The beginning of this article is a fairy tale that ignores what used to be one of the biggest drivers of revenue for banks: overdraft fees. Maybe the HN crowd has never been in a situation where they were auto-billed into a negative balance, which then caused an overdraft fee that then further drove their balance into negative territory, but this was a weekly/monthly fiasco for millions of Americans.
I was once in a meeting with one of the senior executives at JPMorgan, where the guy smugly told me he felt they were “doing a service for the community” by charging people overdraft fees. After leaving the meeting, my very senior colleague said, “I had to hold myself back from throwing that guy out of his window.”
These sorts of articles — half PR, half history lesson — tend to leave out these sorts of politically inconvenient but important bits of history. It’s so much work to unpack the bias...
It's not just overdraft fees right? It's overdraft fees plus transaction reordering which makes the magic happen.
I'm still kind of mesmerized on this one, it felt like regulatory action almost happened, the most lucrative of the overdraft practices got limited circa 2009/2010, and then banks voluntarily toned it down and the regulators mostly looked the other way on things like reordering?
The transaction re-ordering to maximize the amount of overdraft events should have put execs in prison. Out of all the obviously corrupt, mal-intent, direct consumer harming practices this was quite near the top.
In a French bank, I have credit transactions first then debit ones, in a Swiss bank, the contrary, I was shocked, especially that day, I did check my bank account to verify if I could proceed with a wire transfer, the following day, it shown a temporary minus amount but I didn't get an overdraft. So yes, fuck banks.
In Australia in 2010 I got a debit card for the first time in my life. The card would simply reject transactions. “As should be”, I thought. It was a revolution for me.
Revolut, Simple, and Chime, the three online only banks I have tried, all do (or did) this. It really helped back when I was living paycheck to paycheck.
For what it's worth; I banked with Simple for the better part of 10 years, but then they acquired by BBVA who was then acquired by PNC. That meant that all Simple customers had to go through account migration twice this year, and in the end now have all the typical fees associated with traditional accounts. Ultimately I decided to move to a local credit union.
I moved to One Financial, but I've kept a local credit union account as well. This probably makes no sense, but then again it's ok to feel conservative about banking.
It's worked out for me so far. The local credit union is one block away. I have not used it but there are no fees to just park money in a checking account.
I still don't know what happpens to such retail banking as interest rates go negative.
It wasn’t illegal, and maybe isn’t (although I thought it was). I know that I was impacted by this as a college student, and ended up paying hundreds of dollars in fees for a single weekend. I had OD protection fees and “bounce fees” for the “protection fees”. It was insane. However I thought this was at least made unprofitable by capping fees and limiting when they could be applied.
All of this insane behavior is a big reason why the CFPB was created, and legislation was passed to limit “overdraft protection” auto-opt-in.
Is that what banks would do? I faintly remember that really old accounts I had in Germany had overdraft capability, but for all newer(last decade or so) accounts, I had to explicitly request overdraft. I guess it was inherently more user hostile in the US. Although in German its not because of good service, but rather because banks don't trust the consumer.
The specifics of it are dependent on the bank, but it can be more insidious than even your example.
Given a balance of $100 and 4 transactions of $20, $20, $20, $90 you can either be charged one, or three overdraft fees depending on the order in which your bank deducts those from your account. Basically, ordering from largest to smallest will cause the most number of overdraft fees.
I seem to recall there being service levels at banks in Canada and maximum numbers of transactions per month until one gets hit with per-transaction fees. I was told explicitly when I opened my TD Canada Trust account there that it was imperative that I both keep money in the accounts and use them occasionally or dormancy fees would accrue (and if there was no money left, they'd then slam it with overdraft fees).
The benefit of US banking despite lax regulation was that there's a ton of different banks and credit unions to choose from. Some are great and some are shit. Literally hundreds to pick from. Canada there was like 5 big banks, a large credit union, and then depending on your area there was maybe perhaps a small community credit union.
UK banks are pretty heavily regulated. For example, the overdraft fee spiral has been banned and in many cases banks were required to pay compensation.
Yet we have quite a lot of banks to pick from - around 60 if you include building societies (more if you include private, niche and specialist banks). We also have a fair few new and digital challenger banks like Monzo, Starling, Atom, Revolut and arguably Metro Bank. If anything our banking system seems far more innovative than the US system.
I don't know about Canada, but clearly regulations don't mean that you can't have competition and innovation.
