

If you’re not rich, your bank probably wants you to overdraft - jakefuentes
http://rippedenvelope.com/post/59401107079/if-youre-not-rich-your-bank-probably-wants-you-to

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jmduke
While I think overdraft fees are gross and exorbitant (and I fell at their
mercy a few times before I finally wizened up and got overdraft protection), I
don't really think this is that big of an issue (at least, compared to other
issues in the banking system.) It's a pretty solvable problem from the
consumer end -- don't spend money on a card if you're not sure you have at
least X in your account.

~~~
otterley
This is needlessly burdening the customer, which in my opinion is the textbook
definition of bad customer service. The days of hand-written checks in the
consumer space are largely gone; and the bank knows at any given moment what
the customer's current account balance is and which transactions are pending.
Permitting a card-based withdrawal or debit request that the bank already
knows is likely to result in an NSF at settlement time is both misleading and
adversarial to the customer.

This entire issue would grind to a halt immediately if banks properly denied
debit requests when permitting them would yield an NSF.

~~~
jeffasinger
I agree that this would work for debit transactions, but, my understanding is
that the way ACH works, it would be rather difficult to accomplish this.

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mbateman
Overdraft fees are absurd, but so is complaining about them. Just go to your
bank and ask them to disable overdraft. If you don't have the money and
overdraft is disabled, the transaction will simply be declined. If you want to
spend money you don't have yet, you can do it the normal way, by borrowing.

(Also, flagging the article.)

~~~
tyree732
So, that seems like a reasonable answer, but historically that wasn't
sufficient for me. When I was an HSBC customer in college a few years back, I
had disabled overdrafting because I did not want to receive overdraft fees
and, in a pinch, I could use a credit card if my charge was declined.

One day I checked my account and discovered that I had accrued a number of
overdraft fees. Apparently sometimes merchants (namely gas stations) will put
a temporary charge of a dollar against your credit card, then later correct
the charge to the correct price. This caused my account to overdraft as HSBC
didn't deny the correction, then with my account overdrafted as of the date in
question, all subsequent valid charges I had done against the account assuming
a one dollar gas charge were made as overdraft charges. Contacting customer
service and reminding them that I had in fact disabled overdraft was not
enough to convince them of anything other than giving me a one-time partial
credit of fees, so I switched banks.

I don't know if that is still how things are done over at HSBC, but ultimately
the point is that disabling overdrafting is not some panacea for the problem,
as ultimately there are situations that can still get you in trouble.

~~~
jeffasinger
Also, sometimes ACH debits will cause unpreventable overdrafts for you.

What I do now (I realize this isn't really an option for a lot of people) is
basically mentally subtract $500 off of my checking account balance, and would
never spend any money if there's less than that in there.

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gbhn
The graph in the article suggests the bank's cost for a checking account per
year is $250. Wow. That seems like a huge opportunity to provide better
banking service. Driving that cost down to $100 or so would be a very big
deal.

~~~
shawnee_
_According to the CFPB, The banking industry charged a total of $32 billion in
overdraft fees to consumers in 2012, an increase of more than 60% from $19.9B
in 1990. Part of this increase is that banks have been turning the screws on
consumers, increasing the average overdraft fee from $27 in 2007 to $34 today.

Those fee increases would be more acceptable if they went to cover the costs
associated with those transactions. Unfortunately, this is not the case. Only
14% of the average fee goes toward the cost over covering the overdraft,
meaning that 86% of the average overdraft fee is pure profit for the bank._

Collusion sucks and keeps the amount that consumers shell out unnaturally
high. Anybody that _would_ compete on price gets bought, eventually, by one
the big banks (Chase, BoA, Wells Fargo, etc) because they're just buying
customers. Your small-town bank that offered cheap checking gets bought by big
bad Chase and now you _have_ to pay $35.00 for overdrafts, ad nauseum.

Something similar is happening right now with collusion between payments
processors (like WePay, Stripe, Balanced) and those same big banks regarding
Interchange, "processing fees", etc. The Durbin Amendment, which the author
mentioned briefly (but with an outdated reference) was a start in the right
direction but there's still a long way to go. More on the Durbin Amendment:
[http://ink.hackeress.com/2013/08/its-time-for-price-war-
in-p...](http://ink.hackeress.com/2013/08/its-time-for-price-war-in-
payments.html)

~~~
tadfisher
On the other hand, the big banks are creating a market opportunity for retail
banking services that do not profit from fees. I chose to work at Simple [1]
in part because I believe competition in this space will improve the industry
as a whole.

The best weapon against predatory banking is giving customers the tools to
understand their own finances. Because fees comprise an ever-growing portion
of profits, it is not in the big banks' interest to provide these tools, thus
they will always be a poorer experience than the services that do.

