Overdraft Fees Are Trapping Consumers On Social Security In A Cycle Of Debt

The Center For Responsible Lending has put together a report that examines the disastrous effect of overdraft fees on Americans who depend on Social Security for all or part of their income. Despite the fact that they’ve had checking accounts all their lives (and presumably know what they’re doing), each year older Americans pay 4.5 billion dollars in overdraft fees– and on average they actually pay more in fees than they receive in credit when the overdraft is triggered by a debit card transaction.

The average debit card transaction triggering an overdraft is for a $26 purchase. For this transaction,the bank makes an average loan of $19.95, or the amount overdrafted, and charges an average fee of $33 for each incident. This amounts to an average of $1.65 in fees per dollar borrowed. Thus, older adults pay more in fees than they receive in credit for the average debit card purchase triggering an overdraft.

Since Social Security payments are disbursed only once a month, a consumer on Social Security can rack up substantial daily balance fees waiting for her next check– trapping her in a cycle of overdraft fees and debt that’s eerily similar to a payday loan scenario. If the consumers on Social Security were instead given a line of credit they could avoid this cycle of debt.

The Center for Responsible Lending illustrates this difference by sharing the story of Mary, a real consumer entirely dependent on Social Security:

Mary begins the year 2006 with $420.56 in her checking account, held at a large national bank. She makes a $380 ATM withdrawal and several smaller point-of-sale purchases on January 3, comes up short, and is overdrawn by January 4. She incurs a $34 overdraft fee for the initial overdraft. After two more purchases, and two more overdraft fees, she finds herself almost $200 below zero on January 9. For the next eleven days, Mary doesn’t spend any money from her checking account, but her checking account loses money, nonetheless. Her bank charges her a fee of $7 a day because of her ongoing negative balance. By the time a scheduled electronic withdrawal is made to pay a bill for $32.38 on January 20, Mary’s account is overdrawn by more than $300, and the bank rejects the transaction. Her bill goes unpaid, although the bank continues to charge daily negative-balance fees.

Finally, on January 25, Mary receives her monthly Social Security check of $904. However, her account is already $335 overdrawn and she still has an additional $500 in expenses for the month. Once these payments are made, Mary only has $31.09 left to live on until her next Social Security check comes in late February. Because of this, Mary almost immediately has a negative checking account balance again, once she makes three small ($20 or less) purchases on February 1. Over the next two days, Mary incurs two overdraft fees because of these purchases and conducts another transaction for $50, which also results in an overdraft.

Mary does not make any more purchases between February 8 and February 17. However, the bank again continues to charge her a fee of $7 a day because of her ongoing negative balance. On February 18, an automatic bill payment causes Mary’s account to go even farther into the red—a transaction that the bank approves even though her account is already below zero and she cannot even repay the $7 daily negative balance fee. Once Mary’s account dips to $314.91 below zero, the bank finally begins to refuse additional transactions, rejecting a utility bill for another month. The $7 daily negative balance fees continue to be assessed through February 21.

Finally, on February 22, Mary’s Social Security check comes in, and the account balance ends up above $400 once the bank subtracts the overdraft fees. Unfortunately, because Mary still has to pay her end of the month expenses totaling about $410, she is left with only $18.48 to tide her over until the end of March. This meager sum—even less than the $31.09 she had to make ends meet after being charged for overdrafts in February—virtually guarantees that Mary will continue to remain trapped in a cycle of accumulating overdraft fees month after month. In January and February, Mary paid $448 in overdraft fees in return for receiving $210.25 in credit from her bank, and was forced to live on $20 from a Social Security check of nearly $1,000. If Mary’s bank had instead offered her an 18 percent APR line of credit to cover overdrafts, she would have only paid about $1 in total fees for her overdrafts.

As you can see in the graph above, if Mary would have been offered a line of credit, she would have ended up with $420 at the end of two months and would have been able to pay her utility bills.

The Center for Responsible Lending is working to stop banks from being able to automatically drain Social Security funds from checking accounts, but the important takeaway for us is this: It’s important that you or your family consider switching to a bank that allows you to link a savings account or offers a less expensive line of credit so that you can avoid these fees — particularly if you or your loved ones are retired and on a fixed income. There will likely be a fee for this service, but when you consider the alternative, it may be a wise choice.

Here’s some basic information about overdraft protection from Bankrate. You can also compare accounts and overdraft fees with Bankrate’s checking account finder.

Shredded SecurityOverdraft practices drain fees from older Americans (PDF) [Center For Responsible Lending via CL&P Blog]
(Photo: michael.kinne )

Comments

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  1. swissdietcoke says:

    So….why doesn’t “Mary” have a credit card to begin with? Just because he bank won’t give her one, I bet somebody will. Why doesn’t “Mary” call her local utility company and explain to them the situation. “Mary” would be better off accepting a $5 late fee on her cable bill than continually overdrafting her account. There are so many options for those that live debt free. No eletric/power company will think any less of you for paying your bill a week or two late.

  2. hmbddd says:

    @swissdietcoke: Did you just “discover” the quotation key or something?

  3. Juggernaut says:

    C’mon Mary!! You’re f***ing it up for all of us!

  4. johnva says:

    Debit cards are a bad idea – especially if you don’t bother to balance them like you would a checkbook. Just say no to debit, especially if you would have serious problems paying off an overdraft. Credit cards would be a better option, both to minimize fees and to give the person on SS more flexibility on exactly when they pay their bill.

  5. Mudpuddle says:

    Are they hinting that people on Social Security should be treated differently than someone who works and still is on a fixed income? Sounds like a little checkbook 101 is in need here. Change banks if they charge you seven dollars a day for a overdraft, you arent chained to them? Even though I agree that banks can be greedy it is still up to the user to take charge!

  6. Bagels says:

    If she’s withdrawing $380 from an ATM, Mary’s name might really be Mary Jane

  7. This is a compelling idea – ING Direct already does this by offering an overdraft line of credit, but I’m sure most banks don’t.

    Obviously, Mary’s situation could be avoided by NOT OVERDRAFTING HER ACCOUNT, but the ripple effect of one bad transaction is terrifying here. People do make mistakes, and it shouldn’t be the end of your solvent financial life if you overdraft once.