There are a lot of things that are just plain better in the UK compared to the US. Out of network ATM fees being a big one.
See also regulation about what the incumbent last-mile network provider (Openreach) can charge ISP's to provide services on their lines which has led to a larger number of ISP's available in any one place (unless you're in Hull, because of historical reasons).
I could be mistaken about this, but I thought it had something to do with the UK’s relationship with the EU (and perhaps the US, as well?) that made the UK particularly attractive to financial industry.
Totally agree, the Canadian banking system is a corrupt cartel the levies it’s own tax on every Canadian. This was made even more clear to me when I moved to the Netherlands and every banking fee was suddenly 1/3 as much as in Canada for the exact same service.
Here in Finland banking fees are a thing only for the poor (and even then we are talking about a total of 20 or 30 euros per year)
Basically every bank has some kind of "premium customer" program that you qualify for by having enough investments or loans from that bank and magically all your banking fees go away (obviously they just make their money from the services they provide for your investments/loans)
Banking fees? Never paid any as far as I can tell, not for the ordinary things. My bank here in Norway won't pay a bill if there isn't enough money in the account. It sends me a text and an email to say what happened and doesn't charge me anything.
The only fees I pay are a small percentage for management of mutual funds.
You are right I pay an annual fee for my credit card and debit card. No fees for using them or access to online banking. The bank is online only anyway.
Yeah that is what I meant. Basically having online banking + debit/credit card. Also for under 2X years old (depends on the bank) they are usually free.
It a uniquely American stupidity that somehow everyone just lives with. The concept of overdraft doesn’t even exist in normal consumer accounts anywhere else in the world. The first thing I do when I open an account here is to disable overdraft - but then you have to pay return cheque charges by whoever was trying to charge your account.
Overdrafts are very much a thing in the UK, most accounts allow it, but you have to request it in advance. In effect they work like a pre-approved loan, which at least when I was working badly paid jobs and needed food right up before payday was a very welcome feature.
With both HSBC and RBS if I didn't have an overdraft in advance they just hit me with an even larger "unapproved overdraft fee" — both refused to disable overdrafts & just bounce the payment instead
The history is that people used to write paper checks, and merchants would charge a bounced check fee. Overdraft _protection_ was actually a banking feature which would save you from the cost and embarrassment of a bounced check.
There is very nearly zero usefulness to overdraft protection in a real-time authorization world. Nobody charges a fee for a rejected debit authorization.
I suppose merchants might charge a return check fee for a failed ACH payment, but nobody uses ACH payments for anything routine in the US.
> nobody uses ACH payments for anything routine in the US.
Water bill, electric bill, mortgage, and property taxes are all ACH for me. Many people pay rent that way. I don’t think it’s commonly used for day to day interactions but a lot of payments are still ACH
The latest thing I've noticed is that if you attempt to debit, say, $100 from an account that has only $95, it will successfully debit $95 and then the POS equipment will show that you still need to find some other way to pay the remaining balance. Used to be in this situation it would just be rejected outright.
It's more handy for gas pumps, but less transparent. It stops before your tank is completely filled, but doesn't say why. You can hear the difference if you are standing there while it fills, of course, but other than that you may be confused why it slowed down and stopped exactly at a certain amount and won't go any farther.
Netherlands has overdraft if you request it, otherwise the payment would fail / card declined. But we don't have overdraft fees, that's the weird American thing that caused all those crazy optimizations like reordering transactions.
The way it works in NL is you pay a (high like a creditcard) interest rate for every day the account is below zero. The transaction order doesn't matter it looks at the balance at the end of the day and charges you 1/365th of 13% interest.
The only way banks fuck you over in this system is with the dates. Using a card means a transaction date of "today", getting paid almost always has transaction date tomorrow. So you end up paying 1 day of interest. Much less than a $ 40 overdraft fee and regardless of the number of transactions.
Yes, that's exactly what they would do. Even better (for the bank's profits) is if you had lots of other smaller transactions that day too. They would re-order everything from largest-to-smallest, so it's:
1. have $10 in your checking
2. pay $9 for steak
3. buy sausage for $5
4. charge overdraft
5. buy milk for $3
6. charge another overdraft
7. pay $2 for parking
8. charge another overdraft
9. buy a pack of gum for $1
10. charge another overdraft
11. count $500 deposit
It was truly despicable behavior that benefited nobody but the banks.
