they will require a lot more customer support staff if there are lots of instances where people pay only 98% of their payments, because that's not a good reason to foreclose on somebody and at the same time they don't want them to continue skipping 1-2% of their payments. What the bank is saying: Largest payments should go through above smaller ones, for the benefit of the bank!

outworlder 11y ago

As a Brazilian, the whole concept of "overdraft fees" feels truly alien. I am not aware of any banks that will charge you like that and wouldn't be surprised if it were forbidden by the central bank. Some of them will even charge you nothing even if the account sits in the negative for a set number of days (10 usually). The others will just charge as if it were a loan, by the month's end. Now, here is the interesting part. You can expect to pay, currently, over 10% per month on any outstanding loans. In the case of a negative balance, charges upwards of 30% are common. So it's not like they aren't robbing people either. They are just doing it in a less visible way.

colanderman 11y ago

If you're in the US, ditch your bank and find a credit union (or failing that, a cooperative bank). They are financially beholden to their customers (what a novel idea!~), so they don't pull this kind of shit. Ever since dealing with unwanted overdraft shit from Citizens Bank (may they rot in hell), I swore off the adversarial relationship of commercial banks and found a nice credit union. With them, I once overdrafted my account slightly (forgot about an ATM fee or some such), and they ignored it for months. I only found out about it because they casually mentioned it when they called me about something else. No fees whatsoever.

ajmurmann 11y ago

When I first moved to the US as a student from Germany I kept most my money in Euro cache and only covered what I needed in the coming weeks because the Euro kept going up pretty quickly. I will never forget how furious I was when I got an overdraft fee. It took my wife quite a while to even explain the concept to be because it seemed so completely nonsensical coming from Germany. In Germany the bank would be set on fire for this by leftists.

iamchmod 11y ago

I'm really not sure why this is news. It's been covered all the web previously that banks make a lot of their net profit from overdraft fees. Here's a couple recent articles: http://www.fool.com/investing/general/2015/06/17/bank-of-americas-overdraft-policy-is-clearly-impro.aspx http://www.fool.com/investing/general/2015/06/17/bank-of-ame... http://247wallst.com/banking-finance/2015/06/17/banks-making-the-most-from-overdraft-and-atm-fees/ http://247wallst.com/banking-finance/2015/06/17/banks-making...

polishninja 11y ago

I've worked at a credit union for many years. The fees from overdraft charges probably come in second or third behind loan interest income. There are a few community banks / credit unions that don't charge a fee if your overdraft is less than $5 or if you bring the account current within 24 hours. I think this is a step in the right direction. If you overdrafted at the credit union, we gave you a $500 limit and 30 days to pay it back. For $35 you could borrow $500 for a month. The problem is, people would pay the $500 back and the next day withdrawal it again. They would be caught in a cycle of this, very similar to payday loans, for months or years. There we so many fee reversals at the credit union I was at the instituted a policy that said any fee reversal had to be approved by the CEO or VP of Retail operations. We were refunding millions of dollars in fees a year. That cut down on the reversals for sure but didn’t help the consumers. I have an overdraft loan ($500) that just draws (transfers) funds to the checking if I go over. The only thing I pay for is the interest, which is a lot less than an overdraft fee. That's if you can qualify for a loan though, which can be tough if you don’t handle your finances properly.

rdtsc 11y ago

Another take on the ridiculousness of overdaft fees is presented by Louis CK in this "I am broke" skit. https://www.youtube.com/watch?v=-n4DRcGJQo8 https://www.youtube.com/watch?v=-n4DRcGJQo8 Some quotes: "Did you ever get so broke that the banks starts charging you money because you don't have enough money" "Sir you only have $20? How can you only have $20. -- Look, I am not being broke just to fuck with you, I really just don't have any ... money. I am not trying to be a dick" "So they charged me. They charged me $15. That's how much it costs to have $20. Here is the fucked up part, now I only have $5. What did I pay the $15 for if I don't get to have my $20!?".

raz32dust 11y ago

Wow, this is truly ridiculous. I recently moved to the US (yet to set up a bank account here) and did not know about this. Back in India, if you don't have funds, your transaction is declined. Plain and simple. And no fee for that, either. This is pure unleashed greed. Now I know why bankers are so hated out here. Banks have way too much power, way more than the benefit they provide. This whole system needs to change. Horrible! And I am sure we are going to find this kind of shit in India soon, because from what I see, we are blindly copying the American way over there. The good, the bad, everything.

rokhayakebe 11y ago

If you don’t want your account to come with overdraft services, clearly tell your bank or credit union to decline purchases that exceed the money in your account. Well, Wells Fargo charges $35.00 overdraft fee. Or if you choose to decline, they charge $35.00 for unaccepted charge. Either ways you'll be paying Wells. Oh well.

yuhong 11y ago

I wonder what would happen if for profit banks didn't have savings accounts that accumulate interest.

