Checking the moneychangers
Special Internet Edition 12-18-2007
Updated 12-30-2007 and 1-6-2008 and 6-15-2008 and 2-12-2020

Last Saturday, the Sparks Tribune reported on the Kafkaesque case of Janie Boykins-Raschilla, who saw U.S. Bank turn a 34-cent overdraft on a new debit card into a liability of $600 and counting. Here's an excerpt:

Figuring out bank overdraft fees
By Janine Kearney
Daily Sparks Tribune 12-15-2007

Life was easier. And less expensive. That was until the debit card found a place in Janie Boykins-Raschilla’s wallet.

The 50-something divorcee from Reno was learning to manage her own finances and was "doing just fine" until her daughter recommended she get a debit card in October. Now Boykins-Raschilla, who depends on her Social Security Disability check to scrape by each month — is facing nearly $600 in overdraft fees within the course of just a few months.

Janie Boykins-Raschilla reviews banking documents. (Photo: Debra Reid/Daily Sparks Tribune)

"Unfortunately, the people who can least afford these fees are the ones most likely to get hit with them," said Don Taylor of the Ask Dr. Don column at Bankrate.com.

It all started with a charge that led to exceeding her U.S. Bank checking account balance by 34 cents. Boykins-Raschilla said she regularly checks her account balance online, and saw an $89 "credit" that she assumed was a deposit received from her daughter.

The next day, she made four debit purchases, assuming she had sufficient money in the bank to cover her expenses.

In reality, the $89 was not a deposit, but the bank had credited an $89 charge made to the account, while also charging her an overdraft fee. Her additional debit purchases each racked up overdraft fees, until a small miscalculation and misunderstanding grew into a $600 bill that could eat up her entire monthly disability check.

"I was scared to death that I wouldn't be able to pay any of my bills," Boykins-Raschilla said.

The account was closed and Boykins-Raschilla is left wondering how she will pay the fees.

Her bank charged her $37 for each overdraft fee, plus $7 for every day that the account reflected a negative balance — which is within the realm of customary fees charged by many major banks.

In 2006, financial institutions earned $53 billion in overdraft fees, a 58-percent increase from 2001, according to financial consultant Moebs Services. A combination of changing bank policies and careless spending by consumers could be to blame. [READ THE FULL SPARKS TRIBUNE STORY....]

This type of abuse is neither new nor isolated. Worse, it is a matter of both racial and social justice. Witness this 2003 report from The New York Times:

Banks Encourage Overdrafts, Reaping Profit
By Alex Berenson
New York Times 1-22-2003

At least 1,000 banks are encouraging customers with low balances to overdraw their checking accounts, allowing the banks to skirt credit laws and collect billions of dollars in new fees.

The banks' programs cover checks that would otherwise bounce and even allow people to overdraw their accounts with A.T.M. and debit cards. The fees are paid disproportionately by low- and moderate-income people, according to industry consultants who help banks create and market the programs. One consultant advises banks to maximize the fees by opening branches ''in supermarkets, particularly supermarkets with a middle to down market and a family target market.''

Banks say that they are offering a service that enables people to avoid paying bounced-check fees to retailers. But many inside and outside the banking business say the programs, while extremely profitable for the banks, are a bad deal for consumers and amount to high-interest loans.

The move to encourage overdrafts is a major shift. In the past, when consumer groups complained that bounced-check fees were excessive, banks generally responded that high fees encouraged people to use their checking accounts responsibly. Now, with banks increasingly dependent on fees from consumers, overdrafts have become a source of profit.

The Federal Reserve, which has the ultimate responsibility for overseeing the financial system, is looking into the legality of the programs and whether banks should supply consumers with more information.

The new programs are much more expensive and restrictive than the overdraft lines of credit that banks have offered for decades to favored clients who have big balances or other accounts with them.

Unlike those lines of credit, which typically charge annual interest of up to 20 percent, the new programs charge flat fees of up to $35 for each overdraft. The fees translate into an annual rate of 1,000 percent or more. Unlike traditional lines of credit, which allow repayment whenever the customer chooses, these programs require customers to bring their accounts back into balance in only a few days. While traditional lines of credit have limits of several thousand dollars, the new programs have limits of $100 to $300. After that, banks allow the checks to bounce.

Typically a bank's best customers, about 10 percent, are offered traditional overdraft lines of credit, and they are not enrolled unless they explicitly agree. In contrast, the new programs automatically enroll almost every checking-account customer who does not have a traditional overdraft line. When they use debit or automated teller machine cards, customers often do not realize they have overdrawn their accounts until they receive a letter from the bank disclosing the fee.

