As the banking industry struggles to recover from the ruinous excess of the subprime mortgage financed housing bust, they’ve began openly preying on their easiest targets – small-time customers like you and me – to meet their profit targets.
Banks try to rip you off in an almost innumerable number of ways. Getting a credit card, for instance, is an invitation to get robbed blind; between the late fees, yo-yoing interest rates, inactivity fees, annual fees, foreign use fees and myriad other obscure fees, credit cards give banks the right to engage in legalized burglary.
Exposing the ethical bankruptcy of the American banking industry would require writing a series of books, so for this column, I’ll stick to focusing on one particularly nasty gotcha.
Not content to merely take advantage of suckers who don’t understand the complexities of the ever-changing rules regarding credit cards, banks figured out how to make the responsible choice of plastic, the debit card, into a minefield of its own through two nasty words: overdraft protection.
Debit cards are, of course, linked to a person’s checking account. Previously, if a person tried to use a debit card when their account doesn’t have funds to cover a purchase, the debit card was declined protecting the user from financial trouble.
Now, however, banks are letting debit card users spend more funds than are in the checking account, both defeating the original purpose of debit cards while also allowing banks to make outlandish profits, charging up to $40 per overdraft.
That’s right, you can and will get charged up to 40 bucks if you overdraft while buying a $4 latte. These fees add up quickly; overdraft fees are expected to bring banks $27 billion this year, according to the New York Times. Yes, you read that right, $27 billion every year.
59-year old Colorado student Peter Means learned the hard way about overdraft fees. The New York Times reported that Means “was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks – and a $34 fee. He got the $6.50 student discount at the movie theater – but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws – and yet another $34 fee.” In total, Peter owed $238 in fees for one day’s worth of purchases.
Banks can compound the pain by reordering purchases so that many purchases overdraft instead of just one. Say you buy coffee in the morning, fast food for lunch, some clothes in the afternoon and then pay rent in the evening. Paying rent was the big purchase that sent your account into the negative, so you’d expect one overdraft charge, right?
Wrong. The bank can and often will reorder the purchases so that your rent payment is the first debit against your account. Then your other purchases from earlier in the day also trigger additional overdraft fees since the newly re-ordered rent payment sent your account into a negative balance.
Since the whole subprime mortgage fraud blew up bank’s balance sheets, bankers have been working overtime to rip off Americans in new ways. Since the government is in bed with the banks, you and only you can protect yourself from bank fraud. Be careful, be smart and don’t sign anything you don’t understand.
Editorials Editor Ian Bezek is a senior economics major. His column appears Mondays in the Collegian. Letters and feedback can be sent to firstname.lastname@example.org.