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Citizens Bank Settles Overdraft Fee Class Action Lawsuit

This article was written by in Banking. 9 comments.


Banks are still struggling with the decisions executives made to maximize profit from overdrafts by rearranging the order of withdrawals to customers’ detriment. By December last year, Bank of America settled a class-action lawsuit related to overdrafts and was expected to pay $410 million. That decision is being appealed by a plaintiff, so it will still be a long time before the results are determined and class members receive compensation, if any.

Earlier this year, JP Morgan Chase settled a related class action lawsuit for $110 million.

Citizens Bank is the latest bank to come to terms with the way it took advantage of customers. This bank has agreed to pay $137.5 million to settle.

For the most part, banks continue to engage in the process of reordering withdrawals processed on the same day (whether the withdrawals be through checks, electronic direct debits, or ACH transactions) to optimize the possibility of collecting multiple overdrafts. The largest withdrawal is processed first, and subsequent withdrawals are processed from largest to smallest. Banks offer a reason for this order. They claim that the largest withdrawals are often the most important, such as rent or mortgage payments, and want to ensure these payments have the strongest possibility of being processed. That explanation doesn’t hold up for customers with overdraft protection, though, because this service allows all withdrawals to be processed — for a fee.

Furthermore, banks at the time of the lawsuit often allowed for multiple overdraft fees on a single day. With a $200 bank balance and withdrawals of $20, $50 and $300 in one day, the customer could be charged three different overdraft fees of $35. This is obviously more profitable for the bank than allowing the smaller transactions to be processed ahead of the larger withdrawal. Since the media attention surrounding the lawsuit, some banks have changed their policy to allow for only one overdraft fee per day, but many banks continue this practice.

So far, the only new regulation regarding overdraft fees requires banks make the service optional. Customers can opt to have transactions declined when the funds are not available to cover the withdrawal. Banks still steer customers towards overdraft protection as they feel it is a better experience for the customer, and, of course, a significantly profitable approach for banks.

Are you a customer of Citizens Bank? Have you ever had problems with Citizens Bank’s overdraft fees and policies?

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The Cost of Raising a Child With Autism

This article was written by in Health. 11 comments.

A few years ago, I shared a statistic showing that it costs almost $200,000 to raise a child, from birth to age eighteen. If that weren’t enough of a financial burden, consider that one out of 88 children are now diagnosed with autism, according to the Centers for Disease Control and Prevention (source, pdf).

Regardless of whether this significant, 78 percent increase in occurrence since the last study is attributed to broader diagnosis, more families are paying for the services a diagnosis of autism requires. Insurance will not cover all costs for therapies associated with autism or autism spectrum disorders. Families will need to pay out-of-pocket for many medical expenses. While the cost of raising a child to age 18 might average around $200,000, dealing with autism could add another $25,000 a year in medical costs.

The expenses don’t end with therapy and doctor’s visits. Beyond medical expenses, parents with children with autism often need to pay for special education, day care, and a home for an autistic adult who can no longer live with his or her parents.

The emotional burden placed on parents of autistic children adds to the financial burden. Parents of children with autism earn significantly less than parents of children who do not have this condition, presumably because the parents have extra responsibilities in competition with the attention they give to their careers. Mothers of autistic children average earnings that are 56% lower than other mothers. Dealing with autism from a financial perspective is doubly difficult due to the increased cost of care and the parents’ lowered income potential.

As a result of the increased financial burden, many parents of children with autism need to resort to going into debt to cover their costs. Today’s expenses may crush any dreams about retirement, and with a second or third mortgage, the costs of paying for housing may last until death.

It’s all very good for financial gurus, bloggers, and authors of books about money management to extol the virtues of saving money, cutting back expenses, and earning more, but sometimes, some families are faced with realities that place them beyond the sphere of accepting mainstream financial advice to improve their financial conditions. Everyone should be out of debt, but an average family earning average salaries with extraordinary needs like those that arise out of autism can’t be addressed by mainstream financial advice.

Experts write about making sacrifices, like forgoing the $6 daily latte and saving $1,500 or so a year. Experts talk about negotiating a raise from your employer. They argue about the best method for getting out of debt. For families dealing with tough financial issues, these discussions are irrelevant. They need support groups, financial assistance, and specialized advice for making the most out of a difficult situation.

And when the biggest issue a family faces is related to health, financial issues become just a secondary concern.

Have you ever dealt with autism or another health issue in your family that required expensive care? Please feel free to share your experiences, particularly with the effect they had on your finances or your philosophy of money.

CNN

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Prenuptial Agreements for Cohabitants

This article was written by in Family and Life. 12 comments.

I’ve discussed whether couples should sign a prenuptial agreement before marraige recently. A good prenup can protect both individuals in the couple if a marriage were to result in irreconcilable differences.