I may be wrong, but I think this is now illegal in the US. I haven't heard of it in a while, at least. But it's also been some time since I left little enough in my account that it could happen to me, or banked at a shitty bank that would even do it to begin with.
Banks "voluntarily" stopped doing it once regulators got serious about forbidding it and then the regulations never actually happened, so while it's not currently a thing anyone does it probably will be again some time in the future.
And of course even if you deposited a check that day it wouldn't clear until the next business day so you'd pay a negative account balance fee for three days before your money hit.
In this sample, if overdraft is enabled, you pay up to 15% p.a., if disabled the cancellation fee is up to 2€ for the postal notice, but mostly just porto (0,80€).
My German back account has overdraft, but that only charges via ~12% annual interest (billed at end-of-month, but charges proportionality if you've been in the red for part of the month).
Also note that for ATMs (including deposits) and within-bank transfers, we had no more than a couple seconds latency since €, which got expanded for all willing banks to cross-bank push transactions specifically requested to be "SEPA instant push".
The "SEPA instant push" transactions have some issues with reversing in case of accidentally fat-fingering IBAN (target account; like a crypto wallet address but no crypto) or amount. Once the money is in the target account, you basically have to go to court if it wasn't outright fraud. And being instant removes the window you had to call your bank and cancel the transfer. IIRC there are some further liability shifts.
And yes, this transparent interest-based handling is why we get by perfectly fine without credit cards.
You cannot have law as a list of specific cases: it must be based on patterns - "All arbitrary appropriation is forbidden and sanctioned", then further made into distinct categories to substantiate and differentiate the amount of gravity. All theft is illegitimate.
When the transactions 'arrive' in the bank's system should be immaterial, as they should be timestamped at the moment the card is swiped, matching the date and time the printed receipt I am handed has.
Regardless, the bank's mission is to make money, and they can make a lot more of it by adversely reordering transactions in their favor, it is not at all a reach to assume that they do so, and in fact have done so and may well continue to.
Yea. For people who aren't familiar with this, the bank will reorder your transactions and batch them to do the biggest one first. Then you get charged an overdraft fee per transaction after that. If they did the small ones first, you may not go into overdraft until the last big one... So you'd pay one fee. Do the largest first, then each small one causes a fee.
In 2004 I was traveling around Europe as a 20 year old. Spent my debit account down to my last $20. I had a flight from Barcelona back to Boise and the airline had supposedly issued a paper ticket, not an e-ticket. Long story short, if I couldn’t produce the paper ticket, my flight was going to leave without me. I didn’t have a credit card and I knew I was out of money but I said what the hell, try my debit card to purchase a new flight. Lo and behold, it went through! I came home and a week later my account was -$5,500. Wells Fargo had taken the last charge, the $900 flight, reordered it and I accumulated $4,600 in overdraft fees. I’ve never been so angry in my life. They did not fix the charges, and I got bailed out by my mom. I plead my case over and over but everyone, including my mom, just drew it up as an non-responsible college kid.
Every time I tell this story it makes my blood boil.
Ha I had the exact same experience with Wachovia bank in New York City once and basically their argument was on the lines of “The highest value transaction was probably the most important for you so we ordered it by price so that your most important transactions go through first”.
In a way though I feel like the American system is set up to traumatize you for being poor so much that you develop the thirst to become a millionaire one day when these things don’t affect you.
Poster probably had a series of small transactions from travelling ($5,12$,$13 etc). The bank moved the $900 to the front of the payment queue, and then every one of the smaller transactions cops the fee.
It wasn't 500% of 900, it was the sum of the overdrafts on all the previous transactions.
For ~4k-ish of overdraft fees assuming ~$40 per single overdraft, they'd have to have hundred-ish transactions, sounds like a lot transactions (or the overdraft fees getting exponentially bigger with each one?)
I was tooling around Europe for a few weeks before I left and was using my debit card everywhere. 1 euro coffee, beer here, beer there, it all added up. For whatever reason, the overseas transactions didn't clear as fast as a stateside one usually did. I imagine it was like a weeks worth of transactions. 12/day isn't really crazy when traveling but it's been so long, the only detail I really remember was the final blow.
The argument, which I do not buy as sufficient but add here for completeness, is that it’s better for your large purchases (ie rent) to clear before your $10 lunch, etc.
