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Predatory Bank Fees Could Lead to the End of Banks

This article was written by in Banking. 7 comments.


About the author: Karney Hatch is a filmmaker whose new documentary, Overdrawn!, explores the predatory lending practices of major national banks with Ralph Nader, Joel Bakan, a loan shark, and many others.

In all the number crunching and legalese surrounding predatory fees of various sorts, it’s easy to forget the visceral reaction that they cause in people. Ask any “telephone banker” who works a call center for any of the big banks, and they’ll tell you the first reaction that these fees cause in customers: rage.

Or, sometimes, shame. Which is the way the banks want it. For the most part, only people with low balances in their accounts get overdrawn, and so one of the most common emotional reactions when the fees hit is shame, and people who are ashamed don’t tell their friends they got overdrawn, they don’t call their member of Congress and tell them something needs to be done, they don’t switch to a smaller local bank or a credit union -– they just pay the fees and go back to their lives. Until the next time they get overdrawn, and then the process repeats.

I have two things that I want to encourage people to do.

Don’t feel ashamed. Shame just makes us feel isolated and powerless. Rage is healthier and leads to actions, like those mentioned above.

I’d like to encourage people to consider an option that hasn’t quite hit the mainstream yet, at least here in the US: microlending. A relative of credit unions, sites like Lending Club and Kiva work by facilitating loans between individuals, but without any kind of bureaucracy that can lead even a well-meaning credit union in the wrong direction. No middle man, no managers, no shareholders watching the bottom line. Just people lending to people.

For now the micro- prefix fits, but there’s no reason that this framework can’t expand into home mortgages, business loans, and so on; in short, every form of lending that banks currently dominate and exploit. As Jessica Anderson, a banking consultant with over three decades in the industry, says in Overdrawn!, “Once that model gets the bugs worked out, then why do we need banks?” And how would that make me feel? Pretty damn good, I have to say.

If you enjoyed this article, please take a look at Overdrawn! The Documentary by Karney Hatch.

Updated February 26, 2013 and originally published November 26, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 7 comments… read them below or add one }

avatar Andrew Chilton

Sounds like an interesting film. I saw a documentary in the UK about how credit cards and storecards just try to get you into as much debt as possible. It didn’t make me feel good about how many of these financial institutions go about some of their activities.

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avatar Dave

Not to dismiss the banks’ greed and unscrupulousness here, but is it THAT difficult for people to use cash or credit cards or simply switch to a better bank? This seems like a problem better served by education than legislation.

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avatar kitty

Dave – this is my question too. Banks are businesses whose product is loans. As any business, banks want to make money and to try to sell their product. Yes they want to get you to buy more of their product. So? A lot of stores try to get to buy their product; sometimes their advertising tries to convince you you need it when you don’t. Just as with any business advertising it is up to the consumer to decide if they want to buy it or not.

Lending business carries a risk. The higher the risk, the higher the returns a lender expect. Fees is another way to make money and to mitigate the risk. Don’t like fee schedule in a particular bank switch to another one. Incidentally, the late fee on a bank payment is much lower than a late fee on, for example, property taxes. Why should banks be more lenient than local government? It’s easier for local governments to collect. Don’t want to pay fees – pay on time, know your limit, call if you think there is a mistake. Unlike government, banks often forgive one late payment if you call. They may forgive going over the limit “just this once” if you’ve been a good customer and if you call. If they don’t – switch to another bank.

Don’t want to pay interest – don’t carry balances. Credit cards aren’t magically enchanted to make you buy stuff. If you overspend with cards because of some emotional problems or stupidity or because somehow you cannot believe you are spending real money, then maybe credit cards aren’t for you. Don’t use them if you can’t resist taking them out of your wallet when you shouldn’t.

If you have a real emergency – by real emergency I mean medical or legal – and you are forced to carry a balance try to get a 0% offer. If your bank raised your rates, switch to another card, preferable the one that offers 0%. If your credit is good, you can always find one. When my friend had to pay for cancer drug for her mother that cost over $1000 a month that was more than she could afford, she shuffled 0% cards until she could repay it. Her mother died eventually, but this drug gave her 2 years of good quality life (it was one of those new targeted treatments). Credit cards helped. If your credit is not good enough for 0% offers than you are a higher risk customer. High risk= high reward.

Yes, some of the practices are questionable. But hey, you can make them pay for it. There is an easy way to make them pay you – pay your balances in full every month and on time and don’t overspend your limit. With auto-pay or online pay it’s easy.

Isn’t it interesting that a poor refugee from the Soviet Union like me figured out how to use credit cards without ever paying a penny in interest and did it successfully for 25 years. Even my parents who were 40-something at the time they got their first card and couldn’t even speak English well also managed to use cards without paying interest or fees. Yet all these smart and financially-savvy (compared to stupid “commies”) Brits and Americans cannot figure it out. Why it it?