[1] [https://simple.com](https://simple.com)

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EliRivers
_Fact 1: If you don’t keep several thousands of dollars in your checking
account, overdrafting is near the only way your bank makes money on your
account._

I thought the bank could make money by lending out a multiple of all the money
deposited, such that if I deposit 1000 dollars, they can now lend out on the
order of 30000 (i.e. thirty times) that. If they lend that out at, say, 10%
interest, they can make 3000 a year because I have 1000 in my account.

The magic of fractional reserve banking. If I've misunderstood this, I'd very
much like to be corrected, please.

~~~
zinkem
I don't think it quite works this way... if you deposit $1000, the bank isn't
required to keep $1000 on hand, so with your 1/30 ratio, it means they would
hold onto about $34 and loan out the rest with interest.

I am definitely not an expert on banking.

~~~
EliRivers
You're right in the first step; we can only end up with the 30000 dollars if
the money is deposited and relent several times (
[http://en.wikipedia.org/wiki/Fractional_reserve_banking#Exam...](http://en.wikipedia.org/wiki/Fractional_reserve_banking#Example_of_deposit_multiplication)
). The example uses a single bank, but given that all the money goes through
various banks as people borrow it and put it somewhere, I could still expect
my 1000 dollar deposit to end up in aggregate as a 30000 dollar loan.

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kyllo
Yes, and to add to that, credit card companies _do not_ want you to pay your
balance off in full every month, because even though they get a 2-3% cut of
every credit transaction from the merchant, interest is still how they make
most of their money. I have heard that within the credit card industry, they
even colloquially refer to such responsible cardholders as "deadbeats!"

~~~
dev_jim
Interchange fees would have to be much higher if they were a larger percentage
of a credit card company's revenue (as they are for AMEX). This would end up
resulting in higher costs for consumers.

~~~
kyllo
That's a circular argument--there are obviously two ways that the share of
revenue from interchange fees could become higher than they are now--increase
the interchange fees, or decrease the interest rates, membership fees, and
other revenue sources (or both).

Higher interchange fees would necessarily "end up resulting in higher costs
for consumers" _only_ if the interest rates didn't also decrease. Are you
assuming the credit card company's total revenue is a fixed constant?

Or are you just suggesting that if a very large group of cardholders
collectively decided to pay off their credit card balances in full every month
so that credit card companies didn't make a cent in interest off them, that
credit card companies would simply increase their interchange fees to
compensate? Perhaps. But then a lot of merchants would stop accepting credit
cards. They could face antitrust litigation again. Perhaps they would just
add/increase yearly card membership fees, cut back on rewards, lay off
customer service staff, etc. Who knows? They make their money in several
different ways, and each of those they are already squeezing as much money as
they possibly can out of consumers and merchants.

The way I see it, as a responsible cardholder who pays my bill in full every
month, merchants and irresponsible users of credit are just subsidizing my
free 30-day loans, cash back rewards, and frequent flyer miles, and I'd prefer
that they keep doing so.

~~~
jljljl
>>> Higher interchange fees would necessarily "end up resulting in higher
costs for consumers" only if the interest rates didn't also decrease.

Businesses do not pass on interchange fees directly to the customer. It is not
a line item that appears on your receipt after you make a purchase. This is
largely because credit card companies forbid merchants from charging an
additional fee to customers for using credit cards.

This means the only way for merchants to recoup interchange fees is to raise
the prices of their goods across the board. This means prices go up for
everyone, even those without credit cards. So a non-credit card user would see
their prices go up as a whole, without the potential offset of reduced
interest costs.

~~~
kyllo
This is true in most cases, but merchants have a lot of tricks they use to try
to reduce the amount of credit card interchange fees they pay. A lot of
businesses actually do charge a "convenience fee" for using a credit card, or
offer a discount for paying in cash, or they set a minimum purchase amount at
which they will accept a credit card, etc. A lot of businesses also flat out
refuse to accept cards like AMEX and Discover because of their higher
interchange fees.

It would be interesting to see how this equilibrium might change if CC
companies tried to increase interchange fees across the board. I think they
would see a lot of resistance from merchants and possibly even government
scrutiny and lawsuits. Don't forget that the CC companies have to compete with
each other, and cannot collude to raise interchange fees.

Anyway, my point was not that higher interchange fees wouldn't get passed on
to consumers somehow, it was more that if most cardholders stopped carrying a
balance and paid much less interest to CC companies, and CC companies then
increased their interchange fees to try to compensate for the decline in
interest revenue, consumers as a whole might still be better off than they are
now. There's more than one variable in the equation here, and right now credit
card interest is probably a much bigger cost to consumers in the economy as a
whole, than interchange fees are.

