41
votes
New US bank-overdraft fee limits to go into effect
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- Title
- U.S. unveils plan to limit overdraft fees amid banking industry opposition
- Published
- Jan 17 2024
- Word count
- 1291 words
Someone should make a list of all of the ways that being poor is more expensive. It seems that nearly every aspect of modern life becomes more expensive the poorer you are.
Really happy to see this change. I'm wondering how effective lobbiests will be at reversing course on this decision.
Paycheck to paycheck ramifications. Can’t buy in bulk.
Circle of debt. The poor are more likely to rely on payday loans and bad credit auto loans and wow just so many predatory loans.
Short term survival at the cost of long term survival. Avoiding medical expenses, not having retirement savings, renting instead of owning so not building equity.
Food deserts and limited access to quality services. The crappy grocery store on the ghetto side of town. Less diverse options on the products and services available to them, lower quality. The electrician that costs less because they work off a permit and install thinner wiring that isn’t up to code.
Sin and ignorance taxes. Lotteries and things that prey on the desperate. Drugs, gambling.
Flat tax / unavoidable sales tax. Paying tax on groceries and other necessities. When everything you buy in your locale has a 5% then it’s just a flat tax. Some places only tax certain goods and services. Really maybe this should be a tourism tax for certain goods but it broadly affects everyone. Tolls and vehicle costs I’d lump into this category, you have to drive in the US—and are the places you can avoid it really places where someone living off minimum wage can afford to live?
Ghetto ass housing far from where you need to be.
Bad credit means higher interest on everything credit related. Also anything that touches your credit report will treat you as a risk and increase cost accordingly, like auto insurance.
Availability cost. There’s a cost to having a garbage time off policy and needing to work over 40 hours a week. You’ll blow off appointments, or you lose $ because you don’t have the PTO to use for those appointments. You run into having to run extra errands because you can’t easily batch do everything you need to all at once. Child care costs can start to kick in, so it’s leave your kid home alone or pay more than you make hourly to have somebody watch the kid.
Quality of life cost. All that stress and misery doesn’t provide for the sort of clairvoyance that lets a person smile and enjoy themselves at the end of the day.
Hoop jumping. Can’t forget that any social service for the poor and needy comes with having to do a bunch of bureaucratic bullshit. Unemployment forms, calling into automated call centers to resolve billing issues, dealing with cops, courts, insurance, banks.
Wanted to add cause I just ran into this myself: Buying time. So instead of cooking a meal for yourself and family you have order DoorDash because you don’t have the to both grocery shop ahead of time and cook when come time for that. So you dish out $40 to get some chicken nuggets.
I get what you’re saying but at the same time door dash et al is the kind of thing where I would stop calling someone poor. Poor people buy time with food via fast food, microwave meals, and processed foodstuff.
Doordash is buying time. That's also something that poorer people tend to have less of. That's the important bit from the previous comment.
Yeah I got that.
Vimes' boots theory. You can only afford the cheap boots but have to buy them every year, the nice boots cost 3x as much but last forever.
The simpsonsReddit did ithttps://www.reddit.com/r/AskReddit/comments/lqk9gy/in_what_way_is_it_expensive_to_be_poor/
Thanks to @Moogles for the good initial list. There's more, but it's a great start.
For a gamified look of what this looks like, I recommend the browser game SPENT.
It's often criticized for being unrealistically hard...but the point is to show the various decisions the poor face quite frequently. And it does that...and sadly in the USA it is not nearly as unrealistic as the game makes it seem.
Edit. Holy moley, I forgot this came out in 2011, it's 13 years old now. It needs a revamp with new numbers. It's almost certainly gotten worse than better. I know spending $20 is more reasonable for a kid's gift these days than $10.
Americans will no longer have the freedom to be charged multiples of the hourly minimum wage for not having enough money. Thanks Joe Brandon.
What form of twisted socialist communism is this senile old kook trying to create by limiting how much too-big-to-fail financial institutions can charge you for not having enough money!!!
Forgive me if I'm missing something, but this seems to be a bit premature of a celebration, given that according to the article this is only a proposal that, even if it makes it through, isn't likely to go into effect for over a year yet (emphasis mine):
[...]
