Friday, November 2, 2007

Fees Not Simple

This is re-published from somewhere else. Normally, I wouldn't republish Creative Commons materials, but I made an exception in this case. It does reflect my opinion, though. I guess I was feeling lazy:

The overdraft fees are indeed a scam. Banks report on industry websites that they make 10 billion dollars a year from this practice. Independent surveys of bank customers show that 71% of those affected by these fees are low to low middle income persons.

Banks offer 'free checking' rather than fee based checking as offered in the past. Rather than charge a customer $12.00 a month for the account and offer a number of free transactions to a limit, then charging $0.25 per transaction, they now draw the customer by the 'free' offer.

The average new customer attracted by these offers are those who live paycheck to paycheck. They are enticed by the 'free' offer or generally a small cash credit to their account or a virtually worthless 'free gift'.

Account disclosures. Reality - Most account disclosures #1 - DO NOT explain the 'overdraft courtesy' lending practice nor the fees associated and #2 (Most important) Are written with so much legalese that the average person cannot understand much of what is included. They are generally also written in about a 3 pt. font which almost requires a microscope to read. If the banks want to be so forthcoming and honest, and truly want their customers to understand the account policies they should write the disclosures in plain wording and readable type.

From a letter by the Public Interest Research Group to Allen Greenspan regarding obtaining bank account disclosures:

'I have been conducting consumer surveys
myself for years, and was astonished that on two different occasions my simple request for a
detailed fee brochure was rejected at a local Bank of America branch. This experience has been
repeated by many of our volunteers and interns, at other banks as well. Bank of America is not
by any means the only bank that makes it hard to obtain fee information, merely the biggest.'

Banks used to offer overdraft protection only to credit qualified account holders. Even these account holders had to apply for the service. If you did not have overdraft protection and a transaction exceeded your balance the banks would either pay it as a courtesy, charging a fee (much smaller than today's fee) or return it as NSF charging a smaller fee. The customer would then also pay the merchant a fee. In almost all cases these combined fees were LESS than a single 'courtesy overdraft' loan fee today.

Industry insiders indicate that only a few years ago, prior to Check 21, processing paper checks cost the bank an average of $3.00. The same cost for good or bad checks. With Check 21 many checks are electronically presented reducing the cost to the bank for processing.

The 'courtesy overdraft' loans are excluded under the Truth in Lending Act from prior disclosure to customers. The interest on these 'loans' if compounded annually would be in the arena of 1000%. This is more expensive than a 'payday loan'.

The banks will tell you their policy of posting debits largest to smallest is for the benefit of the consumer, to ensure the customer's rent, utilities, etc are paid prior to smaller transactions thus ensuring the 'essentials' are paid for. In reality FEW if any people pay their rent with a debit card. Most write a check for this expense, as well as for utilities.

This is simply a 'spin' of the facts as they know an account flagged with multiple transactions in a day for an account holder with a small average balance is a money making cow in the area of fee income.