    What the Center for Responsible Lending is forgetting, though, is that the Overdraft Line of Credit isn’t as profitable as assessing fees like the dickens, which is the real problem here. Banks make billions off fees that have no basis in real-world cost.

    It doesn’t cost much, if anything, to continue to show a negative balance in your account – yes, they’re floating you $24 or something, but that doesn’t justify $7 per day charges until your account is above zero again.

  8. Pylon83 says:

    I have little sympathy here. How do you get to be 70ish years old and on SS and never have learned to manage money? Further, if the SS isn’t enough to cover your bills, maybe it’s time to get a job.

  9. AnderBobo says:

    Perhaps this will get some overdraft fee reform legislation started. The banks are seriously robbing us of our money. What happened to the days when they were grateful to have OUR money for THEIR use?!

  10. @Pylon83: You’re not terribly familiar with the way family structures used to work are you? I used to have an elderly couple as neighbors. When the husband finally passed, their son had to show his mom of 76 years how to pump gas. She’d simply never done it before. If Mary from the example above was in a similar situation, she may not have balanced the checkbooks, and quite possibly never had any idea of what their finances were.

    She also could just be very bad at balancing her checkbook.

  11. HIV 2 Elway says:

    What happened to the days when they were grateful to have OUR money for THEIR use?!

    Well in these incidents the people are over drafting. You can’t lend much on a negative balance.

  12. SkyeBlue says:

    “Mary” should just take as much cash out of her account every month that she needs to cover her bills and other expenses then this problem would be easily solved.

  13. PunditGuy says:

    Wells Fargo will let you borrow in $20 increments for a $2 charge per $20. All you have to do is have a deposit within 35 days that covers what you borrowed. This is a hell of a lot cheaper than paying overdraft fees and negative balance fees.

    What the hell is up with those negative balance fees, anyway? Does the bank suddenly have to do manual accounting with ink wells and feather quills when an account goes negative?

  14. NoWin says:

    “If the consumers on Social Security were instead given a line of credit they could avoid this cycle of debt.”

    No, wrong. Using a line-of-credit is still getting into a cycle of debt, just at a lessor pay-back amount.

    Debit cards = usually bad.

    My bank (in a sizable working class city) offered a free seminar to senior’s for “budget planning” at each of our branch locations, and guess what!…even with notices at the local senior centers, 5 branches had no takers, and only a handful at the main-office location.

    Live and learn, or live and pay-up.

  15. kallawm says:

    Yeah, Mary needs a credit card or to borrow some money from the kids.

    This is odd. Most older people I know, especially those on a fixed income, are anal about their record keeping.

  16. bohemian says:

    We managed to put a stop to overdraft fees by micromanaging our debt/checking account. When there was a series of events that put everyone in a time squeeze at the same time it was payday and time to pay a bunch of bills – ta-da, we incurred an overdraft.

    The real issue isn’t as much getting people to learn how to defend themselves against the crazy system the banks have set up but stopping some of the worst of the worst practices.
    The $7 a day additional fee for being overdrafted should be illegal. I don’t have a problem with banks using overdraft fees but they need to be reasonable, not an excuse to rob someone blind.

    Our bank did what many did. They did away with the optional overdraft line of credit or overdraft protection. They also did away with the option of having your checking account try to pull money out of savings if you go over. They did away with all the safety nets and jacked up the fees. Of course this was done at a time where having banking services is more mandatory than ever before.

  17. Pylon83 says:

    @bohemian:
    None of these things are problems if you don’t overdraft. Manage your money and don’t spend more than you make/have. Seems pretty simple to me.

  18. famousmortimer78 says:

    Are there really that many seniors with debit cards?

    Seriously?

  19. hi says:

    @Pylon83: I can’t wait till you get older and have to pay child support since you’re so wealthy and pay for your kids college and their cars and insurance and your house and still pay your own bills with no job because you’re old with a bad back and arthritis. And then find out that social security doesn’t exist anymore. Oh yeh and then the bank charges you overdraft fees. I’m assuming with that attitude, divorce and child support is in your future.

  20. @hi: That was a little uncalled for. Pylon83 is right. This issue isn’t always as simple has Pylon said, but the comment was correct.

  21. Pylon83 says:

    No plans to have kids, too expensive. I also think that people should be responsible enough to not spend more on their kids than they make and shouldn’t rely on Social Security to take care of them when they decide to retire. And I’m not even remotely wealthy, but I can manage the money I do make very well and have NEVER over drafted an account. It’s all about management and responsibility.

  22. Pylon83 says:

    @InfiniTrent:
    I have yet to figure out why people feel the need to resort to personal attacks in these situations. Why can’t people debate an issue that they have different views on without cutting down the other person?

  23. GrandmaSophie says:

    As one poster here said, many of these folks have in fact never had to – never been allowed to! – manage their own money before. Also, in many cases, their sight is failing – my dad had to balance my grandmother’s books because she would make mistakes, not because she was careless, but because she had trouble doing the math when she couldn’t see the numbers clearly. Many elderly people aren’t lucky enough to have someone to help them like that. Many are suffering from low levels of senility that also make this chore more impractical, but again – who’s there to take over for them? As well, it’s easy enough to say, don’t spend money if you don’t have it. Well, tell that to the person who needs $80 for her heart medication. Neither of my grandmothers were spending frivolously. I don’t mean they were eschewing lattes at Starbucks. I mean they weren’t buying their grandkids Christmas presents. My grandmothers were lucky to have kids and grandkids who would give them anything they needed, but both were too proud to take much; so my father and his sisters would take his mother shopping for groceries once a month, or slip phone cards into her purse. Every cent of my grandmother’s social security and pension went to her (highly subsidized one bedroom efficiency) apartment, utilities and medical bills. If she had not been lucky enough to have people to pick up the slack for her, she would have either been be in debt, or dead of starvation.

    This isn’t careless spending, folks. This is survival. Social security does not provide enough to live on, even with subsidized housing and Medicare. My grandmother tried to make up for her kids helping her financially by babysitting her grandkids, but if she’d had to work to make up the difference – she was *way* too frail toward the end there to do that.

