A while back, President Obama signed a law intended, among other things, to limit the ability of banks to collect overdraft fees. It limited the number of fees applied to three per billing cycle and forced opt-in to consumers that wanted overdraft protection. In addition to prohibiting billing practices that can lead to interest even when you make payments on time. But what got most people interested was the strike against overdraft protection. People on both sides of the discussion felt really passionate about this issue. I was on the “pro” side. The “con”argument went as follows:

  1. This is yet another example of the government penalizing the responsible for the sake of the irresponsible.
  2. People need overdraft protection. They should be allowed to get it.
  3. The government should not protect people from themselves. People need to learn personal responsibility.
  4. If the banks can’t get their money this way, they’re going to get it another way. No more free checking. You just wait and see.

Point #1 represents a misunderstanding of the current state of affairs prior to passage. This isn’t about the responsible subsidizing the irresponsible. Rather, this is reversing a system in which the irresponsible subsidized the responsible. Because of these fees they were collecting against the irresponsible, the hard-up, and the disorganized, they have been able to offer people like me free checking. It’s a good deal for you and me, but a pretty bad deal for them. We can argue the virtues and failings of taking from the responsible and giving from the irresponsible, but penalizing the irresponsible to subsidize the responsible strikes me as much more problematic. It’s the same reason that I am against state-run lotteries. If you have trouble with overdrafting, you’re either poor or irresponsible or both. Life’s going to be hard on you as it is. We shouldn’t take advantage.

Point #2 represented a misunderstanding of the law. Nobody was taking away the right of people to get overdraft protection. It was merely taking away mandatory or automatic enrollment. In other words, you can’t be signed up without your knowledge. It’s possible that the fee limitations would make fewer banks offer the service, but charging $35 six times because someone made a purchase six times throughout the day is ridiculous. If this law went too far, it’s because the banks were taking advantage.

On Point #3, I agree. Forcing people to consider whether they want overdraft protection (and, in the larger bill, making statements easier to understand) will help them learn personal responsibility. As it stands now, people are enrolled without realizing it until it’s too late. Or they can’t unenroll. Avoiding bad consequences means, among other things, being given the tools to know when you are inviting them. Until this came up, I hadn’t even realized that I had overdraft protection. I simply assumed that if I ever overdrew, payment would be denied.

Point #4 I found particularly agitating. Especially when, after the law was passed and banks announced that they might be doing away with or otherwise limiting free checking, they all got so smug saying “I told you so…”

I find #4 agitating because it is absolutely true. The thing is, at least some of us already knew that. Granted, there are those that think that there is a revenue-reduction fairie that casts a spell over bank managers and other corporations that push them to accept lost profits and net losses gracefully, but I don’t. And neither do a lot of people on my side. As far as I am concerned, if free checking rests on taking advantage of those that have difficulty keeping things straight, it’s not something worth having. I feel the same way about speed traps. Getting rid of them will only result in increased taxes, but so what? That’s far preferable than artificially low speed limits and cops hiding behind rocks.

The whole thing is not about the banks making too much money, nor is it about giving money back to the consumer. It’s about transparency. It’s about getting rid of the illusion of free. Things that people think are free but only because they exist based off fees that the consumer doesn’t think he or she will ever have to pay. Checking accounts and credit cards cost money to maintain. If they want me to pay my share, then I will make a decision based on how much that service is worth to me. However, signing on customers who think they will be paying nothing (or a low amount) and end up paying a large amount, you may not be a liar (that’s what small print is for), but you’re lacking in the good faith department.

You may agree with that perspective or disagree with it, but it’s a matter of values and opinion and not a matter of people like me “not knowing what we do” (they say with a smug sigh). And we’re no more guilty of pie-in-the-sky thinking we could get something for nothing than they are for thinking that “free checking” was ever really free.

Anyhow, a funny thing happened on the way to the conclusions that they lamented and I accepted: it hasn’t happened. Free checking accounts come with more strings attached (no paper billing, no tellers), but they have not gone away. And on the other side, most people with overdraft protection have apparently decided that they want it*.

The “con” side is busy saying “I told you so” except that they didn’t. We were both arguing under the premise that this would make a serious dent. And maybe it will, over time. I suspect (well, hope, really) that as more people get dinged they will realize that it’s better for a payment to be declined than getting stuck with $100 in fees. Or maybe they won’t, because $100 is a lot less than it used to be, and that’s good, too.

But whatever the case, one area where I really did agree with the “con” side is that you can’t make better decisions for poor decision-makers. Well, you can, but it’s difficult and impedes on the rights of those that can make decisions with more sound mind. If they want to dig themselves into a hole, I’m actually cool with that. At least then, when they say “Man, I just got hit with these ridiculous fees” I can say “Well, you shouldn’t have gotten that overdraft protection.”

