The Monday (Sep 21) edition of the Washington Post contained the headline “Democrats Target Bank Overdraft Charges.” Headlines like this frequently grab my attention because I’m interested in the point of view that causes the paper to specifically identify the Democrats. Is the Post saying that it is the Democrats who are doing the right thing by protecting consumers and, by implication, that Republicans are guilty of inaction? Or is the Post saying that the Democrats are meddling once again in business practices in which they have no business meddling?
It turns out to have been neither: it was just a statement of fact. It’s the Democrats who are taking on this issue as a follow up to the new credit card restrictions placed on card issuers.
I remain dissatisfied with both political parties. The Democrats continue to manifest their distrust of citizens through policy proposals and legislation that advances the reach of the federal government. Yet the most interesting thing I’ve heard from the Republicans since last November is, “Nuh uh.” I certainly don’t look to the GOP to initiate any policy based on genuinely conservative values.
What should be the conservative response to overdraft fees? Conservative ideology notes that the role of government is not to protect the people from themselves, but to protect the people from each other. So my first thought as I read the Post’s article was about personal responsibility. American’s spend too much time whining about how we’re getting screwed by the system and not taking responsibility for our own actions and how, if we simply acted like adults instead of petulant children, we could avoid overdraft fees in the first place. Notwithstanding the veracity of that statement, Americans may well be spot-on in this case: the system is sticking it to us.
The purpose of technological advances is to generally make life easier, to automate processes that previously were done without technology requiring the inefficient use of human capital. ATM cards are just such an advance, removing the need to plan trips to the bank to get cash or to pop into the Piggly Wiggly to cash a check. Automatic Teller Machines theoretically allow us to leave our money in the bank earning interest until we need it. ATM cards are advertised as working just like cash.
Let’s extend the metaphor by recalling a time when cash was king. When I had cash in my wallet, I had money. If I didn’t have cash, I didn’t have money. If I was set to make a purchase and I opened my wallet to a leather chasm, I simply couldn’t make the purchase. The natural consequence of not having money was not being able to make the purchase.
Not so with today’s ATM cards. If an ATM card worked like cash, when the account had insufficient funds for the purchase, the transaction would be declined. However, the majority of banks will allow the purchase, pay the merchant and charge the underfunded consumer an overdraft fee, often in the $25 to $35 range. The banks will tell you this is a loan fee—they provide a service, loaning you the money, and the fee is their remuneration for that service. Here’s where the banks are trying to stick it to us.
Prior to receiving any other loan consumers are required to read and sign disclosure documents and policies. If there was a pop-up screen that said, “You currently have insufficient funds for this transaction, to complete this transaction via bank loan and accept a $35 loan processing fee, press 1” most consumers would decline. This would be analogous to ATMs that notify users of the $2.50 service fee for withdrawing from the bank that which is ours in the first place (that’s another article). The Post reports that, “Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. If customers decline and then try to overspend, the transaction would be rejected. A similar bill is pending in the House.”
Banks are marketing ATM cards as cash-equivalents but not treating their use like cash but rather like payday loans in which documentation and transparency aren’t required. Some consumer advocate groups are commenting that banks are trying to generate revenue through overdraft fees to make up for lost revenues in other business sectors.
Banks and some consumer groups tell us that it’s our responsibility to monitor our accounts and know their status. The Director of the Center for Investors and Entrepreneurs John Berlau says that “Consumers using debit cards need to keep track of their accounts.” Here again we have a problem created by technology.
In an increasingly internet-based world, many consumers are logging in to their banks’ websites to monitor their account activity, to pay bills and to track investments. However, as I discovered investigating this article, those websites are not kept up to date in real-time and often do not accurately reflect banking processes. The complex machinations of what charges are processed at what time and on what day are not available to consumers. Rather, consumers see an overview or a synopsis. For families who are operating near zero, even responsible daily viewing of their online activity may be insufficient to facilitate informed decision making on their spending. The banks I spoke to said that it is the consumer’s responsibility to keep a record of their spending in order to avoid problems created by inaccurate website/banking interfaces.
Such a use of the technology, then, represents an additional burden to the consumer not a time-saver. If we’re required to keep a paper record of our activity, then viewing online activity is redundant. Consequently, if we’re not online to view our statements, then we’re not online to pay our bills. The very responsibility the banks tell us we are required to exercise to compensate for the fallacies of their technology, drive us to not need the technology at all.
The banks want to have their cake and eat it too. They market automated products but provide insufficient data for the effective utilization of those products and hold the consumer financially responsible for what amounts to nefarious activity. Is that too harsh an assessment? Given the financial industry’s record over the last few years I don’t think they’ve earned the benefit of the doubt.