  24. Jaysyn was banned for: http://consumerist.com/5032912/the-subprime-meltdown-will-be-nothing-compared-to-the-prime-meltdown#c7042646 says:

    Don’t teachers only get paid once a month too?

  25. hi says:

    @Pylon83: That’s funny your comment was about “Mary” correct? Or maybe everyone who is 70′ish years old.

    To quote you:
    “I have little sympathy here. How do you get to be 70ish years old and on SS and never have learned to manage money? Further, if the SS isn’t enough to cover your bills, maybe it’s time to get a job. “

    and then…

    “I have yet to figure out why people feel the need to resort to personal attacks in these situations. Why can’t people debate an issue that they have different views on without cutting down the other person? “

    whatever …

  26. katylostherart says:

    this is reason to cash teh check at a grocery store and stuff the cash in your mattress.

    $7/day? disgusting. and 70 and get a job? christ i hope the people that say that drop dead at work because that’s obviously what they hope others do.

  27. Jbball says:

    Stop overdrafts and you’re set. OK? Done. kthxbai

  28. ShadowFalls says:

    @Mudpuddle:

    True, they should be more responsible and learn how to budget, etc. But, do not forget that people on Social Security get their payment on the same time every month. You may get paid every week or every two weeks, but how about trying to handle once a month on the same exact day. This has actually changed now, Social Security is now doing it based on your SSN and the second, third, or fourth Wednesday of the month, making it far more variable.

    You have to learn how to budget and get your bills to fit accordingly.
    For the elderly, who have enough trouble remembering to take their medication, this can be a daunting task.

  29. Pylon83 says:

    @hi:
    There is a difference between the commenters attacking the OP and the commenters attacking EACH OTHER. That was my point. I think when a story is posted for dissection, it’s appropriate to question and attack the story. However, I think it’s inappropriate for me to attack YOU because of YOUR take on the story.

  30. Pylon83 says:

    @ShadowFalls:
    We all have difficult tasks that we accomplish each and every day. I fail to see why the task of managing money is insurmountable.

  31. Erwos says:

    @katylostherart: That’s my plan. I don’t bet on social security being around when I’m 65, and I sure as hell don’t think I’m ever going to retire.

    I feel bad for these people, but that doesn’t necessarily mean it’s my fault they’re in the situation, or that I somehow have to be the one to lift them out of it.

  32. mandiejackson says:

    Sucks that Mary didn’t have a retirement plan. One way to avoid overdrafting? Don’t live beyond your means.

  33. hi says:

    @Pylon83: Actually I was standing up for the older folks that you were attacking. You think it’s bad for me to attack one person personally but you feel it’s perfectly legit to generally attack an entire age group. I can think of many reasons you’re logic has failed. Think about how some people attack an entire race of people and maybe you will understand.

  34. katylostherart says:

    @mandiejackson: sucks that most employers didn’t give retirement plans to women when she was joining the work force. too bad she got old before that.

  35. cmdrsass says:

    @katylostherart: There’s nothing wrong with working at 70. Retirement is not a right. It is a luxury that comes with planning and responsibility.

  36. katylostherart says:

    @Erwos: but at some point you are unable to work. then what? oh well, kill yourself?

  37. cmdrsass says:

    @hi: You’re overreacting. Settle down.

  38. savdavid says:

    Don’t you think that if Mary COULD get a credit card she would? No, I guess she just loves paying the bank a percentage of her fixed income every month. She feels sorry for the Poor banks.

  39. PunditGuy says:

    @Pylon83: Translated: Beating up on a 70-year-old woman is just fine, and don’t you say anything bad about me for doing so.

  40. purpletree8965 says:

    I think that pylon83 is a selfish person who has never had to do without. In these days and times people just don’t have enough money to retire. God help you when you reach retirement age. I hope that you have plenty of money because you are going to need it. Selfish people do not have anyone to help them when they get old. Of course, you don’t need help because you are so wonderful aren’t you.

  41. Pylon83 says:

    @hi:
    Again, you’re missing my point. First off, I never attacked an entire age group. I asked how THIS OP got to 70 without learning to budget. I didn’t say “old people can’t manage money”, my comment was directed to THIS person. Further, my point was it’s inappropriate for the commenters to launch personal attacks on each other. I’m not sure why you can’t see why that’s so.

  42. anarcurt says:

    First, isn’t overdrafts a concern of everyone? So why the age-ism.
    Second, banking is a service and if you cannot handle the fees for this service do not use it. She can simply cash her check anywhere as Federal Checks can be cashed at any bank without an account.
    Third, no one, regardless of age, should use a debit card for purchases unless they have a line of credit established or have significantly more money in checking than the purchases. By significant I mean in excess of 1,000 after the purchase. With MC/Visa holds and bad math alot of people will overdraw their account on stupid purchases that they should have cash for. I once worked at a bank. People would overdraft their account buying coffee at 7-11. A DOLLAR FIFTY CUP OF COFFEE! While the bank should wave these fees for simple errors do not expect them to, especially if you are a habitual overdrafter. Just have common sense.

  43. Gopher bond says:

    My checking account is overdraft protected by my savings account, which is nice. Of course, I had to bust my butt to save up the money to be self-insured against all but the most egregious overdrafts but I certainly wouldn’t expect the average citizen to do the same.

  44. katylostherart says:

    @cmdrsass: see but you’re saying this from a perspective where you’re not 70 yet. where you’ve been educated about this. where you’ve got things like a 401k or something. and where you know social security isn’t going to be available til you’re 75.

    that’s what gets me about people saying “oh well shoulda planned, that’s that.” do you think an 80 year old woman on social security NOW honestly has the same financial knowledge or was brought up with that that you do at 20 or 30 or 40 or even 50?

    the generation gap does count for something. my grandmothers worked all their lives, but their husbands pensions were what they both were retiring on. my grandmother worked 40 years for a city hospital and didn’t get a pension. sure she got a retirement “package” but it wasn’t anywhere near what my grampa got from the army and his engineering job after that. things just weren’t done that way. they’ve even regressed to just taking away pensions from men.

    to think that “sucks for you” is an appropriate response to things like this just makes me wonder what the hell is considered a decent human being any more.

