https://www.brookings.edu/rese...ting-over-overdraft/

What began as a modest add-on service to select customers quickly morphed into a profit center for banks (and credit unions), with estimates of total fees paid ranging up to $30 billion a year.

The biggest banks were making over $1 billion a year on overdraft fees, while overdraft income grew to an astonishing 20% or more of earnings for smaller ones

Overdraft fees, effectively interest on loans, are extremely high cost given the small amount of money loaned via an overdraft, the short term of the loan, and the minimal chance of default. As a result, overdraft fees result in nearly pure profit for the bank (or credit union). No wonder one bank CEO named his yacht “Overdraft.”

After decades of racking up major profits off overdrafts, many banks, including most of the largest banks, have announced sweeping changes that will sharply reduce costs for their customers

80% of overdraft fees come from just 9% of account holders. Heavy overdrafters are highly profitable customers, often producing more income for banks than more affluent customers who may use other paid bank services but always maintain positive balances.

Overdrafts had generally been priced at about $35 each, with institutions setting a maximum number of daily overdrafts (often between four and eight) as they covered cascading shortfalls for a stiff price.

long article much more at link

In my 42 years of banking, I always chuckled at the folks that said they were the bank's best customers because they kept $1,500 (or some other number) in their checking account. Not even close. The article is right on the money - the folks that had a half dozen overdrafts per month were the bank's best customers. If the time came when we had to close an overdrafted account and write off the balance, the balance was usually OD charges and not hard money lost.

When I started out the OD fee was $6 and gradually went up to $30 per item today. When I started, you could write a check at the bar a day or two before payday and be safe. Not today. Most everything clears overnight as checks are scanned and electronically cleared. Progress.

I have a hard time feeling bad for people not being able to manage their money. There are always some exceptions but I'm willing to bet majority are just poor lifestyle choices.


Banks did exploit the overdraft policies and I believe there were some watch guard measures implemented.

If you had $100 in your account and made $80, $20, $1, $1 purchases in one day they would process the 80/20 purchases first and generate two overdrafts rather than process the 20/1/1 first which would generate one overdraft.

At one point my friend tried to get a start up linking a credit card to your checking account. If there was an overdraft, you'd receive a text and you can pay for the difference with a credit card immediately to prevent the overdraft. No banks wanted this.

The alternative is the bank returning the check for NSF. Then we'd get the articles about how mean the big bad banks are. I'm with gpbst3, if you don't have it, don't spend it.

Slight thread drift - how many people these days actually know how much money they have available to spend in their account at any given time? I doubt "kids" these days even know that they need to balance their checkbook i.e., account), much less how to do it.

Another example of "the man" taking advantage of the poor, according to the liberals.
This is really another example of how you can't protect some people from themselves. The math skills needed to successfully avoid overdrafts should be easily mastered in the early years of grammar school.
What can't be forced on people is a bit of self-control and really basic common sense.

I have had success getting these fees waived. I have a good relationship with the bank manager. I will say this does not happen often. In the past the bank would put a hold on funds that had not yet cleared. As a consequence a check might bounce. After our discussion, they no longer place holds on uncollected funds.

quote:

Slight thread drift - how many people these days actually know how much money they have available to spend in their account at any given time? I doubt "kids" these days even know that they need to balance their checkbook i.e., account), much less how to do it

^^^^^^^
With online banking keeping track of an account balance is pretty easy. Many 20 somethings do not even have a checking account using other methods to pay bills.

quote:

Originally posted by davetruong:
At one point my friend tried to get a start up linking a credit card to your checking account. If there was an overdraft, you'd receive a text and you can pay for the difference with a credit card immediately to prevent the overdraft. No banks wanted this.

My bank offers this very thing. It's called Overdraft Protection.

You link your checking account to another savings account or credit card account you hold at the bank. If you overdraft your checking account, it pulls from the alternate account.

quote:

Originally posted by IntrepidTraveler:
I'm with gpbst3, if you don't have it, don't spend it.

Yep. Overdrafting checks is a last-century error.

I use a credit card, pay the balance off in full every month, a day before due date. Not only are there no fees, and no interest due to the pay-in-full strategy, I get a percent or two back, and get to use the bank's money for a half-month on average, for free. Plus, if there's a dispute, it's about the bank's money and the bank is on my side.

As an ex wife used to think: “Overdraft? But there are still checks in the check book!” She seemed to act as if having blank checks in the check book meant that there was plenty of money in the account.

This was a person with a Bachelor’s degree in education.

quote:

Originally posted by davetruong:
At one point my friend tried to get a start up linking a credit card to your checking account. If there was an overdraft, you'd receive a text and you can pay for the difference with a credit card immediately to prevent the overdraft. No banks wanted this.

USAA does this for me. Only saved my butt once many years ago when I forgot to transfer money into my account before the first of the month that my mortgage payment comes out of.

Yep, and if y'all don't mind, I'd like to mention credit card late payment fees. Slight thread drift...

I received a letter from CitiBank, they run the Home Depot credit card operation.

The letter said they "may" may charge up to a $40.00 late fee if a payment is late.

Yeah, right, "may" charge up to $40. They'll slap that fee on so fast you'll get whiplash trying to see that.

I pay all my bills electronically now, either through my credit union account which has a bill paying feature, or set up to hit my credit card automatically. There's been a few times over the years when my mailed in check didn't arrive on time, or never arrived at all. Piss ya off, that will. Now that I pay electronically, nothing like that will ever happen.

Banks and bounce fees, credit card and late payment fees. IMO they're out of control.
.

quote:

Piss ya off, that will. Now that I pay electronically, nothing like that will ever happen.

^^^^^^^^^^^^^^^^
Except when your internet and power go down. They will slap on the charge, but take if off when you call. I agree late charges are out of control. At least we do not have any local banks that charge to see a teller.

My credit union has a line of credit/credit card on my account. If I overdraft (which doesn’t happen these days) the difference goes on the card. No fees. Just as Dave described.

But I’ve been screwed by banks in the past. One of them my pay got direct deposited every Friday. But a Monday holiday they didn’t deposit my check. I went away for the weekend and was using debit. Never thought to check my balance. Came home to $350 in overdraft fees. I fought and lost. I’ve not used a bank since. Just my credit union.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning

-Henry Ford

A friend left working at a bank, after they switched their policy from entering all deposits, before taking out checks, to taking out all checks, then entering deposits.

Caused a massive increase in overdrafts on commercial accounts, obviously, but the bank folded.

quote:

Originally posted by 220-9er:
Another example of "the man" taking advantage of the poor, according to the liberals.
This is really another example of how you can't protect some people from themselves. The math skills needed to successfully avoid overdrafts should be easily mastered in the early years of grammar school.
What can't be forced on people is a bit of self-control and really basic common sense.

This. Manage your life or get fucked. No sympathy from me.

I work with this demographic. I only hear about a customer's NSF when the bank does not cover it and they still hit the customer with an NSF fee. Some banks intentionally draft a payment a day or so early, precisely to get that NSF fee. Most customers don't notice them and half of those who do don't fight them. Chase is notorious for this. If you're living on SS only and your money comes on the 3rd of the month, but that's a weekend or holiday, your money comes at 12:01am the previous business day. If a monthly ACH is set for a day that falls on a weekend or holiday, some banks will draft the day before. Doesn't matter to the people with healthy balances, but for the folks living paycheck to paycheck, it's a killer.

quote:

Originally posted by ZSMICHAEL:

Except when your internet and power go down.

Automatic payments shouldn't be affected by that.