I remember this happening to me when I was a broke college student over a decade ago. I had to pay some bills and buy some things, and I expected a single overdraft fee, as I knew my exact account balance and the order of the purchases. I remember being hit with 3 (maybe 4) overdraft fees and immediately called my bank for an explanation. They gave me some bs like, "We reorder transactions to make sure your large ones go through first since they're probably more important." It was obvious at the time what they were really doing and why, which led me to eventually close my account with them and go with a local credit union.
My last bank (US Bank, don’t bank with them) did this in a way where in one day where I had only one transaction which could overdraft they charged 6 overdrafts even though my net would have been positive. If I wasn’t (at the time) skilled at ~~kicking and screaming~~ advocating for myself I would have been out $180 plus whatever 30 cents they had calculated I went negative. Which (again at the time) was the difference between whether I was gonna be homeless.
Oh since I’m naming names. The bank before that, Wells Fargo, honored a check I wrote > 2 years earlier. Sure, I wrote it and I was good for it at the time. I forgot about it. Maybe I could’ve left that money in limbo but at a certain point I assumed my moderately wealthy aunt wasn’t gonna cash it.
Well it doesn’t matter what I assumed, the law said the check was no longer valid. When Wells Fargo honored it and overdrafted me they disregarded the law and said I was committing check fraud if I didn’t pay up. That’s how I ended up at US Bank, because fuck if I’m going to pay you for illegally processing my check.
Edit: and yeah I had “check fraud” on my record for years after because Wells Fargo said they didn’t care about the law and just lectured me about being responsible for checks I wrote.
Wasn't there some money to be made for you and the Lawyer? Sue the bank, make lots of noise, then offer a settlement in which they pay the lawyer and some amount of damages for getting your credit score in jeapardy.
Okay this is absurd. I was being wrongfully overdrafted. I had no legal recourse. No one being overdrafted has any legal recourse unless they’re researching overdraft abuse.
The lawyers I could hire are advertised on billboards and park benches on spin off TV shows.
Probably ChexSystems. Kinda like a credit report, governed by the same laws, but distinct from the big three bureaus everyone is familiar with. All the banks use them. And anything negative on that report will prevent you from opening up an account somewhere else until you get it removed.
Oh man, I banked with US Bank back in 2003/2004. One day I overdrafted my checking account by about $5. "Overdraft protection" kicked in and they automatically transferred money from my savings account, but not before charging a $25 fee that caused... another overdraft. This repeated automatically over a dozen times in one day to the tune of around $300. I noticed what was going on that evening and manually transferred some extra into checking to stop the cycle.
The next morning I went in to sort it out and was told I needed to travel an hour away to the branch I had originally set up my account at. Upon arriving at my "home" branch I was told the manager was on vacation and no one else could help, but she would call me as soon as she got back. Two weeks later, having received no call, I went back in and saw the manager sitting at her desk. I closed all my accounts on the spot and never looked back.
There're several of stories of some level of craziness here in the thread. I wonder why none tried to sue bank? Are banks in the US really above the law? Or probably not too high to be sued, but enough to make good money.
Lawyers cost money. There are a lot of bad actors in the US that know they can get away with stealing small amounts from people because the legal costs will quickly eclipse any returned gains.
Anyway, in my case the bank did ultimately return my $300 as they desperately tried to retain my business. Pretty sure this is another way they get away with stuff like this, just refund the squeaky wheels. "Oh, sorry for the mistake."
Thanks for reminding me about reordering. There were (are?) just so many dirty tricks. It’s been a couple years since I’ve lived in the US, so I am not aware of what things look like now — hopefully others can comment.
I remember getting hit by reordering when I was in college, getting by on a coffee shop job. The bank ordered a group of concurrently unresolved deposit/withdrawals to maximize the overdraft fees (I think I got hit with ~3x $35). It seems silly now but when you're making $5.25/hr, going more than $100 in the red really stings.
Sounds like one of those "Look! We came up with a voluntary code of conduct, so your regulatory body can stop investigating necessary regulations, we've changed honest, so please feel free to have a triumphant press conference and congratulate yourselves without actually holding us to account."
