By not warning customers that they’re close to running out of money, and just letting them run out of money, banks are making a lot of money — charging people for not having enough money.
The New York Times reports that “this year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance. In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.”
The Times tells the sad story of one Peter Means:
When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.
So he 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 theatre — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.
Banks call this “overdraft protection.” The Federal Reserve is considering requiring banks make it an opt-in only product.
Here’s comedian Louis CK take on the whole business. It’s a must watch, so do:
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