Banks Only Love You for the Fees You Generate

Posted on | March 4, 2010 | Leave a Comment

After a public outcry about the ever-escalating overdraft fees charged by banks, the government has taken some steps to crack down on these practices. Well maybe crack down is too strong, more like curb, at least until the banks figure new ways to circumvent the new rules.

Banks make billions of dollars in penalty income from folks overspending on their debit cards. Up til now they never had to ask your permission, they just did it and then charged a fee for it. Sounds useful on the surface, but lots of people would keep spending and rack up hundreds of dollars in daily fees. Isn’t it comforting to see how our banks are always looking out for us?

ATM Card However, starting this summer, banks must get consumers permission first by getting them to agree to opt in, to any service covering purchases on a debit card when there is not enough money in their account. Same goes for withdrawals at ATMs.

So get ready for the aggressive marketing blitz as our friendly banks try to cajole, allure, and even threaten us to accept this service. Lest one think threaten too strong a word then how should we view this except from a Chase Bank letter to it’s customers:

Your debit card may not work the same way anymore, even if you just made a deposit, unless we hear from you, the message emblazoned in large red type, warns. If you don’t contact us, your everyday debit card transactions that overdraw your account will not be authorized after August 15, 2010 even in an emergency, with even in an emergency underlined for emphasis.

Also cited in the same recent NY Times article was the experience of a Bank of America customer visiting his branch to turn off overdraft protection on his debit card, and being told that if he did, a gas station might place a hold on his account and he might not be able to fill up at all, even if he had enough money in the bank to cover a full tank.

None of this should be surprising with the vast amounts of money at risk for banks. Long gone are the days when they were content to utilize our savings and charge a modest fee for checking. Now it’s all about fees for everything, and complicated financial products that have proven so useful as of late - can anyone say subprime meltdown or financial crisis and too big to fail?

But that’s a story for another day. There is actually a simple solution for this overdraft fee issue and it doesn’t involve the bank at all. It is for consumers to quit spending money they don’t have. Wow, what a novel idea that we should pay attention to our bank balance, never spend more than we have, and even ensuring there is a cushion for emergencies.

Back in the day, banks helped in this because they wouldn’t give you the money if you didn’t have it available – but then they figured out they could make a tidy profit by encouraging people to be irresponsible. And once they started, they never looked back.

Remember the Chase What Matters campaign by Chase Bank? It was simply a blatant marketing campaign promoting instant gratification and financial recklessness. What a joke. But the really sad part was how so many people couldn’t see it for what it was.

Never believe for an instant that your bank has your best interest as its goal. It is simply out to maximize profit. If you don’t care about you, no one will. Overdraft protection is vastly over-rated and is mostly a scare tactic to separate you from your money. Why not solve the problem through discipline instead?