  45. vgerik1234 says:

    Seriously.. is it that hard to understand? Get online checking… EVERYDAY check your balance. If you know how much you have, you will know what is important and not important to buy…. Mary wouldn’t have a problem if she checked how much money she had in the first place…

  46. Pylon83 says:

    @vgerik1234:
    You have to be careful with logic like that. Expecting people to assume any personal responsibility is just provoking personal attacks on yourself.

  47. killian716 says:

    I agree with katylostherart. The generation gap does account for a lot these days. I’m a college student now, and I still have to teach my parents how to properly use a blackberry, for example, even if I don’t have one. Our financial knowledge wasn’t the same in the 50s or 60s, when these older Americans would have been around my age. Plus, especially for women, many of these issues might have been taken care of by the male members of the households; yes, there may have been many women at that time who took care of their own finances, but there is a large possibility that the men watched over the money.

    And overdraft isn’t just a problem solely for older Americans: I’ve been hit with a big overdraft fee just a couple of months ago; my mother got really mad at me for that because I almost didn’t have the funds to cover it. And it’s not like I’m not paying attention, since I keep watch over my account as often as I can. But the thing is, particularly at the time the overdraft took place, I had other things to worry about…like MY HOMEWORK!! Yes, you can keep saying “to stop overdraft fees, stop overdrafting”, but realistically, no one’s going to remember the EXACT balance in their debit account. And you can say that “debit cards are bad, so don’t accept a debit card from your bank”, but for many of these seniors it’s easier to carry a card than have to worry about keeping track of cash. Try figuring out which coin is what when your eyesight goes bad, or squinting at a $5 bill to make sure it’s actually a $5, and not a $20.

    Another problem with overdrafts is the various bank policies involved. I know this is a problem among college students: they get paid, and they deposit, then they go off and spend money via debit card thinking “Oh gosh! I have all this money now!”, but they get hit with an overdraft the next day because of the bank’s deposit policy. Many banks don’t actually “deposit” one’s check until the next business day, especially when you’ve actually deposited your check after a certain time (Wachovia, for example, won’t add the new numbers to your account until the next business day if you’ve deposited after 3pm on a weekday or over the weekend). I’ve actually been hit with a (small) overdraft charge because I thought I had more money, when in “reality” I didn’t. In these cases, it’s not even the person’s fault: it’s the bank’s fault for not advertising their own policies to increase awareness among their customers. THAT’S a big problem these days about overdraft.

  48. katylostherart says:

    @Pylon83: expecting that there are never mitigating circumstances is illogical.

  49. Rider says:

    Don’t spend money you don’t have. Problem solved.

  50. katylostherart says:

    @Rider: what about when the bank spends money you don’t have? re: $7/day negative balance fee.

  51. GlennA says:

    Sounds like usury to me (which used to be illegal).

  52. Pylon83 says:

    @katylostherart:
    If you hadn’t spent money you didn’t have, you wouldn’t have a negative balance.

  53. katylostherart says:

    @Pylon83: oh i totally get that. and i don’t spend money i don’t have. but what about when the bank does. that’s ok?

  54. cmdrsass says:

    @katylostherart: I see enough elderly folks who have retired well on meager incomes without pensions to know that you’re just putting forth lame excuses. A 70-year old retiree is the child of depression-era parents. To suggest that most didn’t receive a harsh lesson in frugality and hard work is simply ridiculous.

    If you planned poorly and can’t make ends meet on that SS check, get a job. If you can’t work, rely on family for support. If you have no family, rely on friends. If you have no friends and no family and can’t work, then cash in some assets or it’s off to a state-subsidized senior living facility.

  55. katylostherart says:

    @cmdrsass: and she probably will be doing just that. so now instead of just living off social security, she’s getting social security and state aid. great solution isn’t it?

  56. camille_javal says:

    @vgerik1234: Easier said than done when you’re still dealing with a lot of fairly elderly people who have never/barely used a computer, and probably won’t be able to learn very well how to. In addition, money management online by someone who is borderline senile and not very good at weeding out scams could quickly turn into bank overdrafts being the last of their problems.

    Thanks to the miracles of modern medicine, people are living to be a lot older than they used to. Many of these people now are coming from generations where (as mentioned above) women didn’t, or weren’t even allowed in some families, to manage their own money, where you relied on a company (or, bless it, military) pension, and where you trusted companies to work with you on a much more personal level (because that’s what they did until it became unmanageable).

    Good lord, my grandmother had a banker who would call her if her account went into the red. If you say that people should understand things have changed, that’s fine – tell that to the 87 year old with no family who can’t always remember that his wife died two years ago.

    @Pylon83: As you’re not planning on having children, make a point of getting some kind of caretaking provision set up as you get older, to take effect when you actually need it. Because, barring illness, accident, or getting hit in the head by any number of Consumerist commenters, you will live to be old, and eventually your body and your mind will wear out, and you will need someone to take care of you – or to strap you to the ice floe, if that’s your thing.

  57. opfreak says:

    @ShadowFalls:

    i used to get paid once a month. It was hard the first month.

    after that I loved it. paid all the bills on day 1. And knew how much money I had left to blow for the rest of the month.

  58. @GrandmaSophie:

    Social security does not provide enough to live on, even with subsidized housing and Medicare.

    Social Security was never intended to be a primary source of income once retired – it always was, and certainly now is a supplement.

    As another poster said, “retirement is not a right”. We as Americans think that it’s our right, but it is not. It’s a privilege earned through proper planning and saving. The government and others shouldn’t be relied upon to provide for us, especially with what we know about Social Security’s current state.

  59. katylostherart says:

    @InfiniTrent: retirement at a certain age is a privilege. but honestly if you can’t make any leeway for the aged becoming infirm, senile, handicapped and expect them to work you are putting the capable in the same class as the incapable. what’s the point of paying into and living in a system that will not provide for you despite the fact you have provided for its existence?

  60. vgerik1234 says:

    @camille_javal: I was merely stating that people should not complain about becoming in debt, when they have the ability to monitor their current status. Whether that is online, calling up the bank, asking a family member to monitor it, etc. It just amazes me on how much people complain when most of the stuff that went wrong was their own fault.

