Sunday, December 7, 2008

Banks Made $17.5 Billion In Overdraft Fees Last Year - Is This Ethical?

A recent study by the FDIC revealed that banks and credit unions make billions each year off overdraft fees. It was found that young and low-income consumers, in particular, are disproportionately affected by these fees.

I'm not sure whether to say "congratulations to banks for creatively finding an alternative form of revenue" or "shame on you for pimping your customers."

I guess you can't really say that banks have been cheating their customers or stealing from them, because they generally do explain their overdraft policy to you when you open an account.

What do you think? Is this unethical? Or is it smart from a business owner's perspective? Be sure to leave your comments.

8 comments:

  1. Hi Dante,

    I am a manager at a regional bank here in Chicago. On the ethical side, I do see it as a legalized form of pimping, right up there with interest only mortgages, payday loans and Rent-a-Center. But I can't tell you how many people who call me trying to get fees reversed because they simply don't take the time to keep up with their own money. I volunteer by teaching people the basics of checking account management. Most people actually expect bankers to make up for their lack of discipline. I tell people that the bank does not pay me with popcorn and peanuts. This is a charge that can surely be avoided if they read, take responsibility and stop spending money "they don't have yet" (i.e. bouncing checks, excessive debit card usage (because POS transactions are paid whether you have money or not @ some banks).

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  2. All I can say is wow... I have no words!

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  3. To an extent, I agree with Shanara. I am a business owner. I clearly state payment terms in service agreement as well as on invoices. Some clients will read and comply while others need “reminders.” Well, those reminders cost time b/c someone has to call, mail or e-mail until payment is made as promised. Depending on the client (major corporation or sole proprietor), their payment history, etc. I may or may not access a late fee. No different from the bank, it’s not up to me to remind a client to pay me for a service they asked for! We want service when we want it. Well, service providers are due payment when they want it. Engaging in business even as a customer to a bank is a verbal agreement that should be adhered to.

    Now, there are those occasions when a very good paying customer (years in the system plus pay premium versus discounted rates) misses a payment. Even if it comes in a week or two later, I don’t make a fuss. Why, b/c it’s a good paying customer who eventually makes good on the agreement. However, there are those who start off “behind the eight ball” and just never catch up. Do I charge them? Absolutely? However, I balance my approach in ways that financials services do not.

    1.Access a realistic versus exorbiant fee
    2.Give them a one-time opportunity to make good on the agreement, which is to pay in full and in advance for the existing project and maybe one or two thereafter
    3.Even though mentally and accounting-wise, I “fire” them as a client, I don’t write them off completely. There’s something to be said about meeting people where they are.

    Now, does this mean I still provide work for them? Only if they get it right. It challenges the customer to recognize their faults and address them w/o jeopardizing my business. What banks do is take advantage of incompetence plus treat everyone the same. The housing debacle proved their level of greed when they refused to work with people until they had no other choice b/c it started raining foreclosures. But then they started to go after people who were doing right and raising interest rates to make up for their “losses.” Crazy-insane…

    No, it’s NOT right for banks to access those fees as a blanket procedure. Each situation should be looked at individually and then, a scaled fee accessed. For example, one of my banks allows a fee reversal once a year. Another creditor will reverse the charge as a “courtesy” in the event that you miss a payment inadvertently versus as a habit. Another bank I use to have would give good customers partial penalty. All of these options show a level of compromise and concern versus just greed.

    Now, if the banks really want to go to town and show commitment to community, they’d follow the AMEX model. A celebrity I know missed payments and they put that person on probation for about a year! Now, had nothing to do with the ability to pay and clearly AMEX was not being a respecter of persons. They have rules and you either get in line or get checked. Needless to say, this celebrity got their card-carrying privileges back two months ago. However, was given a lower spending limit—something a college student would get on a first credit card-ouch! But guess what? The celeb got the message and AMEX retained a customer who now has to prove they will be "faithful over much."

    Hopefully this depression will cause banks to change their approach even if legislation has to be passed.

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  4. I think certain bank are worse than others. Having worked in the banking industry for over ten years. The bank that I worked for would charge customer if the deposit was made at 2:01pm, cut off time being 2:00. Their are lots of hidden tricks that they don't explain to the customers, and I have seen them all.

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  5. The fees that banks (and Credit Card companies) charge have become onerous in recent years. It is as if they rely on these fees as a revenue stream. At one time, the fees were a friendly reminder that you had committed an oversight. Now, the pain is compounded with higher interest rates, reduced credit lines, and reports to the credit bureau.

    I agree that consumers are fully accountable for "handling their business" and avoid bouncing checks and late payments. But I think that banks and other financial institutions are now taking advantage of their clients. There is no consideration for a long history of good payments, or the amount of the offense. There was a recent news item about a foreclosure resulting from a delinquent tax payment of $8.00, or some similarly small amount. These types of actions are insensitive and punitive.

    AND, they are unethical.

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  6. It's business not personal. Telecommunications companies do the same thing. I'd bank on the fact that most people live beyond their means. Wants come before needs

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  7. i'm assuming that i'm as appalled as you are (you didn't say what you thought). I would think that credit unions would have a more lax policy than commercial banks, but i guess not.

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  8. I am just a general consumer who on occasion has paid my share of overdrafts. As a single father on a middle class income these fees generally have come, not from poor record keeping, but just not having the cash on a given paycheck. Sometimes doctors visits or a tank of gas means you take the hit. So when I get these it's expected, I don't get upset, I don't call up the bank asking to reverse the charges and I just expect the bank to post the most expensive charge first. It's a trade off.

    Well that all changed this year with BoA started it's total screw over the customer policy of posting PENDING charges before the posting charge. So let's say I have 50 bucks in my account. I have a $43 charge and a $5 pending charge on my account which has been sitting that way for days. I know they should post today, but I have to buy a few items at the grocery store and I buy $8 worth of groceries. No longer do I pay 1 overdraft for this, I pay 3!

    2 for the items that posted because the $8 charge is applied first then there's no longer "enough" to cover the 43 and 5 fees, even though they clear with money to spare.

    Needless to say the only power I have is to switch banks, which I will do but this is a disturbing trend which shows this is only going to get worse until we see some sort of intervention. This is a blantant attempt at revenue generation and worse it goes against generally accepted accounting principals (yes BoA, not all of us are idiots).

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