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avatar LKW

Wow Kitty sounds like you got it all figured out. You mean all someone has to do is earn enough money to pay all of their bills on time? Sounds great. You should teach seminars to single moms who were never taught how to manage their money and credit and are faced with the desicion of buying groceries or putting gas in their cars vs. paying overdraft fees.

Be sure to try and sound as smug in person as you did on your post. Once theyre caught in this trap its impossible to break the cycle when their income is less than the cost of their basic needs. Banks that prey on these people should be stopped. Its hard to get anywhere when youve grown up poor and its all youve ever known and these financial institutions suck up all your money with their BS fees. All of the ways you stated to avoid balances and fees are, like you said, only available to those with good credit. Once someone starts off with bad credit and earns very little its nearly impossible to restore their credit. Especially when all these lenders that are supposedly trying to help them are charging an absurd interest rate and just push them further in debt and get rich off of them because they don’t know any better.

You, a self-proclaimed stupid commie, whose parents came to America I assume for opportunity that wasnt available in the Soviet system, should put yourself in someone else’s shoes and have bad credit and less income than your basic expeses then try to dig yourself out. I commend your parents for not falling into the trap and teaching you how to avoid it as well. But think where you might be if no one had taught you how, and you couldn’t pay your bills.

Granted some people incur these fees making stupid purchases and its their own fault, but that doesn’t make it right.

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avatar Jimmy DaGeek

@Kitty

It seems you expect people to be responsible for their actions – how compassionate of you! ;)

Haven’t you noticed that people prefer to use political solutions to overcome their financial stupidity? Why should people stop using cable if they don’t like the price? Just call their local pol and make those thieving cable companies reduce their price! Don’t like the mileage on the monster car you drive? Forget about buying a smaller, efficient car – just call your Congressman and make those greedy car companies increase the mileage. Don’t like the price of gasoline? Tax those robber baron oil companies that pay world oil prices to create that gasoline. The list goes on.

Instead of exercising their capitalist vote by directing their dollars, people exercise their socialist vote by directing their politicians.

I have paid credit card fees & interest through my own neglect and stupidity. Do I think these fees are outrageous? Certainly! But I have only myself to blame. For the last 40 or 50 years, people have been told they shouldn’t suffer for their own stupidity, and more and more people are buying into it.

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avatar Dres Trentor

Or perhaps it’s that people have forgotten that companies exist to serve the public – not bleed them dry using predatory practices. Perhaps in this hyper-consumer reality where we praise individual gains over advancing as a society, we’ve lost sight of the fact that being fiscally responsible is only a hop skip and a jump away from being socially responsible. If you expect people to take responsibility for themselves and their own actions – why do you exempt companies? Especially companies that quite frankly do not need my $35 every time I spend $1 too many. This is compounded by the fact that in personal experience I can outright visit a branch, demand they not cover transactions I don’t have the money for, and I *still* get the occasional overdraft fee because the bank decided to wait a couple of extra days to count my car note payment (despite the payment’s recipient receiving funds and crediting my account days before).

Maybe it’s us. Maybe it’s this “fuck you, I take care of myself” attitude. Maybe if we stop fighting each other and start focusing on the people that are really out to fuck us – we can stop it. Sure, it’s survival of the fittest in nature… But can you really call the society we’ve built around ourselves “nature” by any extension or stretching of the term? Maybe it’s time we fucking evolve.

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avatar Curtis

I agree with the comments about people being responsible for their own actions. Nobody forces you to open a bank account, take out a loan or unsecured credit, etc. If you do that, you do it willingly and you need to accept the responsibilities that come along with it — as well as the consequences of not fulfilling your end of the deal.

As far as inciting rage, however — that’s just stupid. Rage doesn’t solve anything. I’ve worked in a call center (though, thankfully, not on the phones), and I’ve seen CSRs reduced to tears because of the horrendous personal attacks that some customers have made. This sort of action is ridiculous and counterproductive, and it will do nothing to resolve any issues.

Righteous anger, on the other hand, is fine, so long as it is calm and constructive. If you have to yell at someone, call the bank’s executives and yell at them, since at least they have some decision-making ability. Switch banks — or stop using banks altogether. It is possible, though certainly less convenient (but then, if you’re not willing to pay for the convenience, why should someone have to give it to you gratis?) And if you think it will help, by all means, write your congresscritter, though I have to say that I fear most of them probably are owned by the banks anyway, given the recent bailout.

But don’t be a putz and yell at people who have nothing to do with the situation. Be nice to CSRs. You might even find that some of them are willing to work with you and reverse a fee or two.

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