  61. katylostherart says:

    my grammar is one hot mess today…

  62. Flynn says:

    Am I the only one who is more offended by banks that charge you to transfer money from savings to checking to cover this? I mean, I can understand them charging to essentially float me a loan, but when Chase was saying it was $5 a transaction to transfer my own money, I had a HUGE problem with that. That transaction can’t possibly cost them anything. I was happier setting up a credit card to cover overdraft. At least then the $5 fee was for using their money, not mine.

  63. Pylon83 says:

    @Flynn:
    The “cost” to them is having to pay someone to write the software to make the transaction. I don’t think it’s entirely unreasonable for them to charge a fee for that service.

  64. mac-phisto says:

    so, the consensus is that charging $450 for $200 of credit is ok…is that what i’m reading here?

    wow. just wow. anyone know of any other consumer sites that haven’t been infested by the pretentious yet?

  65. drjayphd says:

    @Pylon83: Yeah, Mary isn’t here to defend herself. ;)

  66. jimconsumer says:

    Here’s an idea… You could, oh, I don’t know, STOP SPENDING MONEY YOU DON’T HAVE!

    I’ve never been charged an overdraft fee, with the exception of one occasion where a company fraudulently attempted to take money out of my checking account, and that was immediately refunded (because it was fraud, duh). I use these rare abilities called common sense and basic mathematics to determine whether or not I should buy something.

  67. RandomZero says:

    Perhaps this is just one of those nuances of the American economy I don’t understand, but… why exactly are debit cards so evil, and is it ALWAYS possible to incur overdrafts on them?

    I live off my debit card, exclusively – the credit card is only for online orders and paid off within 5 minutes. I’ve also never incurred an overdraft – I can’t, because I’ve declined repeated offers of an overdraft LOC.

  68. RandomZero says:

    Maybe this is one of the nuances of American economics I don’t get but… why are debit cards so evil, and is overdraft really necessary?

    I say this as sonebody who lives entirely on his debit card with no difficulties (I keep about $20 in my wallet for emergencies, but that’s it), and cannot run an overdraft if he tries. (The bank keeps trying to change this, but I keep refusing for precisely this reason.)

  69. howie_in_az says:

    Good for Mary. Glad to know my donations to SS are going towards someone that can’t manage to budget her money.

    Social Security is an utter joke anyway. It’s not like I’m ever going to see it, yet I’m forced to pay into it. The money I forcibly donate could be much better served in a 401(k) or Roth IRA account. Better still, if I was to die prior to my soon-to-be-wife, there’s no guarantee she’d get my benefits. This happened with my mother, who had been married to my late father for a few years shy of his entire working career.

    My grandfather, who recently turned 95, spends some of his Social Security checks at the race track, some of it on his grandchildren, and he’ll occasionally take his crazy girlfriend (I wish I was joking) out to dinner and a movie, which involves a car service since he’s too old to drive. He has other investments that pay for his condo, food, home care, etc… like I’d hope everyone else had. Enough of relying on The System to support you, start supporting yourself.

  70. snazzycarrot says:

    Yes, people should avoid spending money they don’t have and, yes, those who do should face consequences for doing so. What seems wrong to me is the lack of a sense of proportion I am seeing. Life should not be like walking a razor blade wherein one slip up ruins your life. The consequences described in the article seem way out of proportion. And it seems like there are lots of people who believe that any consequence is fitting for any transgression that can be thought of as avoidable. Alarming.

  71. johnva says:

    @RandomZero: You can get charged an overdraft fee without an OD line of credit. The transaction will still go through with most banks if it exceeds the amount of money in your account, but you will then get slapped with a fee and forced to pay back your negative balance immediately. With an OD LOC you just get an interest-bearing loan instead.

    Debit cards are bad, in my opinion, for a number of reasons:
    * They allow a large selection of random place direct access to your checking account. Credit cards provide a buffer.
    * They still don’t have the same legal consumer protections as credit cards.
    * They can put you in a much worse spot if fraud occurs or a large hold is placed on your account (as in the gas station thread a while back).
    * They often increase the likelihood that you will overdraft your account, since most people keep a lot less money in their checking accounts than they have as credit lines on their credit cards.
    * They make you pay your own money out instantly, instead of letting you keep it for a month and make interest on it. This can matter for big purchases.
    * They usually offer inferior rewards programs to credit cards if they offer rewards at all.

  72. mac-phisto says:

    @RandomZero: roughly 6-8 years ago, banks changed their policies concerning debit cards. they determined that by allowing customers to overdraft their accounts, they could substantially increase their revenue from the card program.

    some institutions still deny charges that will cause your account to overdraft. others will allow you to decline “courtesy overdraft” (though it is usually not advertised) & others outright refuse, claiming that 1) it is not their responsibility & 2) they are saving you the embarrassment of having your card denied (& charging you exorbitant fees for to save face).

    i’m not sure where you’re from, but the u.k. is dealing with similar issues. the office of fair trading is supposedly going to take an official stance by this fall –> [news.bbc.co.uk]

  73. @katylostherart:

    retirement at a certain age is a privilege. but honestly if you can’t make any leeway for the aged becoming infirm, senile, handicapped and expect them to work you are putting the capable in the same class as the incapable. what’s the point of paying into and living in a system that will not provide for you despite the fact you have provided for its existence?

    I understand, but I don’t think that’s the problem in this particular article – the lady overdrafted her account, and for all we know, it was so she could play Bingo.

  74. @mac-phisto:

    so, the consensus is that charging $450 for $200 of credit is ok…is that what i’m reading here?

    wow. just wow. anyone know of any other consumer sites that haven’t been infested by the pretentious yet?

    Nice Straw Man. Few here are arguing that the massive fees are okay. Most are saying that if she hadn’t overdrafted her account, she wouldn’t have been assessed any fees at all.

    The only pretentious comment I’ve seen here is the holier-than-thou simplification quoted above.

  75. @snazzycarrot:

    Life should not be like walking a razor blade wherein one slip up ruins your life. The consequences described in the article seem way out of proportion.

    Agreed – see my first post for my opinion on the matter.

    All would be fine if she hasn’t overdrafted her account, but as you said, the consequences were out of proportion with the offense.

  76. RandomZero says:

    @johnva, mac-phisto: Wow. That’s just… wow.