Signing a legal document of this type could be helpful if the couple owns substantial assets or if there is a wide disparity in income or wealth between the two members of the couple. If either or both of the individuals own businesses, a prenup could protect those businesses, not to mention the lives of any employees relying on those businesses.

Relationships coupleMore people are looking for the protections of a prenuptial agreement without the benefits of getting married. Marriage is becoming a less popular option for couples today, with only 51 percent of adults taking the plunge according to CNN. Couples are increasingly choosing to live together and share their lives without tying the knot.

Cohabitation can cause legal problems the same way marriage can, particularly if the relationship ends.

A growing number of unmarried couples are seeking similar legal protections through cohabitation agreements. These legally-binding contracts, which are drawn up by an attorney, protect each person’s assets, address child custody issues and determine support obligations, much like prenuptial agreements do.

Cohabitation, in the cases where assets need to be protected, is more than just having a roommate. Often, a couple may decide to have children despite not being married, and this leads to questions about caring for children if the relationship were to dissolve. While one might assume that cohabitation is an option only for couples that cannot legally marry in their state, but 70 percent of the divorce attorneys surveyed by the American Academy of Matrimonial Lawyers say most of the new cohabitation agreements they’ve seen are signed by heterosexual couples who could be married if they choose to be.

Buying a house together can be dangerous for an unmarried couple. Most states don’t have laws covering this situation, like they do for married couples. A cohabitation agreement can define how the house and its mortgage are treated in the event of a termination of the relationship.

I might say that a cohabitation agreement for a couple not intending to get married is even more important than a prenuptial agreement for a married couple. In some cases, but not all, the risk of the relationship ending is higher without the bond of matrimony.

Do you believe these cohabitation agreements are necessary? Would you sign one?

Photo: Dragunsk
CNN

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Taxpayers Earned $25 Billion on Treasury’s Mortgage-Backed Securities Bail-Out

This article was written by in Economy. 5 comments.

At the height of the recession, President George W. Bush and the congress authorized a bail-out of banks and investment companies headed for failure.

In a similar plan to bail out Fannie Mae and Freddie Mac, the government authorized the Treasury moved forward with the plan to stabilize the financial industry, and to an extent the economy. The Treasury purchased $225 billion in mortgage-backed securities insured by Fannie Mae and Freddie Mac.

These securities were considered toxic because investors believed that the underlying mortgages were risky, and the price on the open market did not reflect that risk. When investment banks couldn’t get rid of these bad products on the open market, the Treasury stepped in and paid a discount to acquire the assets. This helped the investment banks pad their balance sheet with more cash, improving their financial conditions, avoiding bankruptcy or failure, alleviating to some degree panic in the market that could have led to a more damaging recession or economic depression.

One year ago, the Treasury began selling these mortgage-backed securities, and as of today, the government no longer has any of the assets purchased under this bailout plan. Not only that, but the Treasury earned $25 billion on its $225 billion investment. That works out to a total return of about 11 percent over about three and a half years (the purchases began in October 2008), though that doesn’t take into account the timing of the buying and selling transactions. The good news is that the Treasury did not lose money on toxic assets, a legitimate concern at the time.

The concern is not over, however. The quality of the underlying mortgages is still in question. The investments could still fail.

… [I]f the mortgages behind those securities fail, taxpayers will still be on the hook, since federal housing giants guarantee the loans and taxpayers have been propping up Fannie Mae and Freddie Mac.

The $25 billion earned through the bail-out of Fannie Mae and Freddie Mac will go to paying down government debt.

Photo: cliff1066
CNN

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Three Banks and One Insurer Fail Fed’s Stress Test

by Flexo
Citi Checking Account Piggy Bank

After the recession, the Federal Reserve developed a stress test for banks and financial firms too big too fail. The stress test looks at the financial condition of these corporations and simulates a new recession. Under the simulation, based on a worst-case scenario, not an actual economic forecast, banks pass the test if the companies ... Continue reading this article…

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Why The Time May Be Right for Buying a House

by Flexo
House for sale

I’ll be thirty-six years old this month, officially closer to forty than thirty. I’ve never owned real estate. Once in a while, someone judges this as a failure on my part, or a reluctance to “grow up” or enter a more sophisticated stage of development, as if maturity was somehow related to the ownership of ... Continue reading this article…

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Improve Your Finances By Modifying Your Behavior

by Flexo
Money

Improving your financial situation requires more than just trying harder. People who write financial websites offering advice often think or imply that the reason for financial misfortune is ignorance of the basics. Recently, there was one website that claimed that the only thing people need to know was spend less than you earn, as if ... Continue reading this article…

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Bank Switch Kit and Checklist

by Flexo
Broken piggy bank

With Wells Fargo changing their policies to be less consumer-oriented this week, I’ve received several questions about the logistics switching banks. In previous decades, closing your account at one bank and opening an account at another was a simple process. All that was required was to walk into one branch, ask to close your account, ... Continue reading this article…

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