When consumer groups claim that always going into overdraft rather than having the option of having transactions declined, the refrain from bank spokespeople is that "our customers appreciate the convenience of knowing their transaction will always go through." Really? I'd love to see how that survey was worded. When politicians complain about the size of the fees, the boilerplate answer is that, "the fee has to be large enough to dissuade people from going into overdraft."
Wow. My head spins. Let's count the reasons:
- The two arguments are obviously at odds with one another. They want to provide a service, yet dissuade their customers from using it. More likely, they see an opportunity to take advantage of an instance of information assymetry, and the past stigma of transgression is their justification for current gouging. To be honest, at this point I would pay for the service and convenience of not having my transactions honored if they would cause an overdraft.
- The penalty rapidly loses teeth relative to the size of the crime. The fee is charged for every transaction, however small (or, in my experience, large). This means that the effective interest rate on the "loans" is much lower for larger transgressions than for small. The more I spend that I don't have, the less I have to pay for each dollar of it. The word for that is "regressive," and it affects lower-income folks (coincidentally those most likely to be affected by information assymetries) the most. This sets the stage for exploitation.
I made two purchases last week that resulted in overdraft fees due to my dumb mistake. The first was for $182.90, which resulted in a fee of $35.00. The second was for $16.93, which resulted in the same fee. That impiles effective annualized interest rates of 230% and 2480%, respectively.
I think the word for that is usury.
