Wednesday, January 24, 2007

Overdraft Fees

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.


At 10:56 AM, Anonymous Anonymous said...

as a merchant you have the option of NOT ACCEPTING CHECKS. Or, if you have the time to shop around, refuse checks from certain banks.

If merchants start to tell customers "I'm sorry, I don't take checks from [some_evil_bank], they cheat me when I cash checks from them", then maybe that bank will start to take notice.

At 1:47 PM, Blogger Anon.R.mous said...

How about cell phones, you get charged for making the call, and if you get called on a cell phone, you also get charged! This has changed with some companies, but still, for the most part, you pay for incoming calls.

At 2:42 PM, Anonymous Anonymous said...

Fred, it's not overdraft protection (which applies your past due amounts to a credit card) but most banks are now covering their customers bounced checks, which may cost alot, especially if the person doesn't realize they are overdrawn and a series of checks come in, but the cost in miniscule compared to the costs associated with bounced checks. Even if they charge the person $25 per bounced check, it is far less than the hundreds of dollars in fees and fines which may be incurred by a bounced check. (I think some restaurants have signs posted that spell out the costs of a bad check along with the penal code.)

I agree with you, though, that the innocent recipient should not be penalized, as you have no way of knowing that the person presented you with a bad check.

At 3:39 PM, Anonymous Anonymous said...

Our local billionaire could shed alot of light on this topic but he'd rather not shine a spotlight on one of his major sources of revenue.

At 6:32 PM, Anonymous Anonymous said...

Even when the SOB's offer overdraft they charge to much. I just saw a credit union overdraft coverage of my daughters and they charged her 22$. I think thats BS

At 7:35 PM, Anonymous Anonymous said...

Fairbanks Capital Corporation charged late fees, penalties and sold loan to SN Servicing Corporation Salt Lake City Utah

Fairbanks Capital Corporation
3815 Southwest Temple
Salt Lake City Utah
Phone Number:

Fairbanks Capital Corporation caused me to loose my home. I mailed payments to them, they stated they didn't received them. The bank was telling me the check was cleared; however, the check wasn't posted to my account. Fairbanks was charging me late fees, penalties and interest.

Fairbanks even stated that I had no homeowners insurance. They tact on additional fees for insurance, property taxes, etc. you name it, they did it. They were charging me these fees while I was trying to resolve the problem. I was sending payments to them.

Then I get a noticed stating that I owed SN Servicing over $3500. I wasn't aware who this company. I called SN Servicing. They informed me that Fairbanks Capital sold my loan to them. As a single mother of two, I didn't have that kind of money. I tried to called Fairbanks Capital, I left messages after messages, no one returned my called. I sent letters. To make a long story short, my kids and I have no home.

Canton, Mississippi

At 8:13 PM, Anonymous Anonymous said...

There are thousands of Dietras out there with the same story. I know cause I worked for that company for a couple a years and that's pretty much how we were trained to operate. We all use to quietly call it Insecurity National cause the office atmosphere was so paranoid. A fish rots at the head first.

At 8:53 PM, Anonymous Anonymous said...

Dietra you should call the Times-Standard newspaper in Eureka CA and ask to talk to a reporter. Im sure they would looove to hear your story.

At 8:54 PM, Anonymous Anonymous said...

Fred, dude, why don't you just stop writing checks you don't have money for.
Then everyone would be happy

At 10:04 AM, Anonymous Anonymous said...

My mattress doesn't charge overdraft fees.

At 5:58 PM, Anonymous B. David Mehmet said...

Join this class action lawsuit against Wachovia Bank, N.A.

Read a letter from the U.S. Congress against overdraft fees and a threat to the banks about reforming these fees:

Read the FDIC report issued on November 2008 that uncovers a “re-sequencing scheme” Wachovia and other banks implemented to rob consumers of their money through overdraft fees:


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