Why Bank Fees Need to Be Regulated 28 comments
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Whenever I write a blog entry advocating more and/or better regulation, the laissez-faire types, like Vincent Fernando, have a tendency to come out of the woodwork:
I believe we need to keep holding people responsible for their decisions and personal management…
While overdraft fees are quite high, at the same time they are usually easy to see once they hit you. I’ve been hit by them in the past, I got burned, and I became double vigilant not to get burned again. If someone is hard up for cash, there are better ways to get short term loans, actually a credit card, though expensive, is probably cheaper than overdraft using the numbers Mr. Salmon mentioned. I doubt the majority of people who pay frequent overdraft fees don’t have an alternative method to manage their cash, or aren’t able to see these fees by checking their statements. If they managed a budget they would notice some money missing. As seen with credit cards, some people just need to manage themselves better…
Note that the normative modal verbs here: I wrote that the banks “should be stopped”. In response, Fernando says that “we need to keep holding people responsible” and that “some people just need to manage themselves better”. But here’s the difference: stopping banks is, conceptually, possible. But the $38 billion in annual overdraft fees are clear proof that Fernando’s “people” just aren’t going to magically start managing their finances in an optimal manner.
Empirically speaking, it’s clear that the 20% of checking account holders who pay, on average, $1,374 in annual overdraft fees apiece are precisely the people least able to afford them. They’re probably also the 20% of people who, for whatever reason, find it very difficult to manage their personal finances. Not everybody is as numerate and sophisticated as Vincent Fernando — a lot of people can’t even manage simple addition and subtraction. Is it fair for the highly-sophisticated and numerate executives at international banking giants like Bank of America to take advantage of that financial illiteracy in order to line their own pockets with multi-million-dollar paychecks? Or should people be able to trust their banks implicitly?
The fact is that we don’t live in a world or a country where everybody with a checking account has the ability to critically check their statement and see what’s going on. In many cases, including the one detailed today by Karen Blumenthal, that’s because the bank clients concerned are elderly or otherwise vulnerable. Truth be told, I don’t spend all that much time checking my bank statement myself, and I certainly don’t “balance my checkbook” — the rather anachronistic term of art for keeping an independent record of your income and expenditure and therefore how much money you’re supposed to have in the bank.
It seems to me that we’ve tried Fernando’s solution — trying to exhort people to work this stuff out on their own, and to keep one step ahead of the predatory banks — and it has clearly failed. So now we go to Plan B, which is regulate the banks directly. Since they’re clearly incapable of keeping their fees under any kind of control.
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This article has 28 comments:
Presumably in this world there are no predatory individuals who collude to create excess profits by insider trading, or who buy off regulators, and presumably those who pay the huge overdraft fees do so because they are happy to do so, and there are no vulnerable people who have sub-average numeracy.
Please stop confusing the advocates of this ideal Platonic universe with data from the real world, in which a sudden illness or loss of job can cause ruin, and people make all sorts of unwise moves due to desperation.
It is apparent that these people are irresponsible, whilst our revered leaders and bankers are models of probity, and not scam artists on an heroic scale.
After all, they have gone to considerable expense in paying off all the right people to ensure that what would otherwise be theft and misappropriation is legalised, or at any rate most of it, and the rest is swept under the carpet.
banking corporations hate them because they provide superior service at less cost to the customer.
> jack
Here is a case in point: salmon's operating premise is to just parrot whatever insane rants are being put out by the loudest ranters.
Forget about the free market argument against the bank crackpots, lets just analyze this fee legislation at on a practical basis. What salmon is saying - and he does not even know he is saying it - is laid out below:
Lets make a law that limits what banks can charge for overdraft protection.
Then banks will stop offering overdraft protection, and people who would have been protected by overdraft protection end up writing bounced checks and getting hit up with bounced check fees -- from the people they are writing the bounced checks to -- that are higher than the original bank overdraft protection fees would have been. These people will additionally be hit up with having to pay the bounced back checks with money orders because their checks are no longer considered good the people got "insufficient funds" notices the first time around.
At that point the felix salmons step in and say "lets make a law stating that banks cant withhold payment for insufficient funds for people who write checks that are not covered by whats in their account."
Thanks felix for serving your the usual daily bowl of stupid.
I think we should provide lucrative emigration inducements for all the Davewmarts so they can go to countries like cuba, venezuala, and north korea that dont have evil bankers.
