Anger at How They Pick Your Pockets

Now where were we? Ah yes, the Little Woman had accidentally overdraw one of our bank accounts resulting in a $37 dollar fee of 131% on $28.

(To understand how this happened go to my previous post, "Anger from One Year to the Next".)

We do not keep much money in this particular account. There is a large deposit on the First of each month (more about that to come) and by the last week of the month little remains. It's a special purpose account. So there was only $8 remaining when my wife pulled out the wrong debit card to pay a $36 purchase (prescriptions),

I asked a question. Why did the bank allow this overdraft to happen?

Obviously when the card was swiped the computer noted there were insufficient funds and one would expect the transaction to be denied. Isn't that what you have always been told about a debit card? You had to have money in your account for it to be used?

One of the dirty little secrets, among many, is the banks encourage overdrafts. This is one of their most profitable services. This is not what they tell you, of course.

They will give you three reasons to justify this usury interest rate, the overdraft fee.

1.  They don't want you to be inconvenienced by rejecting a transaction over such a low sum. Thus, you are paying for not being embarrassed by public rejection. They are doing it for you!

2.  Overdrafts cost the bank a lot of money.

3.  They impose the fee to encourage customers to be more financially responsible.

They leave out the fourth and most important reason: it's easy and lucrative revenue for the bank. The other three reasons are basically bogus. Only Reason Number 2 has any iota to truth to it, but even that is distorted from reality and should not be considered a valid reason for these high fees.


What kinds of overdrafts do we have? We have accidental ones, such as my wife using the wrong bank card or someone thinks they have a higher balance than they have. It is difficult in these times to sometimes know your balance if you have a joint account. You take some cash from an ATM and mean time your joint partner is buying a new pair of shoes unaware of your withdrawal and voila, accidental overdraft.

We have the knowing overdraft for an emergency situation. This is where the person knows they don't have enough in the account to cover a transaction, but are willing to absorb a fee for a perceived necessity. "If I don't take twenty dollars out of the bank today, my children will have nothing to eat tonight." The person knows money will be in the account in a day or so to cover both what they took out and the greedy fee.

These are overdrafts made by basically honest persons who are good customers of the bank. The bank knows they will get that money back and their fee. If the bank thought otherwise, these people would NOT have been able to overdraw.

That's another of the dirty little secrets, you are coded.  As a new customer you may be coded 1 and this tells the system to allow up to a $50 overdraft. This will change over time as you build a reputation and profile with the bank. Each code will bring a higher allowance of overdraft, maybe as much as $200, maybe more if you are wealthy. (I know of cases of wealthy people having no limits and even when they overdrew their account by thousands of dollars paid no fees. You will find in most situations if you are rich enough to afford the fees, you never are charged any.) Naturally, if you become known as a risk or have a very minimal average balance, you may be coded down to a zero and no overdraft allowed.

So there goes Reason Number 3, because if they really wanted to encourage you to be financially responsible, they wouldn't allow you to overdraw at all. But then they wouldn't be able to charge you a fat fee and make money.

And let's forget Reason Number 1, that's just PR. They couldn't care less about you being embarrassed. It's a convenience all right; a convenient way for them to make more money.

What about Reason Number 2, overdrafts cost the bank? It may cost them interest on money borrowed overnight at the Fed Fund Rate of interest. The current Fed Fund Rate is .25%. That is the annualized rate. Banks generally borrow overnight, just as we basically borrowed $28 overnight. So the bank paid a use fee of .000007% (rounded up) for a total cost of $0.00019. We paid a use fee of $37 at a rate of 48,180% annualized. See how they turned a microscopic lost into a big fat profit?

"How about processing costs caused by an overdraft?" you ask.

First of all, there is no direct cost caused by the overdraft, except that minuscule interest rate.  The bigger extra cost was having an OverDraft Unit to prepare those notices mailed to the miscreants and the postage to send it. I don't know how big those units are these days. Most of the notice preparation and mailing is probably pretty much automated by now. The costs are a nanosecond of computer time, a bit of paper and postage; and the postage is probably the highest expense. Does this add up to anywhere near $37? I rather think not. Maybe a buck-thirty-seven.

However, there is a legitimate cost from overdrafts of a higher nature. This doesn't come because of those accidental overdrafts or the deliberate emergency of the moment ones. No, there is a third kind of overdraft, theft.

Yeah, there are people who overdraw an account with no intension of ever making it good. They not only aren't going to make a deposit to cover the overdraft, they aren't going to pay the fee either. Now some of these thieves know how to milk the system for all its worth. (They would probably make valuable advisers working for the bank actually. They think alike when it comes to maximizing undeserved profit.) They will make overdrafts here, there and everywhere in a short period of time before the previous overdrafts are noted and their withdrawing spree ended.  With the speed of today's systems, though, the banks have probably cut down on this.

But these thieves have nothing to do with our little miscues and small overdrafts. Those people are not going to be encouraged to be more financially responsible. And they can cost the bank a hunk of change, but you and I shouldn't be punished for this. Higher overdraft fees won't stop these crooks.

I am not against the banks charging a reasonable fee for an overdraft. We are using their funds in what could be called a small, temporary loan. When I initially began in banking (40 plus years ago) such fees were kind of reasonable. Our overdraft fee was $10. If you were over from one cent to $9.99 you were not charged. We did not charge anything if under the fee amount. From $10 to $19.99 you were charged half the fee, $5.00 and $20 or above you paid the full fee. Given the minimal cost to banks when the average depositor overdraws this would still seem a reasonably excessive profit for the bank.