EGreg 11y ago

Many times in the past, I've learned the hard way that when you ask the bank to STOP paying any charge that would take the account negative, they say OK but then have enough loopholes that the request is essentially meaningless. They STILL apply the overdraft and there's no way to turn it off! I thought laws were recently passed to prevent this behavior, but I guess not.

joshuak 11y ago

A. Use small claims court. I have. It is very successful. The more who do it the harder this abuse will become. B. It is the banks responsibility to maintain an accurate accounting of funds deposited with them. A customer has no mechanism to instantaneously check their balance, and 'hold' funds for a transaction, or if unavailable avoid the transaction. The bank does. It is the debit card system. They, not you, are responsible for using the systems they have to avoid accounting errors. No one should be made to feel guilty because they are poor, or for failing to keep a ledger that only a bank has the ability to keep.

kevinSuttle 11y ago

I remember when these were added to my account as a poor college kid. Devastating. It used to be, swipe -> no money? No purchase.

deleted 11y ago

[deleted]

morgante 11y ago

This title should be changed, as it is not the title of the article and even more importantly seems to be pure clickbait. No source is cited for $37 billion in overdraft revenue and even if that number is accurate I'n highly skeptical that it's the most profitable line-item in a $1.26 trillion dollar industry.

codezero 11y ago

Overdraft fees are maddening. I can't even imagine how bad they would be if I were strapped for cash. I admittedly am not great at managing my accounts, but, it blew my mind that the following situation could (and did happen): I got paid monthly, let's say it was $5k USD. At the end of the month, I may or may not have enough money in my account, for, say, a day or two. So, I go to buy a coke at the university shop. No problem, costs me $1.25, but I used my debit card. Now I get a $35 fee because my account was at $.75 That makes sense right? Given that the bank has significant historical information that I will get paid in less than 48 hours, how am I a risk? OK, so I bought another soda, later in the day, another $35. Whoa! $70 for two sodas. Kill me now. What's worse... I couldn't set my account to reject these transactions. Either I had to always monitor my account, AND make sure that none of the services I subscribe to ever charge me in this specific time period. It wasn't until specific laws were passed that I could make my account follow these rules, and this was about 2009, or 2010. I paid at least $1000 to the bank in overdraft fees over the course of a few years. In fairness, these are the only fees I paid to the bank, and probably, if this were the cost of banking (less than Spotify!) I probably would have paid them happily. The problem with these charges is that they were volatile, a surprise, and scraped the bottom of the barrel when I was least capable of handling the charges. It's maddening, and I feel strongly for those who weren't as well off as me who got fucked over by banks under the scheme, and likely continue to get fucked over because the banks still don't make it easy to set your account up in such a way that you reject overdraft charges.

switch007 11y ago

Pre crisis overdrafts used to be cheap. There was just a monthly interest amount (fairly low - IIRC mine was about 12%). Post crisis, many banks in the UK "simplified" overdraft fees by charging rediculous daily/monthly usage charges and increased interest rates. It really is a massive swindle when being £100 overdrawn for one day can cost between £5 and £40 [1]. You used to just have a monthly interest rate like a credit card, often paying a few pence for going overdrawn for a day. Of course being British, we just rolled over and took this (I did close all my Natwest accounts after being charged £5 for being £1 overdrawn for one day, but most banks are the same now). The people with the power have large amounts of money in the bank and had no need to complain. With blllions in PPI being reclaimed (Lloyds alone supposedly have a bill of £13 bn [2]), this isn't a surprise. The banks always win. [1] http://www.moneysavingexpert.com/banking/bank-charges-compared http://www.moneysavingexpert.com/banking/bank-charges-compar... [2] http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds-ppi-mis-selling-bill-tops-13-billion http://www.moneysavingexpert.com/news/reclaim/2015/07/lloyds...

greggyb 11y ago

>According to an ICBA survey of 200 bankers nationwide, overdraft fees constitute their most profitable non-depository and non-lending product. Emphasis mine. This is an inflammatory title, not matching the article's or any statements I see made therein. This statement is buried in there, but if we want the title to at least be accurate, it should be along the lines of "The third most profitable source of income for banks? Overdraft fees - behind their two core services, depository and lending services."

bryanwbh 11y ago

This is not at all, correct. The most profitable source of income for banks is non-interest bearing checking accounts. On an overnight basis, Fed Fund Rate is 0.25% and Overnight USD LIBOR is at 0.133%. However these checking accounts pay nothing to customers. So, whenever customers deposits any amount of money, banks easily earn at a minimum 13bps out of it. That is free income for the bank. Other lucrative source of income for banks are interest bearing checking account and savings account as they pay peanuts to customers compared to what they can lend out to the interbank market. Disclaimer: I work for a bank in the treasury dept