Long back when I worked in my first job at a large private bank, I remember being in a meeting where they spoke about overdraft fees + late fees + interest on these + god knows what else and the lady, our systems counterpart, looked at all of us and said 'We better plan a trip to Ganges to atone for all this and we might need to go ever year' (it's a common saying in India, as Ganges is supposed to wash away one's sins)
It's been 16 years since I worked there but I still remember this vividly. Modern banking has to be one of the biggest scams legally running and once you go below the prime segments, it's basically just exploiting the poorest and weakest to make some of the easiest money you can.
around my neck of the woods the most common banks, like bank of america, regions, fifth third - afaik - all charge over draft fees.
not sure that late fees or interest fee apply, unless you consider things like paying BAM late on a mortgage payment - surely has a late fee.. perhaps if you have one of those account like. free checking so long as your balance stays above 1500 or/and you use your debit card 15 times a month to push fee onto retailers.. if these are not met you could say it'd be like a late fee.
I've seen news stories that have discussed discovery of some banks structuring debits to an account with the same 24 hour period that would cause an overdraft.. so take out all the payments and then apply your deposit after those are settled - now that is super extra shady.
personally I'd just prefer them to bounce back and refuse a payment if there was not enough money in the account. Although I was charged for a bounced/bad check someone had given me at one point, so I'm guessing they could find a way to charge for similar.
Maybe I am missing the qualifier in "'private' banks" in that statement - but I've seen a lot of people pay a lot of overdraft fees and have accounts closed for them, not sure what "private" banks don't do such things, or how common uncommon.
I think this is a dialect difference. To me (and presumably the parent?) private bank means a bank that offers private banking services to wealthy clients which generally involves selling certain loans or investment products rather than a current account. Whereas I think the grandparent meant “bank not owned by the state”. But I’m not entirely sure
Had five years or so of that awful cycle. It’s interesting when you meet people who haven’t experienced living under the brutality of the banking system. Overdraft, payday loans, high interest credit. They think it’s all fine. Fear of overdraft fees is a real class divider. One thing I really remember is being absolutely broke, and a guy from the bank calling to see if I’d be interested in taking on a credit card “we think it’ll help you out right now”, I’m so glad I didn’t.
I think the same people also fail to see the passionate drive it generates, I’ve been working in crypto a few years now and there really is a shared hatred for the big banks, with many people feeling abused by those systems. The result is a lot of politically driven people, who now also have raised funding for the next few years, who’s goal is to make those places irrelevant and create as many other options as possible.
It seems to be a common theme that the ones who have been screwed by the banks or are currently being screwed by the banks are cheering for cryptocurrencies, while the ones with no experience of getting fucked themselves keep asking "But what problem does cryptocurrencies really solve? Seems useless to me because banks do the same thing"
If cryptocurrencies were actually being used significantly as currencies, you might have a point. My skepticism of cryptocurrencies has nothing to do with how they replace banks, because they flat out don't replace banks at all. Or rather, the extent to which they do so is trivial. I mean, if they were taking significant business from banks, wouldn't you think the banks would be lobbying to have it banned? But no, instead they think it's wonderful because it's another highly volatile new asset they can trade and provide services for.
I'm sorry, but the idea that crypto is sticking it to the man by disinter-mediating the banks is a crypto-cult delusion.
The invention of cryptocurrencies (specifically Bitcoin at least) is not to replace banks, but to replace the way transactions happens. A normal bank transfer involves contracts and processes to make sure everyone that handles the transaction is honest. You basically put your trust on contracts that the transaction will actually go through. Bitcoin replaces this need of trust in the contracts with need of trust in the protocol that can be inspected easier than contracts that are most often private, at least that's the thinking.
> wouldn't you think the banks would be lobbying to have it banned?
There are plenty of examples where the banks in a country no longer accepts transactions from/to cryptocurrency exchanges, Sweden being one example where it's basically impossible to deposit/withdraw SEK/EUR to your bank if they think it has anything to do with cryptocurrencies.
In a ideal world, cryptocurrencies are as protected as normal currencies, and the need for banks are still there as not everyone will run their own node and have custody over their own wallet. Banks adds extra security, something some people want.
Problem becomes when you start thinking that one solution applies for everyone. Cryptocurrencies, just like normal currencies, doesn't work for everyone. People should be free to choose, without being banned left and right for arbitrary reasons. Try getting through banks fraud departments when you make transactions from/to countries like Nigeria, and you'll know what I'm talking about.
> The invention of cryptocurrencies (specifically Bitcoin at least) is not to replace banks, but to replace the way transactions happens.
