The cost to overdraw a bank account could drop to as little as $3 under a proposal announced by the White House, the latest effort by the Biden administration to combat fees it says pose an unnecessary burden on American consumers, particularly those living paycheck to paycheck.
The change could potentially eliminate billions of dollars in fee revenue for the nation’s biggest banks, which were gearing up for a battle even before Wednesday’s announcement. Exactly how much revenue depends on which version of the new regulation is adopted.
Banks charge a customer an overdraft fee if their bank account balance falls below zero. Overdraft started as a courtesy offered to some customers when paper checks used to take days to clear, but proliferated thanks to the growing popularity of debit cards.
Overdraft fees should just be illegal. Bank knows how much money is in there. Don’t allow withdraw if it’s insufficient.
What happens if you have $5 in your account and visit two stores and purchase something for $4 in each store? Not all stores process transactions immediately. Is the store supposed to just accept the loss and the bank doesn’t honor the transaction? I think if it’s a credit based debit card overdraft has to be a thing in order for this to work.
Frankly, yes. The company should just absorb that.
When you accept a credit or debit card, and decide to process the transaction later on, you are incurring a risk. Sometimes that risk will be realized. If you don’t like it, don’t incur that risk.
Exactly. They can always just take cash.
So this will just make sure they put either extra charge on credit cards or disallow it entirely, fucking over everyone, not just those who overdraft
Could easily be turned around, “when you get a credit card, you are incurring a risk. Sometimes that risk will be realized. If you don’t like it, don’t incur that risk.” Don’t spend more than you have and you won’t get a charge.
Yes exactly. Either side could incur the risk. The government can set the rules. I prefer when they say the rules to protect people first and companies second.
Should make it so that you can’t overdraft by default. That way people aren’t accidentally fucked over by fees since you can’t overdraft. Give the option to overdraft to those who want to have the option, but then also they are taking the risks.
Penalizing companies accepting cards will needlessly fuck over everyone.
Yup, that would also be a good approach.
They can, if they choose to do so. You say not all process transactions immediately, but I don’t know of any that process offline card transactions.
If they choose not to process the transaction immediately, yes, pretty much. They can retry the transaction periodically until it goes through, or they can use the payment information they have to identify the buyer and demand payment.
Would be insanely risky to process a day’s worth of transactions offline, precisely because of the risk that transactions would bounce. Hell, the whole reason credit cards exist is to defer this risk. Businesses pay 2-3% of the transaction value to avoid this risk.
Not particularly risky. I mean, they did it all the time back in the day, with both cards and checks. You had all the information you needed to send the buyer to collections, and/or make a criminal complaint.
Writing a bounced check is incredibly easy, and a big reason why lots of businesses refused to accept checks even at the height of their popularity.
Same with early credit cards.
Then your bank sees the first transaction, does some very rudimentary math, sees the second transaction and says “Not enough in account to complete purchase” and bounces the card.
This already exists for bank cards in the form of a maximum line of credit. If you have a $500 line of credit and you try to purchase two $300 widgets on credit, I guarantee you that the second transaction will fail to go through. But if you have a $500 bank balance and try to do the same thing, you get an Overdraft Fee instead.
When I make a purchase using a debit card, it goes through this machine that accesses the debit network and my bank, on the other end, says “yes, the pin is correct and the chip looks good, and they have enough funds”. Similar process for credit cards. Why wouldn’t the transaction be processed at that point other than to create the deliberate risk that the person might overspend if you allow them to?
Brazil, 20 years ago, I was a student on a shoestring budget. I set my debit card so that I’d get an SMS after any purchase so I’d be on top of things in case shenanigans happened. I go to the small grocer on the corner, slide my card and type my pin. Before I can put my wallet back in my pocket, my phone dings. My bank was telling me where I purchased, when, how much it was, and how much was left in my account.
Are you telling me first world banks can’t do this today? Is it Brazil that’s so ahead technologically or is it greed preventing the banks from getting such a basic system in place?
This might be one of the unintended side effects of the law. If you have a low balance account or a ‘bad’ credit rating. Banks might simply stop offering debit cards that work on credit card stations.
This probably won’t happen unless overdraft fees are underwriting the risk of unpaid overdrafts. I’m not sure how many people just cancel or abandon accounts that go negative. I’d guess that it’s low but only banks would have the actual numbers.
in the USA at least the CHEX system largely prevents this. Essentially if you abandon a checking account that is negative, you get put into the CHEX database. When you go to a new bank to open a new account, the new bank looks at CHEX and sees what you did, then won’t give you an account until you go back to the first bank to get cleared. Nearly all banks use CHEX or something like it. So unless you’re just writing off the option to do retail banking, you won’t be able to abandon accounts.
Why would you spend $8 when you only have $5?
Outside of fraud the only reason you’re account is going negative is from you spending money that’s not there. It’s not a “poor” fee, it’s a fee that banks are within their rights to charge you for spending money that isn’t yours.
People need to have some semblance of financial responsibility, it’s not society fault that they spend money they don’t have
Because of the timing of credit to accounts, you can easily find yourself in a situation in which you have a $500 balance, a $300 deposit, $600 in charges, and an overdraft fee entirely due to the order in which the bank processes the transaction events.
Often, the events can be days apart and the bank still initiates the debts before the credits. As noted above, the bank may even initiate the transactions in reverse order of size, so that you get the maximal number of fees in a given rebalancing.
This isn’t a problem for people who use credit cards rather than debt cards. Credit cards have a set credit balance and if you try to spend more than the balance the transaction simply fails. Since you pay the card off once a month, you don’t have a dozen different transactions hitting your account in a particular order. So your maximum exposure, against the most bad-faith of banks, is one overdraft fee a month.
But credit cards are issued based on credit history. If you’re opening your first bank account and you don’t start with a high balance, you won’t get one. So fucking with debt cards isn’t a sign of financial responsibility, its a sign of financial predation.
It’s a form of scam. Any conversation of responsibility ultimately has to recognize the bank as a predator. Otherwise, you’re just setting people up to get preyed upon.
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If you have a massive transaction, you’re more likely to pay with a Cashier’s Check as this pre-clears the amount and guarantees its going to be there when the check comes due. Particularly bougie folks might have an AMEX Black or other high-credit limit card. But who the fuck runs around dropping five figures or more on a debt card?
I don’t think it teaches any such thing. Its there to limit liability to the creditor not to do the lender any favors.
Overdraft is a service you can turn on and off at most banks. If it’s turned off, it works exactly as you described and the transaction is rejected for lack of funds
Banks push you to accept it though. If you’re a young adult and go to get a bank account, they’ll try to talk you into it. I’ve also declined it, and have it randomly be turned back on.
Why should it be illegal when you can just tell the bank to turn it off? Serious question.
The ability to turn it off is, itself, a consequence of the Consumer Protection Financial Act. Biden is using the same legal language to implement a change in the maximum fee.
I wasn’t aware you could do that. I don’t use debit so unsure.