We cant sustain our economy with parasites and people who cant understand the basics of trade and exchange.
'What are people like Davewmart still doing living in our country?'
What country do you imagine I live in?
It has apparently escaped your attention that the web, just like the international banking system, operates in more than one country.
These grifters are adept at avoiding the same taxes as the rest of us pay, operating under a thin cover of Chicago school 'intellectualism'.
It is weird that such luminaries as Adam Smith was well aware of the games that these characters get up to, but that apparently, together with the international character of the web, escapes the attention of their apologists.
Many commenters seem to have the mistaken idea that NSF checks are loans from the bank. As a landlord with plenty of experience, not only are they not loans, but Bangster (BAC) tries to hit me with a fee if a check I deposit becomes NSF. No way does the payee (me) have access to any funds.
I set up a line of credit on my checking acct years ago to avoid this NSF issue. Bangster doesn't even offer these anymore because they only charge daily interest. Instead they want a credit card tied to the account so cash advance fees and higher revolving rates can be applied.
What's at issue here is an old fashioned concept called usury. It received some play in the last election cycle because there were a lot of measures on ballots for payday loan and car title loan reform. Unfortunately, the primary prey for usury are poor people, which is why it was regulated years ago. As the laissez-faire / progressive pendulum swings, so goes usury regulation. Ever wonder how the hell major credit card companies ended up with big operations in the Dakotas? Not so many poor people, hence no usury laws.
I'd be the first to acknowledge that there are people out there that should be strictly on a cash basis for various reasons. Expecting them to have internet access or math skills is a quaint concept. Preying on them to fatten the bottom line with big fees used to be illegal.
Credit unions originally started as co-ops based on affinity groups, like employees. Somewhere along the line these groups got loosened up. I'm sure the banks are pissed. It's one of the few things they have to be pissed about these days.
for those financial anarchists out there-
James Quinn over at the Burning Platform is organizing a boycott of the big banks,
In the '90's, BAC (where I was working at the time) elected to change it's posting policy so that customer items would be posted in order from largest to smallest amounts instead of vice versa. This allowed a lot more NSF fees to be collected each night. I doubt that many of the irate customers bought the official excuse that this was to enable their "more important" items (mortgage and car payments) to be paid even if funds were insufficient for the smaller items. I know I didn't.
Don't shoot the messenger.
On Jul 03 07:02 AM apppro wrote:
> After yesterday's deplorable sell-off on no volume and after yesterday's
> deplorable manipulation ofmarket close prices, the ONLY thing that
> needs and MUST be regulated are the short sellers who are destroying
> this market and our collective futures.
By your logic Shakespeare or Goethe were probably losers as well since their incomes are dwarfed by today's bankers.
On Jul 03 09:45 AM punditobserver wrote:
> What are people like Davewmart still doing living in our country?
>
>
> I think we should provide lucrative emigration inducements for all
> the Davewmarts so they can go to countries like cuba, venezuala,
> and north korea that dont have evil bankers.
>
> We cant sustain our economy with parasites and people who cant understand
> the basics of trade and exchange.
"If you don't want to pay overdraft fees, then don't overdraft. Problem solved. "
You are missing the point. These crackpots think the banks should just cover their overdrafts so they dont have to manage their financial affairs responsibly.
In telling you if these losers were not just a lunatic fringe we would all still be living in caves. Societies cannot be built or cannot continue functioning once a threshold level of people like these is reached.
In the past when there was no overdraft protections and these jokers would actually be writing NSF bounced checks they must have been ranting against the landlords that were oppressing them with rent deadlines. Why do these landlords need the money so early in the month? Why are they charging me late fees and threatening me with eviction?
Does anyone remember when Banks slammed the door in your face at 3PM and never, never were open on weekends or any holiday??,-- until just a few moved it up to 4pm.
Just like credit cards they will exploit human shortcomings/weaknesses for profit. Don't expect them to pay your bills, they are too busy looking for a means to pile on.
As the customers we choose who we do business with. No drive in service??--no fee free ATM??--Bye-Bye.
By the way your personal observations about Mr. Salmon are inappropriate and more in line with postings that are probably better made on the Jerry Springer site.
On Jul 03 09:35 AM punditobserver wrote:
> Look lets just cut to the chase here: journalists are low achievers
> - thats why they become journalists. Among journalists the low achievers
> are bloggers. So bloggers are basically loser's losers.