This is a wonderful hypothetical in much the same way as spherical cows, but in the real world today, crypto is treated as a (quite volatile) speculative asset, not a way to transact everyday business. The world does desperately need fast payment processing that doesn't involve companies like Visa or MasterCard skimming off the top every time to enrich themselves and dictating one-sided terms to others (hello, OnlyFans), but I'm not seeing any evidence that crypto is poised to handle that. It's too risky. And the compatibility layer with legacy currency is too unwieldy: Every time you convert to regular currency you generate a taxable event, which is fine if you treat crypto as akin to a stock, but it'll make tax time hell if you're buying groceries and lattes and gas with it. It's not impossible to pass laws to make the best-case for crypto happen, but that would require a lot of political will that I just don't see happening; too many people benefit from the current system.
If there's a cryptocurrency that solves those problems, please let me know, I'd be interested to hear about it. But the current players all just seem like speculative bubbles for wealthy techbros to play around with. Many of which are driving electricity consumption for mining, which has, shall we say, some environmental downsides.
The restrictions on crypto are coming from regulators, not the banks, and the reason regulators aren't happy is due to the volume of criminal transactions, tax avoidance and scams enabled by crypto.
The reason the banks don't care is because at both ends of most crypto transactions you will find, er, a bank account. Crypto is only useful to the extent that it has real currency value, those Nigerian scammers and many others using crypto for transfers are just using cyrpto as an intermediate step to avoid pesky laws. That's fine as far as the banks are concerned because that's more money flowing into their systems.
I ask that question, not because I haven’t been screwed by the banking system, but because everyone I see in the crypto space is out to screw people even harder.
Your comment presupposes that crypto solves the problem of perverse incentives. Really, it just worsens them.
Even worse, they batch transactions by the day, and reorder them highest debit first in order to maximize overdraft fees.
So if you spend $5, $5, $5, and $40, in that order, with $38 in the bank, instead of getting one $35 overdraft fee, you get 4. It's the difference between a balance of -$52 and a balance of -$157.
I once worked at a bank where they had for a period doublecharged people for overdrafts, driving them into further overdrafts even after deposits clearly intended to cover those overdrafts had been made. The cheery low-level administrators loudly resented that they had to refund the overcharges at all, because people who kept their accounts that low were obviously deadbeats anyway.
I got hit by this two separate times in the early 2000s before I learned it was better to withdraw whatever cash I had left. I was already stuggling, living out of my car, and having additional overdraft fees on top of the one I expected was devastating. It literally left me unable to buy food for days, because each overdraft fee was $20 IIRC.
I'm shocked that the transaction reordering is still a practice nearly 20 years later.
Overdrafts were the second thing that came to mind, a decade into clawing my way out of poverty and just plain being broke.
The first was the scam of debit cards and secured credit cards being treated fundamentally differently. They both operate basically the same way for customers (you’re only spending your own money, it’s not credit in the lending sense), but debit cards are a profit center with no credit reporting for the customer and secured credit cards can be recommended or not in any discriminatory way anyone wants (which they are).
What do you mean by secured credit cards can be recommended is any discriminatory way? I definitely think the nation should prioritize financial literacy in the education system, but I'm not sure you should be trusting any information you get from a bank regarding what to do with your money.
What I mean is that for customers, secured credit cards and debit cards have roughly the same risk, but banks have obligations to offer checking accounts fairly but offering the equivalent credit-building account is up to their own discretion. It’s considered lending even though they’re lending the customer their own money.
Do you feel that the "discretion" violates the equal credit opportunity act? Technically, credit discrimination is illegal, but I could see a bank taking liberties with people who don't have the means to protect themselves.
Given that the risks to “creditors” (banks lending money back to people who own that money) are equal for debit and secured credit cards, and that the risks to “debtors” (people who would be using their checking account to build a neutral-at-worst credit history)…
Having the means to protect yourself is the baseline definition of a secured credit card. That’s why it’s secured. You’re starting with some positive balance and spending your own money. That’s what debit cards are too. The liberty banks take is choosing who gets to benefit from their normal spending of their own money being considered as credit at all.
Well they work like debit cards in a way, you can't overdraft and you build credit with it. It's what's recommended for newcomers to the US. But I'm not sure they're really the same given that your credit limit will be as high as the spare amount of money you can keep as security in your bank.