In some ways, all along this has been about the right wag my finger at the irresponsible. Before, decisions were being made without their input. I could put myself in their shoes because I didn’t realize you could automatically get overdraft protection. I could condemn the banks because they were relying on people to not fully appreciate the consequences of their actions. Now, the banks merely say “Well, they signed up for it” and that’s good enough for me.

And in the meantime, 25% of people are no longer enrolled in overdraft protection they didn’t want. That alone is progress.

* – Apparently the banks pushed the customers on this hard. I guess my bank knew better than to even pitch the idea to me except for a little box on my statement. I guess I don’t really like the high-pressure sale, but once again, there is only so much I want the government to do to protect people from making stupid decisions. The bill meets that threshold, as far as I am concerned.

Category: Statehouse

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12 Responses to Overdraft Protection Protection

  1. Brandon Berg says:

    I could be wrong, but I kind of suspect that a large percentage of the people who declined overdraft protection never wrote bad checks anyway. That’s the quadrant I’m in, anyway.

  2. trumwill says:

    Same here.

    I suspect that the people that would be best off avoiding it are the ones that signed up for it. People making bad decisions in one way are probably most likely to make bad decisions in another way.

    But as long as it’s their decision, there’s not much more I can advocate being done.

  3. Mike Hunt says:

    I am never going to stick up for a bank (or an insurance company). We need the governments to protect us from these jackals.

    The bank would intentionally rearrange the order checks were cashed in order to maximize fees. For example, if you wrote checks for $25, $50, $75, and $500, but you only had $400 in your account, they would cash them in the order of $500, $75, $50, and $25. That way, they could charge you with FOUR over-drafts instead of one. When asked why they would do such a thing, the PR c*nt would say, “Well the highest payment is the most important, so we wanted that to go through first,” as if we were morons. If you are going to cash all the checks anyway, there is no reason to rearrange the order.

    By the way, I am convinced that PR stands for Professional liaR.

    The most reasonable way to handle overdrafts is to have a credit card from the same bank as your checking account. If you have an overdraft, then it is charged to your credit card. A 3% fee can be added to make sure people don’t intentionally overdraft their checking accounts, but a $39 fee for every overdraft is obscene.

  4. trumwill says:

    Yeah, that was another positive change enacted by the law. The banks said that they were doing it because that’s what the customers wanted, but never could cite a customer survey stating such. It doesn’t make sense no matter how you look at it. Even aside from the overdraft fees, the vender penalty of a bounced check tends to be about the same whether it’s a small purchase or a large one.

  5. Maria says:

    Way back when ATMs first came out, they were sold as a complement to your friendly local teller. “We’ll pass the efficiency savings on to you, the customers.” (They didn’t. They just got rid of the friendly local tellers.)

    Once they got rid of a lot of their branch offices and tellers, you had no choice but to use an ATM in many places.

    Now they are starting to charge a fee for ATM usage; they want you to do all your banking online.

  6. trumwill says:

    Hmmm. Well, I find banking online to be more convenient than ATMs and ATMs more convenient than tellers. Though all have their place, though. I do like tellers for deposits, online banking for transfers, and ATMs for withdrawals.

    Actually, I pretty much get all my cash these days from cashback at the grocery store. I think I’ve visited the local ATM twice since I moved here.

  7. trumwill says:

    Actually, I am sort of lost without direct deposit. In the three jobs that I’ve had without it*, I found a total of nearly $10,000 in uncashed checks in my desk as I was cleaning it out. $6000, $2000, and $1500. Then there was that thing with the State of Delosa, which for nearly 10 years owed me $137 which I only found out about when my brother Oliver did a search seeing if the state government owed him any money. That money was for the columns I wrote for the university paper and/or when I was the delivery guy for a while.

    On the other hand, do you know how dang useful it is to find money when you just lost your job?! I couldn’t have planned it any better.

    * – Disregard. I was going to put the part about the university paper in a footnote but put it in the main paragraph.

    -{Note: Modified for footnote explanation}-

  8. Mike Hunt says:

    Sort of like the first time you put on your jacket in the fall and finding money in the pockets.

  9. Maria says:

    6.Hmmm. Well, I find banking online to be more convenient than ATMs and ATMs more convenient than tellers.

    Yes, but it’s pretty lousy for them to tell customers these new efficiences would make banking cheaper as well as easier, and then, once customers got hooked on them, start charging for them.

  10. Maria says:

    I found a total of nearly $10,000 in uncashed checks in my desk as I was cleaning it out. $6000, $2000, and $1500

    WTF? Who can afford not to cash their paychecks?

  11. trumwill says:

    WTF? Who can afford not to cash their paychecks?

    No student loans, no car payments, a city with a low cost of living (rent=$350-400 a month for half of 1200-1600sqft), and the trusty Truman thriftiness helped a lot.

  12. Maria says:

    I hate to keep harping on the ADD theme, but my daughter does the exact same thing, except on a smaller scale. Leaves cash around everywhere, and loses it often. It’s a symptom.

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