Note to Congress: You Are Not the People You Serve

From a Washington Post article on proposed legislation to regulate overdraft fees:

“Rep. Spencer Bachus (R-Ala.) said he avoided overdraft fees with a credit line and asked if many of the problems could be eased with consumer education.”

Good on you, Spencer. You have a credit line — which many of your constituents can’t get — and you have it linked to your checking account — which many of your constituents wouldn’t even know how to ask for.

Nessa Feddis of the ever-helpful American Bankers Association added that “most consumers can easily avoid the fees by keeping track of their balances.” (That’s a quote from the Post article describing her testimony, not from her testimony itself.) Hear that everyone? Keep track of your balances, and just in case, get a credit line and link it to your checking account. Problem solved.

The people who are financially sophisticated already know how to track their balances and turn off overdraft protection if they don’t want it. They are not the people that financial regulation is supposed to serve. You can’t discharge your duty as a representative of the people just by wishing that the people were more like you.

By James Kwak

46 thoughts on “Note to Congress: You Are Not the People You Serve

  1. It’s the old P. T. Barnum/W. C. Fields style of capitalism: “There’s always another customer” or “There’s a sucker born every minute.”

    Do you suppose the good lawyer got that line of credit while running his sawmill or practicing law or did he wait until after he became a member of the United States House of Representatives?

    I wonder how a bank would react if an average American with a wife and 2 kids, making $45,000 a year came in and asked to establish a line of credit?

    Mr. Bachus represents one of the wealthiest districts in the state of Alabama, he’s not going to stand up for middle America.

  2. Yeah, well Bachus is a corporate right-wing sellout! We don’t need an education. The banks need to educate themselves on how to run a sound and responsible business, that actually cares for their customers more than they care for money. Bachus is a very wealthy individual, and he is trying to tell people that they lack sound money sense. I think not! What we lack is MONEY, and all the financial education in the world is not going to stop banks from ripping us off, because their lawyers can draw up encyclopedia volumes of disclaimers faster than I can balance my checkbook. It is not about being aware of our balances, but the speed at which transactions take place nowadays. A check used to take days to go through, and now we have debit cards, that deduct funds instantaneously. Sometimes they go through immediately and sometimes they get delayed based on the stability of the information systems these banks’ processing computers rely on. There are just too many fuzzy timelines to consider, that cause overdraft overlaps, and lagging deposits. The banks have hedged their bets that the processing systems will dis-balance accounts so as to profit from overdraft fees. Mr. Bachus has got some nerve to suggest that people cover overdraft with borrowed money via credit lines. In this time of burdens of debt and financial crisis, he should know better. He does! He just chooses not to accept the needs of his constituents, and welcome the big fat banks with open arms.

  3. Citibank doesn’t seem to hide their credit line product called “Credit Plus” and it looks like anyone who can get a credit card could get it.

    I’ve known people for decades who do not make much money who have credit lines attached to their checking accounts. I’ve always considered it to be the product for the financially lazy, i.e., people who don’t balance their checkbooks and probably don’t know how.

    Perhaps, Bachus has a point. Perhaps, people should be taught how to balance their checkbooks.
    I was taught in high school how to do it but my children were not. Perhaps consumer education is at least part of the solution.

  4. While I certainly agree that asking people to get a line of credit and link it to their checking account is too much, is it really too much to ask people who have checking accounts to keep track of their balances? Shouldn’t that be a basic requirement of the responsibility of a bank account?

    This is not an endorsement of extensive overdraft fees, but simply a statement about how we can sometimes forget what rational behavior looks like. If you have a checking account, you should know what your balance is and not write checks that exceed it.

  5. Actually, that’s some trick. I went to my bank and asked them to turn off overdraft protection (and it’s associated outrageous fees) and they said they couldn’t do it for me. I’m aware of credit line services, but simply did not want it for this checking account.

  6. But you do balance your checkbook and have a register (electronic or paper) where you calculate a running balance for your account, right?

  7. Hmm, I thought the consumer is rational and automatically has all relevant information. They told me so in the ivory tower.

    Surely it can’t be true that capitalist ideology lied about this?

    But if they lied about that, then maybe they lied about everything else too?

    Maybe we need to throw it all out completely, the lies, and the entrenched practices which arose out of and were predicated upon those lies.

  8. Meh.

    It is mildly amusing, though, that we have a congressman named Bachus. Perhaps we can swap him out for an Aequitas, Muta, Pietas, Poena, Securitas, Stat Mater, Spes, Veritas, or Volumna.