0. for many aspects of life you need positive credit history to live at all
1. debit cards don’t help you build credit
2. secured credit cards (your own money! not borrowed!) do
3. both function almost the same way, but the latter is much less equally available
And if you think “living on borrowed money is a fraud”, I suppose that means you think only independently wealthy people should own homes? Nearly no one could afford to buy a home anywhere without a mortgage.
That's a kinda chicken and egg problem. I could argue that the more financing you give to people, the more they're gonna be willing to pay, so this actually drive prices up.
I'm really confused about those overdraft fees (or rather overdraft interests). My bank has also charges overdraft interests, they are currently 6.99% p.a. So if I get into overdraft due to one payment but money comes in on the very same day it shouldn't be that much interest I have to pay to the bank.
For an overdraft of 100 euros it should be like 2 cents for a day.
This and the glee of executives over systems that increase the potential for overdrafts or charge backs is why I’m glad to not be in banking anymore.
One of my most memorable conversations was with a rep from one of the core processors about how she makes it her mission to make sure everyone in her family opts out of overdraft protection.
Banks spend so much time on the wording to make it sound like they’re doing you a favor, I’ve had to convince my wife not we didn’t want it.
That seems like yet another PR piece that revolves around a, “look, finance didn’t need regulatory action to fix itself, it just needed ‘innovation!’” narrative. No, sorry, these markets were created by regulatory action, and they still need regulatory action to fix the flaws in their design.
I found patio11 to be more informative before all of his writing suffered from a Stripe bias. And I found Stripe more interesting when it wasn’t trying to be the Microsoft of finance.
Edit: And so people understand how these two things — abusive banks and Stripe — are connected: revenue-envy among large corporations trying to move up the ranks and attract bigger valuations almost inevitably leads to “innovations” that are bad for the customer / community / whatever. All roads lead to Rome.
The whole criticism of wildcat banking is so myopic imo.
Laws were set up that explicitly made these banks very weak. Then after they inevitably failed like they were set up to do, everyone goes "omg, look! private money is so bad! time to nationalize banking and regulate everything!".
> Maybe the HN crowd has never been in a situation where they were auto-billed into a negative balance
I wonder about this some times. It's truly not something I wish upon anyone, but at the same time it's almost a privilege to have live it first hand, as it's an...I was gonna say "unfortunately rare" but I think I'll go with "severely under-represented" point of view in this industry, especially silicone valley.
Also yes, overdraft fees are truly disgusting. What's worse is that there are transactions that can bypass "overdraft protection"
> Also yes, overdraft fees are truly disgusting. What's worse is that there are transactions that can bypass "overdraft protection".
Totally agree. I used to work in the lending team at a UK bank. Someone on my team was on a panel discussion about change in banking, and gave a brilliantly frank answer on that point: https://youtu.be/M3toHjAABvw?t=3511
> it's an...I was gonna say "unfortunately rare" but I think I'll go with "severely under-represented" point of view in this industry
I do remember being disturbed by this. I'm from a totally privileged background myself, probably quite a bit more than the rest of us were, but still, something about watching that 'total amount lent' line increasing, it just never sat right. It felt ... profane, like a funeral director cheering because there were more car crashes this quarter. It's hard not to mentally flip that profit graph upside down.
And I'm glad that our industry is working harder to be diverse in gender and ethnicity and sexual orientation &c, but it feels like diversity in social class is still horribly neglected. It makes such a hugely palpable difference to have even one person in your team whose parents might be among the people you're lending to (or whatever it is that your company does).
I honestly don't well enough understand the sociology of software engineering to fathom why we're so silent on that particular dimension of privilege.
> I honestly don't well enough understand the sociology of software engineering to fathom why we're so silent on that particular dimension of privilege.
I suspect that, much like much of STEM, computer science requires education, which poorer folks will simply not have nearly the opportunity to even attempt.
When you come to America as a student, the first thing the other international students tell you is that you turn those off when you get a bank account.
Easy access to cheap credit is one of America’s best things but this is expensive credit. You don’t want it.
This was the story of my parents lives when I was growing up. They constantly paid these fees and they constantly were under water financially. I never forgave the banks for this. However, my parents were also to blame - they simply were unable to manage their finances.
This happened to me once, at BofA, before web-based and app-based banking so you only got verification that things were what you thought they were when you got your monthly statement, went to an ATM or teller, or used a cumbersome telephone interface via a touch tone phone:
1. Initial balances: -L on BofA credit card, 0 on checking account, S in savings/investments. When I write a check I transfer money from savings or investments to checking to cover it.
