News

Banks LOVE overdraft fees. Not just big banks. Even your local bank or credit union pays close attention to that "Fee Income" line item which overdraft fees are part of. Fee income is unique in that it doesn't require an increase in assets (by making loans) to generate. It's not technically "free" money for the bank but it's dirt cheap. It's a smaller but also not insignificant source of revenue.

The main problem with overdraft fees is that they are inherently predatory. They automatically target poor(er) people who are more prone to spending money they don't have and are unable to secure cheaper credit. The average overdraft user tends to use it repeatedly and consistently. Overdraft fees are nothing more than an extremely high interest loan. Much like payday lending, it can create a cycle that the borrower is unable to get out of. Best case scenario, the bank is aware of this but has little incentive to do anything about it. I actually worked for a bank at one time that was intentionally lenient with their overdraft policies. It was a good move for the customers but it didn't eliminate the debt cycle.

Banks are required to offer "counseling" to people who routinely overdraw their accounts but that usually is nothing more than a letter that gets mailed out to the customer and nothing more.

Some banks like to be extra shitbaggy about it and will actively structure their policies and batch processing procedures to maximize overdraft fees. Doing things like posting debits to the customers account before credits intentionally on the same day and maintaining a policy that that qualifies as an overdraft. To me, that's just evil and should be illegal.

I think there's multiple issues with overdraft "protection", one of which are excessive fees. Overdraft "protection" routinely contributes to a cycle of bad debt for people who often can't afford to pay their bills much less repay debt with incredibly high interest rates. Some banks justify it as a service that "helps" their customers. I think it's as helpful as a pack of cigarettes. Yeah, it's technically the customers choice to use it. And they shouldn't. It's a really bad deal for them. But more of the responsibility is on the banks here because they know the statistics. They know the mess that they're contributing to. Best case scenario, they turn a blind eye because $$$.

On the other side, consumers as a whole need better financial education. Many of them don't understand that they could do a lot with the money they're spending on fees and interest. Consumers also need to be better about choosing who they do business with and asking questions. Banks are required to disclose all their fees and account policies. Ask for them and ask for an explanation if you don't understand them.

Lastly, don't do business with banks, or anyone for that matter, who clearly has no interest in the well being of their customers. I'm going to pick on Wells Fargo specifically because, ...well, If you don't know what kind of company Wells Fargo is, then you have been living under a rock for a long time. Wells Fargo shouldn't even exist. Their repeated, flagrant criminal activities, violations of the law, and disregard for the well being of their customers should have seen them run out of banking entirely. And they're not the only bank like this, but they're the most egregious. Instead, they still exist because people keep doing business with them. You're a lot more likely to be treated better by a bank or credit union that views you as more than just a random number.