Something I've been wanting to rant about for some time but never found a news related item to use for reference is overdraft fees. Those are the penalties financial services charge when you bounce a check. For those of you in Arcata, bouncing a check is writing a check with insufficient funds in your account to cover the check. Thanks to Eric, who made a comment about overdraft fees on Jennifer Savage's blog, I was reminded of the issue.
Eric refers to overdraft fees as a "racket". Libertarian though I may be, I think I'd use stonger words than that. I think charging $20 to $40 for a bounced check the bank didn't even cover is a ripoff.
And it's not just the person who writes the bad check that gets charged. The person who tried to cash the check gets charged as well. I've had a number of checks people write out to me bounce over the years. Each time I've deposited a check from someone with insufficient funds the credit union would charge me $20.
One customer told me his bank, it might have been Bank of America, charged him $40(!!!) or more for a bounced check. So, not only was he short on cash in the first place, his bank charges him big time for the bounced check. He's also pretty much responsible for the $20 penalty I paid and he's much worse of than he was before. Clearly a case of beating someone when they're down and could put someone in a situation they might not be able to get out of.
I brought up the issue to one of the gals at my credit union a few years ago. She replied something along the line of, "I think it's good they do that. It sends a message that people shouldn't be writing checks that they can't cover and should pay closer attention to their checking account....". Right, as if most people are bouncing checks on purpose.
B.S. This goes way beyond that, punishing people that have no idea someone wrote them a bad check. Besides, if someone regularly bounces checks, the bank always has the option of closing their checking account, as happened to me over thirty years ago when I was on the down and outs.
Surprisingly, I guess I still agree with that part of the Libertarian Party platform that opposes usury laws- laws against loansharking and such- at least in part. Hey, if I want to voluntarily borrow money from someone at 100% interest, that's my business.
Why I don't think this is the same I'd have to think about a bit longer but I suppose it's because the penalties banks charge are way beyond what it costs them to process a check with insufficent funding. I could see five dollars, maybe ten dollars max, but $20 to $40 from both the writer and receiver of the check? Nope.
I know some of my fellow libertarians might argue that there is a free market of sorts in regards to financial institutions and I could always shop around. That might be true but I'm not sure that really applies in the case of bounced check fees. After all, can you imagine a bank seriously selling the fact they're the best bank around to bounce checks from? Are those the kinds of customers you'd want to attract? Wouldn't make sense from a business standpoint.
Does anyone know of any banks that advertise No Overdraft Penalties?
Insomuch as government already regulates the banks- whether for better or worse- it wouldn't bother me if they put a cap on the penalties financial instituions can levy on bounced checks.
In the meantime, if you haven't already done so, I strongly suggest checking to see if your bank or credit union offers overdraft protection. My credit union doesn't charge anything for it unless I write a check with insufficient funds. If I do, they transfer money from my savings account to my checking account for a fee of two or three dollars a check. That's far better than what it would cost for bouncing a check. If your bank doesn't offer such protection, find one that does.