However, I would be inclined to say they should be restricted to charging the same rate as their small personal loans on overdrafts. I see that rate  is somewhere around 15% currently. That would mean for my wife's little one day loan of $28, I would have paid a fee of one and one-tenth cent. Bank still made a profit, and if the overdraft remained another day, then another one and one-tenth cent. Okay, I can be reasonable. Let them charge a minimum fee, but no more than $12. $12 would be equivalent to a small personal loan of $1,000 for a month (31 days) at 15% annual interest. They still make a huge profit.

But banks shouldn't be living off the backs of honest people making small overdrafts, because every time they want to raise their bottom line, they raise the overdraft fee while they continue to encourage this behavior. As I stated earlier, if they truly wished to stop this behavior, they would allow no overdraft, which they do with some riskier people, so it is possible.

But that overdraft fee, despite how it sounds, was not the true source of my anger. My anger came from that combined with the same bank depositing my pension late. This is why I have an account there to begin with, my monthly pension payment is deposited there and then I have specific payments dedicated to that account monthly, which is why it shrinks almost to nothing by month end just before another infusion of my pension.

My pension check is due on the first of every month. Now usually if the first falls on a weekend, they deposit it on the Friday before. However, the first of January fell on both a Sunday and a holiday and the holiday extended through Monday and they didn't deposit my pension until Tuesday. I guess because I get a yearly pension they have to keep that amount isolated to each calendar year, but still, make it on the due date. If I am late paying something on the due date, I get charged a late fee, usually as outrageous as the overdraft fee. Not having my pension on the First caused me untold worry and aggregation and inconvenience. I am not a well-off guy, I depend on deposits being there when they should be. Not being there could cause me to make a late payment on something and incur more bloated fees.

There is no reason why it could not have been done automatically on a Sunday. They would have put a charge to my account on Sunday if I incurred one. They cancelled an automatic payment I had setup for the Second, even though that was a holiday, so why not make my deposit.

What I should do is bill the bank a $37 late fee. Fair is fair.

Anger From One Year to the Next

I am not a person easily angered. It usually takes a lot. Nor do I stay angry long. On those occasions in my life when I have reached a boiling point I usually let off steam by throwing something, generally what is in easy reach. I don't throw it at anyone. I just throw it. My anger goes away then like a cold when the fever breaks. I throw it, I feel better immediately and I fairly quickly cool down.

Then I feel bad because I probably broke something of mine I didn't want to break.

These instances occur, thankfully, very, very infrequently.

It's also something those knowing we well are happy about. They know my anger is rare, comes quickly and goes away just as quick. I am not someone whose anger will seethe and continue for hours or days. So this is probably the exception that proves the rule.

I became angered prior to New Year's Eve and it has not gone away. I am still angry. Perhaps it is because I didn't throw anything and it is too late for that now. And I am not angry at one thing, either, but several things.

The first thing that angered me was my wife overdrew our account at one bank. No, I wasn't angry at my wife. I was upset because I figured we'd get charged a fee and I was unhappy because we haven't had an overdraft on our accounts for at least a decade. But I wasn't angry at anyone or anything yet.

My wife went to have her prescriptions filled and she used the wrong card in paying. It had been an honest mistake. We have accounts at two banks. Unfortunately the debit cards of both are green and look similar. She thought she was using the bank card of the account we had money in. It wasn't and this resulted in a $28 overdraft.

I check my accounts online regularly. I was shocked to see an overdrawn account. I did not see any fee charged yet, however, and I went immediately to that bank and deposited $40 dollars. My receipt then showed us having a positive balance, not much, but positive nonetheless.

Thus the next morning I am doubly surprised when I check my account and see it overdrawn $25. Why am I doubly surprised? Not so much by the fact this was caused by the charging of an overdraft fee as the fact my pension check was not deposited as expected. This is when my anger began.

Definition of Usury: the illegal action or practice of lending money at unreasonably high rates of interest.


It would seem that an interest rate of 132% for a one day "loan" is a high rate of interest. Of course there is that phrase in the definition: "the illegal action or practice". Certainly 132% is a high rate, but is it actually legal?


Definition of a Loan Shark: A person or entity that charges borrowers interest above an established legal rate. Depending on where a person lives, lenders typically cannot charge more than 60% interest per annum. A loan shark, then, would be someone who illegally charged interest over the state's legal limit, which could range up to, or even over, 100%.


So, 132% is more than 60%, but the definition says per annum. This 132% I was charged was daily, actually less than a full 24 hours before I deposited the $40. That is an annual rate of 48,180%, which would make any loan shark drool with envy.


Now I know it would not become 48,180%. If I didn't deposit to my account for two days or a week or a month, it would remain at 132% If I waited a year, although they would probably have closed my account by then, it would still be 131%, but still a lot more than 60% per annum!


Do I think this is fair and right? No, but I will explain why in my next post. I'll give you a partial reason, why did the bank allow her to overdraw? Why didn't they reject the purchase? I'll tell you next time.




Meanwhile, I leave you with this:

What’s the difference between Congressmen and manure?

With manure you can spread it across a field and it will yield worthwhile crops.

While congressmen are full of it, all they produce is crap.

(The photograph of Congress in session taken by the author, 2011.)