  9. “You can’t discharge your duty as a representative of the people just by wishing that the people were more like you.”

    Nor can you discharge your duty as a financially responsible citizen just by wishing that the government would protect you from all risk.

  10. The problem with James Kwak is he has this horrible illness known as empathy. Republican politicians usually get inoculated for that when they meet their first K street streetwalker.

  11. but you may expect your government to use sound judgment when signing stuff into law
    and sound judgment includes to hinder schemes that are obviously so designed that ripping of people is facilitated or even favoured
    then blaming people for having believed government tolerated propaganda is a bit rich

  12. I still don’t understand why people even have accounts at the major banks. Go to a credit union. You get treated better, paid more interest and have much lower fees.

  13. One possible fix: require that banks give consumers a line-of-credit automatically linked to their checking accounts UNLESS the consumer explicitly opts-out.

    But if you do that I predict a bunch of people (the irresponsible ones) will just run through their line-of-credit and then get hit with late payment fees AND overdraft fees. And a bunch of other people (the un-creditworthy ones) will suddenly be unable to get a checking account at all, because banks won’t want to give them lines of credit.

    I suppose the government can put price controls on overdraft fees, but won’t that just cause the banks to charge more money to people like me who never ever overdraw their checking accounts?

  14. A personal check written on the Chase Manhattan branch one block from the HSBC where I maintain my checking account and therefore deposited said check took 6 days to clear. I deposited it on a Friday morning; funds were not available in full until the following Wednesday. A drip at time; the last part of the $600 made available was $100.

    This kind of transaction should be included in the discussion of overdraft fees; your money held by banks for their sole profit because many overdraft fees are incurred by people who have deposited ‘good’ checks, but need the money sooner and under pressure feel it is theirs good and proper.

    But congress in public hearings with bankers is careful not to broach the subject.

  15. Checks? Come on! WHAT ABOUT HEALTH CARE????????? They vote it in and get a better plan for themselves.

    Quite an empire, not a democracy/republic.

  16. People that are living paycheck to paycheck can not afford to keep a minimum balance of say $1,500, as Chase requires. Even if they have financial education, if they don’t earn enough to live the education is meaningless. This applies to a large portion of the population.

    Most American’s do have the privileges that Congress or the elite members of any community have by virtue of their status.

  17. While I know this is not an answer for everyone, I would encourage people to become credit union members if they can, and stop using banks altogether. Many are open to people other than those they were set up to serve; for instance, the State Employees credit union in PA, PSECU, is open not only to state employees, but to people who are relatives or in-laws of state employees. These are usually very customer friendly, are not set up to gouge people, and offer some of the lowest interest rates and best returns around, as well as consumer help for researching and buying cars and homes.

  18. i suppose he could have avoided the over draft fees. but he got in their place really high interest. Banks aren’t in the business to help any body. they are in business to make money. once you understand that, you can make better choices. cause no matter what they say, the bottom line is they want to make money from what you do, or don’t do.

  19. That’s what many people don’t realize, oftentimes a relative will get you in the credit union. They have liberalized membership rules for credit unions, and if you want to get in you can find a way.

  20. I think we want a level playing field. $3 and $4 charges to use an ATM, astronomical fees, checks taking weeks to clear in this electronic age. Who wrote these rules? GOD? No, the were written and paid for by the banking industry. We don’t have the billions to lobby so the rules don’t reflect anything to help the average American.

  21. Heh. So the Senator from Alabama has overdraft protection. Who does he bank with? He may not be as protected as he thinks.

    I signed up for overdraft protection when I opened my account. If I bounced a check this January, my bank would have transferred from my savings account the amount of the check plus $25 for a $12 fee. Later on I realized that I could be caught with multiple fees, since the bank orders the checks to maximize the number of bounces.

    So I raised the transfer cushion to $400. I was told by the rep that the problem there was that if I didn’t have sufficient funds to cover the check plus the $400, that the transfer wouldn’t go through at all. I accepted that. But this so-called protection isn’t as good as it appears. Though it does tend to make people set up their accounts to the benefit of the bank.

    The point is that even if the public were twice is cautious, there’s nothing stopping the banks from introducing ever more complicated rules.

    Hey, I’m all for due diligence by the consumer. But I suspect that advocates of personal responsibility aren’t always as cautious as they proclaim. How many people read the fine print in their car rental agreements for example?

