Thursday, July 8, 2010

"Opt-Out" Options

There seems to be a mentality in this country (and I guess, in the larger modern culture) that says it's okay to do anything for money and even worse, to do anything to as many people as you can for money. People and the institutions they are a part of seem to adhere to this ideal more and more.

For some months now, I've been hearing about how new restrictions on overdraft fees will lead to "the end of free checking", as banks seek to replace the billions in fees they're about to lose. You could be forgiven if you're left with the impression that every checking account will now come with a $10.00-$15.00 mandatory monthly maintenance fee. But, that won't happen... or let's just say it better not happen or I'll take my money out, put it in a bag, and hide it in the mattress! My wife has told me that banks are fiddling with their fee structures and you'll need to pay attention to the changes or your wallet could suffer. But, you're going to have a lot of options to avoid the fees.

Banks have begun to reassess their checking accounts because of a Federal Reserve rule that, as of July 1st, will require customers' consent before they're covered by so-called "courtesy overdraft". That's the kind of overdraft program that allows people to actually spend more than they have in their accounts and then clocks them a $35.00 (or so) overdraft fee per transaction for the privilege. My question is... Why would anyone in their right mind purposely want to write out a check for money they don't have? That just sounds stupid to me.

In my lifetime, I suppose I've bounced more checks than the Harlem Globetrotters have basketballs, so this is of great interest to me. But, I never bounced a check on purpose... and likewise, no banking institution ever gave me any kind of break because I did so either. So, what gives here? They are talking about giving you a so-called "courtesy overdraft", but I see it for what it is... a subtle way for the banks to hit you with yet another fee sometime down the road. It stinks to high heaven!

Here are some reasons why banks typically signed up customers for this coverage without even bothering to tell them. Further, some banks wouldn't let you opt out. You've had this so-called "courtesy" whether you wanted it or not, and most people (when given the choice) didn't even want it. A few unsavory institutions even added the amount of this "courtesy overdraft" to the balances you'd see when you checked in at the ATM... a little stunt to encourage you to overspend. Now, see why I say that Tony Soprano and his crew were more honorable than our banking institutions?

Moderate and low-income customers (or simply stated, poor people) paid the bulk of these fees, and one-quarter of the charges were paid by people over 55 years old. Banks raked in $38.5 billion in overdraft fees last year, as estimated by Moebs Services Research Company, which was nearly double the $19.9 billion collected in the year 2000. And there it is... the old "bait and switch!" Proof positive that in this culture, telling a big lie is okay if it gets you a profit. It doesn't matter who you fool... just get that money!

Unfortunately, banks are not going to give up all that sweet, sweet profit they've been making. Unless you're a customer of Bank of America, which decided there was no way to put lipstick on this particular pig and dropped "courtesy overdraft" altogether, you've probably been getting mail and maybe even personal appeals from tellers, trying to persuade you to sign-up for "courtesy overdraft", just so your bank can continue to zing you.

Of course, you should say "NO"... and, say it just as loud as you can! Either live within the means of your checking account means or opt for true overdraft protection, which ties your checking account to a savings account, credit card, or line of credit, which will cost you a heck of a lot less than "courtesy overdraft".

Banks actually don't expect their recruitment drive to go that well, which is why Moebs says the new restrictions will decrease the fee income by $2 billion this year. The loss of that income has banks focusing on the fact that many of the checking accounts they offer aren't covering their costs. Currently, about half of all checking accounts are unprofitable, according to a study done by the Celent Research Company. About 51% of depositors don't maintain high enough balances or bounce enough checks to make back the $250.00-$300.00 a year their accounts cost to maintain. According to Celent, the accounts that are most profitable are those with balances of more than $3,000, followed by those with 10 or more overdrafts.

So, do you know what that means? It means that banks are going to find a way to stick it to you, the consumer, in the near future. You and I are probably going to lose something or be charged something... and our current culture says that that is perfectly ethical and downright American!


Reggie said...

Banks suck. I have been saying it for the longest now.

Rich Fitzgerald said...

Banks are hoping consumers would rather pay than risk the "embarassment" of having their transactions denied.


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