''Some banks are looking at the fact that some consumers barely make it from payday to payday and have a very low balance, and instead of offering them a beneficial service, they are charging their customers bounced-check fees to take advantage of the situation,'' said Jean Ann Fox, director of consumer protection for the Consumer Federation of America....

''Customers almost universally view this as a great service,'' William A. Longbrake, the vice chairman of Washington Mutual, said at an industry conference in December. (Washington Mutual charged customers more than $1 billion in overdraft fees last year, industry analysts estimate.)

But critics say the programs are similar to the ''payday loans'' made by check-cashing outlets and other ''fringe banks.'' Those loans, which are often exempted from usury laws because of their small size, usually cost $10 to $15 for every $100 borrowed and must be repaid in two weeks, terms less expensive than the cost of the overdraft programs.

''The purpose of this is not, in my opinion, to help the consumer,'' said J. Philip Goddard, deputy director of the Indiana Department of Financial Institutions. ''These programs are only to increase fee income.''...

(Dick) Gowdy and other consultants agree that low- and middle-income consumers with low balances are more likely to use overdraft protection than wealthier people. ''Areas of high unemployment, higher unemployment, you typically have more activity,'' he said. ''If you happen to be a bank that's on a military post, you're probably doing twice as much activity as any other bank.''

The average bank that aggressively markets an overdraft program will earn as much as $150 on each account annually in overdraft fees, three times that of a bank that does not, and about $200 in total fees, according to Mr. Gowdy.

But overdraft fees are not paid equally by all customers.

In an article on bankstocks.com, an industry Web site, Ralph Haberfeld, a bank consultant, estimated that 4 percent of customers pay half the fees. That estimate would imply that a small group of people, like (Mark) Gregg, the transplant patient and FirstMerit customer, pay as much as $2,000 annually in overdraft fees.

Overdraft protection programs ''target people that least can afford it,'' Mr. Gregg said. Banks that use them ''have got you against a wall, and you just throw up your hands.'' (Emphases added.)

[READ THE FULL NEW YORK TIMES STORY. Free registration may be required.]

Nevada's newest vice: government-sponsored loan sharking

In 1981, Democratic Gov. Richard Bryan called the Nevada Legislature into special session to repeal Nevada's usury laws so that Citibank/Citicorp could locate a credit card processing facility in Las Vegas. The bank was so ashamed of having a Gomorrah South postmark that it juiced into existence not only its own zip code by also a mythical city, "The Lakes, Nevada," to print as its return address.

The name proved prophetic, as Citicorp has been a principal player facilitating the drowning of a nation in debt.

Government-sponsored usury began in the early 1980's when Gov. William Janklow, R-South Dakota, came up with the idea of repealing his state's usury law in order to attract national banks to relocate to his depopulating region. He served four terms plus a brief stint in congress until his conviction for manslaughter in the killing a motorcyclist when he sped through a stop sign.

In a recent television interview, he lamented some of the problems caused by today's exorbitant interest rates.

The Nevada Legislature tried to reign in payday loan companies in 2005 but had to revisit the issue earlier this year because of the loan sharks' creative maneuvering around the law.

The experience of Janie Boykins-Raschilla stands as evidence that similar attention needs to be paid to victims of exorbitant overdraft charges.

With the way financial institutions share data today, she will never be able to get another checking account while the $600 in loan-shark usury remains on the books.

USeless Bank could have simply refused Ms. Boykins-Raschilla's $1.50 charge (she was trying out the card to see if it worked) when she had only $1.16 on deposit. But their computers were set to allow the charge plus $37.00 and $7.00 for every day the account remained in an overdrafted status.

Bank employees simply told her that there was nothing they could do. Tough.

These days, the moneychangers in the temples of Mammon don't even pretend that there are costs involved in carrying an overdraft. Actually, the expenses are so minimal as to approach non-existence — just electronic pulses on a computer mainframe somewhere between here and India.

But the costs and burdens imposed by big banking on little people are very real indeed.

This needs to be made a political issue in 2008 and the 2009 legislature needs to act to protect the vulnerable like Janie Boykins-Raschilla.

Stay tuned.

Be well. Raise hell.

The Dean's List

   The Dean of Reno Bloggers could very well be Andrew Barbano, self-described "fighter of public demons," who started putting his "Barbwire" columns online in 1996 and now runs 10 sites.

      RENO NEWS & REVIEW, 11-9-2006

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Andrew Barbano is a 39-year Nevadan, editor of NevadaLabor.com and JoeNeal.org; a member of Communications Workers of America Local 9413/AFL-CIO, and the Reno-Sparks NAACP. As always, his opinions are strictly his own. Barbwire by Barbano has originated in the Daily Sparks (Nev.) Tribune since 1988.


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