In particular, I'm curious where you got this title from, as it doesn't match the article and is misleading as a result.
This is a determination by an regulatory agency, not legislation. It’s not in serious doubt as to whether it will go into effect, once they propose rules it’s extremely likely to happen, this is the process by which they figure out what the specific details ought to be.
In the title “to go into effect” is future tense, meaning it hasn’t happened yet but is planned to.
Good to see. I’ve not had to deal with the issue personally in a long time (and have turned off overdrafting on my accounts entirely), but back when I was a teen and young adult my tiny hometown bank was notorious for rearranging transactions to collect overdraft fees and cost both me and my family much more than it should have.
Fortunately that practice is now dead.
https://www.reuters.com/article/idUSTRE74M63K/
…
I’m pretty curious to see where this goes. Probably this is going to result in banks simply declining the transactions more often, which is the chief argument against this regulation. It’s possible that will be a net positive for low income people though since they can usually reschedule a payment, and they will have more money available to make that payment without the excessive overdraft fees.
As far as I’m concerned there is no logic that makes overdraft fees defensible. If you are overdrafting it is not because you know that you don’t have enough to make the payment, so even though you legally have already agreed to it, it happens without your knowledge and so you cannot make an informed decision. If you are overdrafting it generally means you don’t have any money, and if you are the type of person who doesn’t have any money it doesn’t really make much sense to charge them fees on top of the negative balance which will accrue additional penalties. Its just a mudslide of shit on the people who need it the least. If a bank goes out of business because of this, then it’s only a sign of the world becoming a better place.
At one time it was expected that you would keep track of how much money you have in your checkbook and act accordingly, so it was assumed you did know what you were doing. There wasn't an assumption that having low funds implies that you probably don't know what you're doing. There are even criminal penalties for writing bad checks.
Nowadays the assumption is that you shouldn't need to keep track of such things. This is generally true for people with a high enough bank balance, and should be true for everyone because the computer should do it.
And the biggest single factor is that credit cards are exponentially more prolific compared to way back when.
The only tangible difference between your debit card and your credit card is the debit card doesn't charge fees to withdrawl cash, and your credit card earns better points for spending, Oh and the debit card has way less fraud protection.
I’m an American living in Scotland and my bank here is such a breath of fresh air. They treat their customers like adults.
If you overdraft, you get a notification saying that they’ll charge the stated percent interest on it unless you get the needed funds in by the end of the day. No immediate fees, just a perfectly reasonable “fix this by the close of business please”.
My point is that there are other reasonable options between an immediate $35 fee and a rejected transaction.
Although it will require user education, I see declined transactions as fixing a UI problem, so maybe it's for the best?
An overdraft is essentially taking out a loan at punitive rates using the same UI as withdrawing money, requiring users with low balances to carefully keep track of their spending to know what the system will do. But we have computers now and they could tell you that you're taking out a loan. There are other ways to offer loans that don't have that problem. If the debit card doesn't work, use a credit card. It could even be the same card, pressing credit instead of debit.
Having an alternate payment method requires some setup in advance, though. A better UI (in terms of ease of use) might be to offer credit terms then and there, but maybe some consumers would prefer that it's not that easy to borrow money.
(Writing checks has the same UI problem, but there are a lot fewer reasons for people to write checks.)
Well, you're sort of confusing two separate things, which is understandable since they use the same words and up until 2009 they were actually treated the same. What you're talking about is debit card overdraft, which for the past 14 years has been explicitly opt-in. What this new proposed rule is about is ACH overdraft, which occurs without the customer's direct knowledge or participation -- scheduled rent and utility bill payments, for example.
Having set up bank accounts in the past 14 years, I can tell you that, while it's opt-in, that option is buried in a set of boxes you're supposed to check to approve the creation of the account. If you don't know very specifically what you're doing, you'd think that it's one of the other check boxes you're supposed to check. My guess is that a majority of low-information account holders checked that box without understanding what was being chosen.
Thanks for the correction.
Scheduled payments seem like a harder UI problem. What should the bank computer do if it sees that you're going to have trouble paying the rent?
Maybe it should be a warning: "scheduled payment delayed due to insufficient funds."