    It blows my mind that an essential service like that isn’t more strictly controlled. Debit up here is instantaneous (no “holds” except on ATM deposits for large sums), insured (fraud happens, you get paid), controlled directly and indirectly on several levels (including the hardware level for POS systems) by the banks, and I’ve never heard of opt-out overdrafting up here. Things like this should be a basic damn right, given that banking is an absolutely essential service (unless you want to get paid in cash, but I imagine the gov’t wouldn’t like that).

  77. mac-phisto says:

    @InfiniTrent: whatever. your second post sums it up nicely: All would be fine if she hasn’t overdrafted her account, but as you said, the consequences were out of proportion with the offense.

    she DID overdraft her account & therefore was punished disproportionately. arguing that if she hadn’t overdrafted then there wouldn’t be a problem is an irrelevant thesis.

    the issue is the fees, yet the majority of the board takes the easy road – duh! don’t overdraft! yes, i get it. if you don’t overdraft, you don’t get charged fees. i’m shocked. that’s quite a revelation there.

    let’s talk about the real point of the article – banks are charging exorbitant fees on overdrafts that are disproportionate to their exposure to risk & as a result, this impacts those of lesser means in a manner that requires them to choose between basic necessities of life.

    or is that too difficult a concept for us to wrap our minds around?

  78. mandiejackson says:

    @katylostherart: i was being mildly sarcastic

  79. mandiejackson says:

    @RandomZero: i’ve never had an overdraft either. though i bank with bank of america and i am pretty sure they don’t charge you a daily fee, but they will charge you the 35 bucks on every purchase after you have overdrafted.

  80. donopolis says:

    Where do these people get off being poor and making mistakes….

    Don

  81. I’ve never had an overdraft, so what I don’t understand is whey open your account can’t you request them to deny any charges that will cause an overdraft? That way instead of getting hit with an overcharge fee, your card gets declined. If I ever get a debt card thats what I would try and request

  82. Flynn says:

    @Pylon83: First off, it’s a fixed cost. You enable your system to do that once and it never changes. So to have a fee *per transaction* is gouging.

    Second, I’m a programmer. They already trigger all kinds of things on events. The system clearly has to be able to support things like telling them when you’re overdrawn, adding overdraft fees, scheduling payments, etc. To link that up to a transfer is TRIVIAL at best.

    The main point is to get you to keep MORE money in checking, which pays a lower interest than your other accounts. They keep the barrier high so that they’re making more money off of your money than you are. It’s sly and dishonest to say that $5 is anywhere close to a proportional charge for such a devious thing, considering how trivial it is to implement. You have the money, but because it’s in a different balance column, you end up being charged for use of your own money. ATM fees, despite sucking, I can at least understand. There’s transaction costs to get money back and forth between institutions. But charging to use your savings as overdraft is just plain greed.

  83. katylostherart says:

    @InfiniTrent: sure, maybe it was to play bingo. maybe it was to feed 30 cats. but there are probably millions of people in america with accounts being treated like this. bank overdraft fees for a “loan” are fairly on par with those payday loan places. but for some reason no state attorney general saying “stop fucking your customers over with 300% loan rates.

    it’s even worse when it’s towards someone who lives off so little. at her age it’s really almost worth it to just say fuck the bank, cash the check at a walmart or something and just not bother ever paying back the bank. $1000/mo isn’t much but it’s probably sufficient, until she deals with the bank. when that immediately gets cut in half because she went over ONCE, her account only gets a deposit once a month and they charge $7/day for the rest of the month (which for all we know could be 30 days) it’s just pretty obscene.

    i’ve had my bank account overdrawn by $120 despite my available balance telling me otherwise. so with the vision of my statement saying i was ok, i went and made purchases. this was AFTER i EXPLICITLY told them i did not want any transaction going through if the funds were not there. so if the funds weren’t there, how did four transactions go through? i made them send me this in writing after they refused to reverse the fees. do i think this will stop them from doing it again? no. and the best part was, i had the money. i saw my balance online and went “hmmm, that’s going to hurt if i don’t do something” and transfered money. i apparently missed their transfer cut off time but they still showed me as having an available balance well in the black. so checking online would prevent this? not really. and this is incredibly common for banks. it’s ridiculous.

  84. admiralguy says:

    What, if anything does this scenario have to do with being on SS, or having a fixed income? This is the same debt cycle that anyone fiscally irresponsible could fall into. What they are really saying is that at a certain age, personal responsibility should go out the window. I’ve seen a lot of the elderly make some really bad financial choices…but it’s THEIR choice. No amount of government regulations can keep folks from throwing away their money.

  85. blong81 says:

    Mary is dumb for thinking that the government was actually going to take care of her when she got old.

  86. @mac-phisto:

    whatever. your second post sums it up nicely: All would be fine if she hasn’t overdrafted her account, but as you said, the consequences were out of proportion with the offense.

    she DID overdraft her account & therefore was punished disproportionately. arguing that if she hadn’t overdrafted then there wouldn’t be a problem is an irrelevant thesis.

    I think we’re agreeing here – the only issue I took with your statement was your apparent claim that all commenters here were okay with the fees being assessed.

    The “just don’t overdraft your account” suggestion is relevant to the discussion. Obviously the fees would never have occurred had there been money in the account. But I digress – that’s really not what we’re talking about here.

    the issue is the fees, yet the majority of the board takes the easy road – duh! don’t overdraft!

    Sometimes commenters assume the person is already voting with their dollar and planning to take their business elsewhere – in the meantime, the best way to avoid further fee-laden debacles is to avoid them by not incurring the fees.

    It is material to the discussion that Mary did something equal to writing a bad check by overdrafting her account – the bank should have some recourse against someone who effectively stole from them. I do agree with you that the amount assessed is exorbitant, and the consequence out of proportion to the sin committed.

    let’s talk about the real point of the article – banks are charging exorbitant fees on overdrafts that are disproportionate to their exposure to risk & as a result, this impacts those of lesser means in a manner that requires them to choose between basic necessities of life.

    This is unacceptable, I agree. Since the effective percentages are worse than even payday lending joints, the fees should be covered under Usury laws. The loophole of “oh, it’s a fee, not an interest rate” is unacceptable, since the net result is the same – massive fees resulting from the use of one’s money.

    or is that too difficult a concept for us to wrap our minds around?