2. I attempt to pay my credit card bill in full by check, but I don't get the money transferred to the checking account in time to beat the check.
3. Overdraft protection on my account kicks in, which was backed by the credit card and treated as a cash advance. That did the following:
3a. Transfer L from credit to checking
3b. Charge overdraft fee O to credit card
3c. Charge cash advance fee F to credit card
for cash advance of L+O+F
3d. Transfer L from checking to credit card
Note that the credit card balance went from -L to -2L-O-F from 3a through 3c, then to -L-O-F after 3d.
Since the credit card always had a debt of L or more on it during all that, an interest charge I for not paying off the card completely during that month was changed.
I didn't find out about this until my next statement, where the balances were: -L-O-F-I on credit card, L on checking, S-L in savings/investments.
I found this absurd and irksome for two reasons.
1. If it had been my Discover card or my Capital One card I was trying to pay off, the card balance would have ended up at 0 after all this so I wouldn't have incurred interest charges. This would have been a lower net cost than what happened.
2. My BofA card included allowing skipping the minimum payment every so often with no late penalty (it would still accumulate interest on the unpaid balance of course). If I had NOT had overdraft protection, what would have happened is that when the check bounced due to my savings/investment transfer not making it in time, I'd have been charged a bounced check fee B on checking, my "skip a payment" would have been used on the credit card, and my next statement balances would be: -L-I credit card, L-B checking, S-L in savings/investments. This would have been a lower net cost than what happened.
Writing a check for a balance that isn’t in your account (step 2) is called “kiting” and is a relatively minor fraud. In general, one should avoid doing it regardless of overdraft fees.
Fun fact: when you get money in and money out the same day on an account, some banks count the money out first, so that they can charge you for a possible overdraft
Yeah, that’s why eventually paid 5 bucks a month more for an account without an overdraft facility, meaning any negative transactions would be rejected. I can’t believe this isn’t the default.
Not “used to be” unfortunately. American banks took in somewhere between $9-15 billion (depending on source) in overdraft fees in 2020. It’s super gross.
I believe the argument in favor of overdraft fees is that they are essentially extending a line of credit at the moment the customer needs it. As opposed to just denying the transaction outright. I had this happen to me once well over a decade ago, and I argued with my bank to make it so I would just be denied if it ever happened again. They acted shocked as if most people would rather go into debt than be denied.
There is Congressional testimony somewhere on this topic that provides their talking points. They were scolded without being actually punished, if I remember correctly.
"half PR" & "politically inconvenient" are an unnecessary assumption of bad faith. Patio11's not doing PR or propoganda.
Disagree and/or add to the discussion as you see fit, but let's try to be a little more generous... especially to a member with such a history of contribution to the community.
An employee of a multinational financial services company writes a historically revisionist article about an area in which his company has direct regulatory and financial exposure.[1] With only implicit disclosures of conflict of interest. I would say that it is only because of the author’s long-term goodwill in this community that this stuff isn’t looked upon with a very critical eye.
I’ve learned the hard way that someone’s past identity does not necessary correlate with good behavior in a new, more “important” persona. Silicon Valley is filled with examples of exactly this sort of thing.
1: Remember, the former Governor of the Bank of England is on his employer’s board. This isn’t a passionate evangelist for a struggling startup charity case, or someone telling us cool facts about their weird hobby.
I don't see how we can get anywhere discussing like this. Instead of discussing the topic, it's all meta. Ad hominems, characterizations of the argument and accusations of bad faith.
As I said, disagree and make your case. You don't have to assume credibility, but don't assume malice. What's the point of having a discussion if it's not a good faith discussion.
Yes. The “big banks lost money servicing the poor people” narrative is totally wrong, and the author knows this. We can’t let this incorrect story get more traction than it already has. Too many innocent people suffered great hardships in the real story of what happened — look at the stories in this thread!
> What's the point of having a discussion if it's not a good faith discussion.
I was once in a meeting with one of the senior executives at JPMorgan, where the guy smugly told me he felt they were “doing a service for the community” by charging people overdraft fees. After leaving the meeting, my very senior colleague said, “I had to hold myself back from throwing that guy out of his window.”
These sorts of articles — half PR, half history lesson — tend to leave out these sorts of politically inconvenient but important bits of history. It’s so much work to unpack the bias...