I actually think the solution is very simple. ACH overdraft should be made explicitly opt-in, and if enabled then acceptance and pricing should be done on the same model as a regular short term loan with all the underwriting and regulatory limitations based on the dollar amount of the loan instead of a flat fee.
Let’s say no more than 36% APR, like loans to service members are capped at under the Military Lending Act, because why should only service members be protected from usurious rates?
That’s what is actually happening after all. The bank is issuing a loan based on their estimate of the borrower’s likelihood to repay, but the interest rate is totally disconnected from that likelihood. They reap enormous undeserved gains from what amount to APRs over 1000% in cases where the likelihood of loss approaches zero.
I don’t think any UI changes would be necessary under this model, as customers would effectively have complete control between a) being able to explicitly opt-in to overdrafts and b) having the pre-existing ability to issue a stop payment for charges where they don’t want an overdraft.
if the idea is that the bank would automatically process the payment once funds arrive, then I actually a bit hesitant as it almost amounts to a bank imposed wage garnishment. My feeling is, if I don’t have the money to make some payments, I probably have a hierarchy of importance for those payments. Quite possibly, my priority for my funds when my paycheck arrives will be food for example, rather than Netflix.
However, if my failed payments went into a database in my online banking where I could order and manually approve them, that would probably be a real benefit to consumers.
This would probably require legislation though, as I don’t believe banks would be legally allowed to do this in many jurisdictions due to regulations regarding representations of payments.
Maybe: "Scheduled payment delayed until user approval."
That is, gracefully downgrade to manual mode.
The rule seems to permit overdraft fee collection, but requires them to be reasonable for covering the costs and cites $3-$14 as the potential limit. I assume that permits some amount of margin, just not a usurious one. Even at $3, if their backend is at all mature that should just be an automatic logic check. It ought to cost pennies.
It's also surprising there is no functionality in POS systems to transmit anything more granular than "accepted" and "rejected." If they simply had "Rejected due to insufficient balance, overdraft fee will be collected if charged again," taking the second pass as a tacit acceptance of the fee, that would solve the UI problem in a way that is far more respectful of the customer than "HAHA! WE CAUGHT YOU BITCH! PAY UP!" Banks could have innovated such a UI change to how their systems worked. But they were incentivized not to, because it was more profitable to be a greedy asshole that views customers as a money bag to be wrung dry than to have a pleasant and dignified customer experience.
No lie, back circa 2009, Wells Fargo charged me $300 in a single day before they started declining transactions. Somebody hadn't cashed a check for several months, so I forgot about it, and so I was just doing some shopping on a Friday, thinking I had funds to spare. Something on the order of 8 transactions, most well under $20.
And that was with their credit card overdraft protection.
I believe the lack of granularity on transaction declines is supposed to be intentional, as a basic privacy thing. That being said, I don’t think it’s saving people any embarrassment. If I am running up something and it declines I’m just going to assume they don’t have the money (or debt) in their account, because that’s basically what it always is unless you’re making a fairly large transaction.
It’ll allow some margin but dramatically less than it does currently. Right now, banks are pretty incentivized to let through almost everything because of the huge returns. People will definitely start bouncing rent cheques that they would have otherwise paid on time, which in some cases may mean they end up paying more overall if the vendor charges their own NSF fees.
What is even more reprehensible is bank based NSF fees where customers get charged the same $40-50 and the payment isn’t even processed, and then the vendor also charges an NSF fee. Fortunately most ultra large banks have phased them out but they are still somewhat common at lower tier banks. I think without additional reform for vendor level NSF charges, this may be a wash for consumers but only time will tell.
I've gotten so old and have used USAA for so long that I've kind of forgotten this was a thing until I opened an account with a local bank (for a auto loan-faster to deposit the cash to pay it) and got hit with it and they refused to move on it other than a tiny 3 dollar pity refund. USAA has fully refunded the fees before and has methods to protect you by credit card for handling via overdraft protection.
The banks have been able to do "good" for a long time and instead chose to fuck the poor. Fuck them. I know I have some privilege now with money but banks are fucking predators.
Mirror, for those hit by the paywall:
https://archive.is/TBUDk