    Condescension is a good way to lose friends and have your arguments disregarded. Ad Homenim attacks like this hurt your point.

  87. Tankueray says:

    @valarmorghulis: “their son had to show his mom of 76 years how to pump gas.” If she was his mom for 76 years, then he was 76 years old… how old was she?

  88. @katylostherart:

    sure, maybe it was to play bingo. maybe it was to feed 30 cats. but there are probably millions of people in america with accounts being treated like this. bank overdraft fees for a “loan” are fairly on par with those payday loan places. but for some reason no state attorney general saying “stop fucking your customers over with 300% loan rates.

    I agree that it’s unacceptable that just because it’s called a fee, Usury laws don’t seem to apply. Not all banks do this to this extent, and they certainly do deserve some compensation when somebody overdrafts their account – effectively they’ve written a bad check.

    I don’t have a problem with, say, a one time $30 fee, and then weekly $5-$10 fees until the account is above zero again. We’re not entitled to a free loan at the bank’s expense. But $7 a day? Absurd. That’s just being opportunistic and is not a fair way of making a profit, whether the fees are disclosed in advance or not.

    at her age it’s really almost worth it to just say fuck the bank, cash the check at a walmart or something. it’s just pretty obscene.

    Of course, Wal-Mart will talk her into one of their fee-laden “Money Cards” that are “better than cash”, and the cycle will begin again.

    There’s no excuse for not knowing your bank balance – if you’re too senile to do that, you’re too senile to be handling your own money. But it’s also totally unacceptable to assess fees like this, which victimize those with the lowest balances (which are often the lowest-income members of our society).

  89. Yeah, deadbeats! Just don’t overdraft! Even if the Los Angeles Unified School District bounces your paycheck 21 days after you deposit it, you should have psychically known the check was going to bounce and never have paid your bills with said pay!

  90. DomZ says:

    Yea unforuntately offering an overdraft line of credit only makes things worse for 90% of the people in these situations. They either A.) forget to pay it back, B.) forget the automatic payment is coming and draw back into the credit line or C.) pay the minimum and continually tap it monthly until its maxed.

  91. mac-phisto says:

    @InfiniTrent: wow. a point-by-point breakdown. that’s great. first time on the internets? *yawn*

    overdrafting is not a “sin” (last time i read the bible, anyway) & is not “…effectively st[ealing] from them”. banks allow customers to overdraft to generate revenue. dollar for dollar, it’s the most profitable portion of their deposit operation.

    do you know what mary’s effective finance charge is translated into an APR in the above example? 1298%. & that’s only using a simple calculation. in all actuality, it’s much higher than that b/c her balance fluctuated. but let’s not talk about that. let’s spout highly intelligent criticisms like DON’T OVERDRAFT – IT’S A SIN! GOD WILL SMITE YOU!

    but i digress. take the board. you can have it. i’m done.

  92. mammalpants says:

    @johnva: you are completely right! debit is bad news.

    convenience is not always the best option.

  93. Coles_Law says:

    Granted, she should have managed her money better. But $7 a day? Really excessive. The worst I’ve seen is $1/day, and there are banks that don’t even do that (yet).

  94. daniinpa says:

    All these people calling her a deadbeat and other nasty things but do you see how little money she has each month? All it takes is one unexpected expense to send her into the overdraft cycle, and it’s impossible to escape unless you can get a benevolent family member or friend to buy you out of it, or maybe you luck out and get an extra check for something.

    I’ve seen my mother go through this and now that I am disabled and living on Social Security I’m going through the same thing. In fact, right now my bank account is close to negative $100, with more fees every day. I just count down the days until I get my next check, which will be well over $100 less than it should be. And then I have to wait a whole month before I get anymore money, while finding a way to live and pay my bills. Who knows what I will do next month. So I can understand what Mary is going through.

    I was about to hit submit but I realized that I didn’t say why I’m overdrawn. Shouldn’t have to and it probably won’t stave judgement, but I was part of the low-cost Earthlink wifi Philadelphia program that used to exist and was shut down this month. They pre-emptively charged a lot of us $75 for the modem and promised to give the money back once they received the modem. This after promising that they would not do that. Earthlink never pays for overdraft fees when they are at fault, they did this to me before and offered a free year of service to make up for $300 in overdraft fees caused by their incompetence. I was actually in the middle of my free year when they decided to shut down the program. And now I end up back where I began, with another bogus Earthlink fee destroying my bank account, and who knows what I’ll do next month.

  95. scerwup says:

    God, I just have to comment to all you assholes that seem to think she should stop spending money she doesn’t have. You know what, I was going to write a comment telling you why not, but nevermind, you aren’t even worth the effort. So, I hope all of you rich people never become old, never have some disaster that drains all your money and then are forced to live with no help on $1000 a month. Because it happens, no matter how full of yourselves you are, bad things happen. Good luck when you need expensive medication every month, a place to live, and God forbid, food to eat. Maybe even get to eat every day. Actually, I hope you all get old and are forced to live on the streets, you people are ridiculous and deserve all the financial problems you inevitably get when you become old, and I hope noone helps you. Please don’t try to do anything about it either, because you should not have spent money you didn’t have.

    By the way, it seems to me that she did know how much money she brought in every month, and knew what she could pay, but, maybe she made a small mistake, overdrafted once, and then the money she DID have was all drained by her bank.

    Good luck in life to the assholes…

  96. arl84 says:

    For real. Why are people being so heartless about this?

    There are a million reasons Mary could have overdrawn. Banking is not an easy concept that everyone can understand, but, in this day and age, everyone has to have a bank account anyway. Which forces people to use a system they don’t understand well. They’re just not financial people.

    Also, especially when you’re on a fixed income, any small unexpected expense can throw everything off. And EVERYONE has unexpected expenses from time to time.

    The first thing Mary needs to do is change banks. & a day for overdraft? Completely unreasonable, especially because the initial fees are so high too. Also, Mary should call the bank and have them reverse the fees. She is a special case, and sure, she might get one of these heartless commenters when she calls, but most supervisors understand these situations and try to help customers.

    For real people. It’s called compassion.

  97. sixcolors says:

    Isn’t this well above the legal interest rate for borrowing?