  22. Honest question: are you saying you are against overdraft charges altogether? Your last paragraph implies you would go a step further than I would in terms of protecting people from their own bad decisions… I agree banks have behaved badly on these fees, but I don’t believe the product of overdraft protection (for a fee) is inherently evil.

  23. You should check into this. There are tight rules about how long a bank can hold a check for deposit. From the description you gave, my guess is that it was only legal to hold the check for 1 day, 2 at most (if your HSBC did not have electronic clearing agreement with Chase). If you have the paperwork, you might want to contact the local Federal Reserve and describe the problem to them.

  24. The Senator confused overdraft protection with his campaign contribution account. But money is fungible.

  25. The American economy is setup with traps and pratfalls to snare all but the most impossibly diligent. This is true whether we are talking about banking or health care or international phone calls.

    The American economy used to be the world’s envy. It has deteriorated into the Rip-Off Economy.

  26. Nice try, James. Haven’t you figured out the Congress is elected to serve only its interests and those of the moneyed elite who paid for their election victories. That is a fact. How can we possibly believe otherwise??????

  27. James said,”You can’t discharge your duty as a representative of the people just by wishing that the people were more like you.” – – Well said, James.

    Smugness and complacency in Congress is of epidemic proportions, unfortunately. You nailed it, James.

  28. Just last week, I missed paying off my credit card in full by less than 24 hours, and Capital One charged me a $29.00 fee – that’s after 5 years of no late payments, and paying in full every month. My good payment track record didn’t matter to them. Neither did the fact that their website (which I rely on daily for my account info, including payment dates and amounts) was not updated until the day the payment was due.

  29. We have a Credit Union at my college (where I’m a student) – and it’s great! They even sent out a coupon for a $20 gas card in return for simply asking about their loan products! That’s all it took – and I had a full tank of gas for my rental car that weekend!

  30. Call them up. Tell them that unless they reverse the charge you will be mailing the card in pieces to the company president with an explanation of why you are doing it. They need cardholders like you more than you need them.

  31. All right. Everyone agrees. Banks conspire to rip off customers and Senators and Congressmen serve only their corporate keepers. How many of you people keep voting for Democrats, anyhow?

    Tell your friends to tell all the Democrats you aren’t going to give any of them one more vote until they start being real Democrats. {You could tell the Republicans, but they don’t seem to need the votes to get themselves elected now that they own the voting machines]

  32. It’s all well and good to ask Congress to treat other
    people like children – incompetent even to ask for overdraft protection on their checking account.

    The problem is that Federal law applies to everyone,
    so you and I will be treated as children, too.

  33. Exactly. Government can’t protect everyone. Unfortunately, too many people think it’s not their job to take care of themselves.

  34. “Congress should act responsibly, but not me…”

    “The banking industry should act responsibly, but not me…”

    This whole line of discourse seems to be in support of people not meeting their own obligations.

    Bouncing checks was at one time was considered socially unacceptable behavior. (Writing a check when you do not have sufficient funds to cover it is still illegal, by the way) Have we truly devolved to the point that we now expect every entity to prop us up when we experience personal failure?

    Here, we seem to have an issue with the banking industry serving the needs of check-bouncers, but the check-bouncers don’t like the cost.

  35. Citibank actually charges $10 each time you hit your overdraft account(which you PAY for the privilege of having), unless you manually transfer money from overdraft into your checking. So for their computer to do the transfer, it costs $10.

    So, even if you set up your account with the necessary protection, they still ‘get you’.

  36. I have a suggestion. Before we knock customers for their lack of personal responsibility, let’s let the banks belly up to the responsibility bar, first.

    You know, the banks. The guys whose IRRESPONSIBILITY has caused millions of American families to lose a paycheck. Whose IRRESPONSIBILITY has caused millions of American families to lose their homes. Whose IRRESPONSIBILITY has raised levels of stress in households to points where calls to suicide centers, domestic abuse, runaways and suicides are all up. Whose IRRESPONSIBILITY has made a secure, dignified retirement utterly impossible. Whose IRRESPONSIBILITY has put our great nation’s security at risk because, what country can be secure when its economy is rotten at the core?

    As soon as the banksters step forward, take responsibility for what their greed and moronic mis-management have wrought and work to make good on the tens of trillions of dollars of losses they’ve caused hardworking, honest people, THEN we can take time to gripe about the irresponsibility of average customers.

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