>
> Here is a case in point: salmon's operating premise is to just parrot
> whatever insane rants are being put out by the loudest ranters.<br/>
>
> Forget about the free market argument against the bank crackpots,
> lets just analyze this fee legislation at on a practical basis.
> What salmon is saying - and he does not even know he is saying it
> - is laid out below:
>
> Lets make a law that limits what banks can charge for overdraft protection.
>
>
> Then banks will stop offering overdraft protection, and people who
> would have been protected by overdraft protection end up writing
> bounced checks and getting hit up with bounced check fees -- from
> the people they are writing the bounced checks to -- that are higher
> than the original bank overdraft protection fees would have been.
> These people will additionally be hit up with having to pay the bounced
> back checks with money orders because their checks are no longer
> considered good the people got "insufficient funds" notices the first
> time around.
>
> At that point the felix salmons step in and say "lets make a law
> stating that banks cant withhold payment for insufficient funds for
> people who write checks that are not covered by whats in their account."
>
>
> Thanks felix for serving your the usual daily bowl of stupid.
Today's banks are infested by money grabbers.
Giants such as MIT-educated engineer Alfred P. Sloan and Ken Olsen were technical and entrepreneurial movers and shakers. Pandit was an engineer-turned hedge fund manager, and Thain was an MIT graduate turned investment banker king, both headed to Wall Street to make a fast buck.
According to Kamm's definition of an engineer, I don't know what else to call these guys in this day and age, except to say that America is not quite once it was.
Oh, BTW, Kamm's book though published in the 1990's is still selling well but quite expensive; last I saw it costing about 60 bucks at Amazon for a paperback
These people cant conduct rational arguments.
And dont think Salmon enjoys trying to get eyeballs by putting out garbage niche articles for chumps.
Im sure he would rather be writing real articles for WSJ and making a paycheck instead of feeding this swill to a bunch of fringees..
On Jul 03 04:18 PM TinyTim wrote:
> The specific fees being discussed here are NSF fees. Their purpose
> could be recover extra NSF costs, punish / train customers, or add
> extra profits. It's pretty obvious the intent is to add profit.
>
>
> Many commenters seem to have the mistaken idea that NSF checks are
> loans from the bank. As a landlord with plenty of experience, not
> only are they not loans, but Bangster (seekingalpha.com/symbo...)
> tries to hit me with a fee if a check I deposit becomes NSF. No way
> does the payee (me) have access to any funds.
>
> I set up a line of credit on my checking acct years ago to avoid
> this NSF issue. Bangster doesn't even offer these anymore because
> they only charge daily interest. Instead they want a credit card
> tied to the account so cash advance fees and higher revolving rates
> can be applied.
>
> What's at issue here is an old fashioned concept called usury. It
> received some play in the last election cycle because there were
> a lot of measures on ballots for payday loan and car title loan reform.
> Unfortunately, the primary prey for usury are poor people, which
> is why it was regulated years ago. As the laissez-faire / progressive
> pendulum swings, so goes usury regulation. Ever wonder how the hell
> major credit card companies ended up with big operations in the Dakotas?
> Not so many poor people, hence no usury laws.
>
> I'd be the first to acknowledge that there are people out there that
> should be strictly on a cash basis for various reasons. Expecting
> them to have internet access or math skills is a quaint concept.
> Preying on them to fatten the bottom line with big fees used to be
> illegal.
>
> Credit unions originally started as co-ops based on affinity groups,
> like employees. Somewhere along the line these groups got loosened
> up. I'm sure the banks are pissed. It's one of the few things they
> have to be pissed about these days.
I was told long ago that poor people think they don't need a financial planner because they have no money. But those people are precisely the people that need a financial planner for the same reason.
On Jul 03 05:12 PM wtp wrote:
> It's probably true that life would be fairer if everyone had easy
> access to Quicken, or a personal accountant, or even the time, peace
> from how-to-feed-the-kids issues, and perfect math and concentration
> skills to daily reconcile their banking records without error. It
> is not true that banks should perpetuate life's unfairness by taking
> ravenous advantage of these lacks.
> In the '90's, BAC (where I was working at the time) elected to change
> it's posting policy so that customer items would be posted in order
> from largest to smallest amounts instead of vice versa. This allowed
> a lot more NSF fees to be collected each night. I doubt that many
> of the irate customers bought the official excuse that this was to
> enable their "more important" items (mortgage and car payments) to
> be paid even if funds were insufficient for the smaller items. I
> know I didn't.