  98. JessicaJessica says:

    Yeah, vgerik1234, to get online checking would be a great idea!! That’s just what she needs – another monthly expense that she can’t afford (for Internet) which will rack-up even more overdraft fees.

    Are you Mary’s financial advisor, perhaps? Or maybe you work for the bank?

  99. incognit000 says:

    I get paid once a month at my job, because of some silly deal where the direct depositing costs them less if they do it less often. So I find that every month I dip into the credit cards and then pay them off the next month. If I didn’t have access to those, I don’t know how I could survive only getting paid once a month. You just don’t know when something’s going to smack you upside the head and need to be paid right away. I can only imagine how hard it must be when the check comes from Social Security, and you don’t have access to credit.

    Of course the solution here is to mandate that all social security pensioners be granted a small amount of credit, to be based on the social security payment they recieve. But who wants to bother helping old people escape from an endless cycle of despair?

  100. du2vye says:

    That article used a poor example. Mary was stupid for continuing to spend what she didn’t have – Duh.

    What I caught my bank doing was charging my account with bill pay fees, etc. hours before my SS check arrived. So if it was deposited on the 1st, 3rd, or 5th, it didn’t matter. I could check my acct balance at 8 p.m. and there would be $8 and 15 min. before midnight, there would be $1.

    I don’t know if they were targeting all direct deposits that way, but after I complained, they stop doing it to my account. My bank fees come out of my account on the 1st now.

    I think the thing that’s missing in this story is that SS checks are FEDERAL Funds. And with that, there’s certain protections (or used to be) agree with it or not. Anyone living on SS needs all the help they can get.

    The other principle is that a lot of stores have the ability to know the actual balance. So when someone overdrafts their account, the store should give them the choice – the automatic overdraft is equal to a very expensive loan without consent.

  101. bwcbwc says:

    @Pylon83:

    Lest we all forget, “Mary” is a hypothetical case, a computer model, so there is no old lady being kicked while she is down here.

    On the other hand, you show a lack of historical perspective here. It’s nice to see your built-in assumptions of equality for women extending even to the responsibilties of equality rather than just the benefits, but those assumptions aren’t always valid. If she’s 70, she probably got married and had kids in the early 1960′s or so. In those days, women usually left the family’s finances to “the man of the house”. My mother is in that rough age range and she didn’t even get her driver’s license until I was about 8 years old and she was about 28. Granted it’s been 40 years that “Mary” could have used to educate herself (which is what my mother did), but there are plenty of traditionalists who never did.

    Even if she had learned how to take care of herself, there’s a fair chance (probably around 30%) that she has lost the capability due to disability. For example, said mother has macular degeneration and she has to put everything on auto-pay now because she can’t read the bills anymore. If someone starts playing funny games with the billing dates and amounts, she could find herself in a similar situation.

    It’s interesting to observe the collision of cultures here between the posters sympathizing with the lady.

  102. bwcbwc says:

    Oops. Abort, Retry, Ignore? Go ahead and sympathize with “Mary” all you want. Call me stupid and drain my bank account, while you’re at it..

  103. OldStyleLite says:

    Wow! Only in America would people side with a giant corporation against a 70 year old lady! I don’t know about you, but most people NEED to have a checking account and also have very little choice in who they bank with because all of the big banks have bought up all of the little banks which used to be more customer oriented. Why no sympathy for the old lady?

  104. PaydayConsumer says:

    The fees charged by banks for overdraft loans are excessive. Sometimes I miscalculate my account balance in my register and am only $1-$5 in the negative. If I make a purchase of a soda or sandwich at lunch for $1 or $3, I still get hit with a $39 overdraft fee which is over the top. On other occasions, a bar or restaurant may “withhold” more money from my account (in pending transactions) than the amount of the actual purchase, sending my account into the negative. It’s situations like these that make it difficult for people who are already living from paycheck to paycheck to get ahead. Let’s face it – even the order in which transactions go through are manipulated for maximum number of overdraft fees. It’s not always the consumer’s fault that they find themselves in a cycle of debt – the system is often rigged to give banks the maximum profit possible. It’s time we did something about this. I’ve likely paid my bank $3,000 is 7 years as a customer because of this overdraft program (and I wasn’t informed of the possibility of applying for an overdraft protection line of credit until it was too late).

  105. tinpuck says:

    I don’t think the point of this article was that Mary can’t manage her money it’s more that people with a fixed can become trapped in a cycle of debt perpetuated by the banks. The banks have set up a system whereby they can charge large amounts of money for simple errors by consumers. Daily overdraft fees, allowing multiple overdrafts and authorizing payments without available funds are the big issues. Even working within a budget mistakes are made and these policies make those mistakes more costly than is reasonable.

    Mary’s example is a perfect representation of how a single mistake can snowball into a large debt. The bank was authorizing these overdrafts under the guise of offering credit to complete purchases. There is very little benefit to the average person in letting these overdrafts occur. If you were short a dollar to make a purchase would you borrow it from someone under the condition that you pay them an extra thirty in return? I don’t think so. Most of the time these banks are not that transparent, even if they are some don’t give you the choice to opt out of these sort of programs.

    This isn’t a problem for most people. It isn’t for me at this point in my life. I am lucky enough to enjoy a good income and don’t spend beyond my means. I haven’t always been so lucky. During my time in college I was on a set income and even though I managed my money meticulously I had close calls and managed to overdraft once or twice. It’s easy to say now that those situations will never happen again, but I remember what it’s like and how the system is built not to protect you but gouge you. One mistake and there goes your money for books, tuition, gas. No gas, no class and if you live in the burbs no job. When you’re popping iron supplements so you can donate blood one more time just to make ends meet you tend to wonder why the system is set up this way.

    Say what you like about the United States, it’s a great place to live. I believe there are more opportunities here for any person regardless of race, gender or class than anywhere else in the world. One of the principles it was founded on was the idea that people are entitled to life, liberty and the pursuit of happiness. While no where are these things guaranteed, there comes a time where we have to ask ourselves are we as a country doing everything we can to promote these ideas and offer someone every chance to succeed. In this case, I think the lack of regulation in the areas of banking and credit are falling short and ultimately hurting the average person. In the end, that will just hurt the economy.