Happy Black History Month!

So I am a day late with the greeting and as a historian, I am vaguely ashamed of myself. But I have been working on a presentation that I am giving tomorrow about black women activists. I think, for Black History Month, I will highlight some of them here. First up, Maggie Lena Walker, who drew on her belief in the power of community and mutual aid to convince her neighbors to invest in what would become the St. Luke’s Penny Savings Bank. The bank offered loans to African Americans who were often denied credit at white-owned institutions and helped them build homes, in hopes of encouraging the building of equity in the community.

Read more about her here.

Now Do Something about Bank Fees, Please!

**ETA: An explanatory video at the end of the post**

From BBC News:

President Barack Obama has signed into law extensive new restrictions on the ability of US credit card companies to charge fees or raise interest rates.

The BBC summarizes the major changes effected by this “Credit Card Holders’ Bill of Rights” and Boston.com offers even more detail. Just a few highlights:

Creditors cannot increase the annual percentage rate (APR) during the first 12 months of opening up an account.

Creditors are prohibited from opening a credit card account for any college student who does not have any verifiable annual gross income or already maintains a credit card account with that creditor, or any of its affiliates.

Creditors are prohibited from charging a fee to make telephone and web-based payments.

Creditors [must stop] charging fees for [cardholders’] spending beyond their limits, unless the cardholder chooses to allow the issuer to process the excess spending, and restrict any "over-limit" fees.

So, good on that front.

But these damned banks!


It’s bad enough that they pay debit transactions from largest to smallest to maximize the overdraft fees you pay.* An example:

Here’s how it works: Say you have $1,000 in your account and make a series of debit transactions in this order: $25, $300, $10, and $750. Only that last $750 charge will have put you over the limit of your account (in this case, by $85). However, if the bank reorders your debits as: $750, $300, $25, and $10, you’ll be overdrawn as of the second transaction, allowing the bank to collect three overdraft fees instead of one.

If a charge will overdraw a customer's account, why don’t banks simply decline it or at least warn customers that they’re about to overdraw? Well, banks love collecting that average overdraft fee of $34!



From an article written by Representative Carolyn Maloney (D-NY):

In 2007 alone, banks and credit unions collected $17.5 billion from overdraft fees, according to the nonprofit Center for Responsible Lending (CRL). CRL has also found that the overwhelming majority of customers, 80 percent, would prefer that their debit card transaction simply be denied rather than covered for a fee.

For a few years now, Rep. Maloney has been working on legislation that would offer customers some relief from the overdraft racket. In her words:

I have reintroduced the Consumer Overdraft Protection Fair Practices Act(H.R. 1456) in the U.S. Congress, which would require notice to customers at the ATM or point-of-sale terminal when a purchase is about to trigger an overdraft -- and would give consumers at the transaction point a choice of whether to accept or reject the overdraft service and associated fee.

My bill would also require banks to get their customers' permission before signing them up for an overdraft program, and it would prohibit banks from manipulating the sequence in which checks and other debits are posted if it causes more overdrafts and maximizes fees.

Debit card use is the source of almost half of overdraft fees. That is particularly costly to customers:

Debit-card overdraft loans are more expensive than overdraft loans from any other source, including overdrafts by check. Debit-card overdrafts cost people $2.17 in fees for every dollar borrowed, compared to check overdrafts, which cost $.86 per dollar borrowed.

Or, put another way:

Most debit point-of-sale overdrafts are small, averaging less than half this $34 fee, meaning that these overdraft loans cost nearly $2 for every dollar advanced to cover the shortfall.

Banks claim to do customers a favor by automatically enrolling them in “overdraft protection.” Belying their generosity is the fact that many banks don’t allow customers to opt out of the involuntary overdraft protection plans—I can’t understand why they don’t get customers’ permission first, especially given the fact that most would prefer the transaction(s) be denied.

Bankers are resistant to changes like those proposed by Rep. Maloney. Says one Fred Solomon, all you have to do to avoid the charges is know your balance! Only, in the real world, if you’re out running errands or you make a number of small transactions, it’s sometimes difficult to keep a running balance at all times. Also, some of us fallible people make errors in subtraction and addition. Balances fluctuate, particularly when you use your debit card: a transaction might appear as an authorization, disappear, then reappear days later and wreak havoc on our accounts. Sometimes, companies place a hold on more funds than we actually use, lowering our available balances and potentially causing us to overdraw while the funds are on hold. And I know I can't be the only person who's written a check, noted it in my register, but weeks later, when I'm four pages further on in the register, the long-held check posts to my account and I have to adjust my balance because I'd forgotten about it.

Overdraft fees disproportionately affect the young—who use their cards more and make more small purchases—and people with low incomes—who can ill afford to pay back the exorbitant fees. On top of the fees themselves, some banks charge a daily or weekly fee if your account is in the red. With regards to low-income bank customers, bankers’ admonishments that you can easily track your balance via text message or online banking is especially hollow. Many people with low incomes don’t have contract cell phones (which typically require credit). On the pre-paid plans** (problematic, in and of themselves), text messaging costs extra.

Online banking is not always at their fingertips. We've long noted the digital divide between "the rich and the poor." Having internet access at home could mean 1) having to have a landline,*** which requires credit, the ability to pay the monthly bill, and the willingness to increase that bill by as much as $50 or $60 to include internet service and 2) being able to afford a computer and related upkeep. I was also angrily amused by this little helpful tip (found, admittedly, in an article that is wary of banks and debit cards but only because it suggests credit cards as a better alternative):

Keep a cushion of money in your account to avoid bouncing checks or debits. Decide that you are not going to let your account fall below a certain amount, like $1,000; when you see it getting close, transfer money into it from another account. If you don’t have the money to replenish it, then you should cut back on spending.

A cushion? A thousand dollars? Multiple accounts with money in them? Umm…

A couple of years ago, my small-town Louisiana bank began to engage in an even more insidious practice. Let’s say you have $15 in the bank. You use your debit card for $6. That authorization reduces your available balance to $9. A $12 check posts to your account that night. You are charged a $34 fee for that, even though the debit card transaction is still only in authorization or memo-post stage. Now your account is in the red, -$37. Well, the next night, when the $6 actually posts to your account, you are charged for that, as well. Now, initially you had $15—shouldn’t one or the other of those transactions have been paid without fee, since they were both below $15? And if the reason the check caused a fee was because money was withheld from your balance for the debit card transaction—why do you have to pay a fee on the debit card transaction?

I remember reading an article about other banks doing it last summer, but I can’t find it! What I did find was this more succinct explanation in the comments here:

Some banks use a process called paid on available and a pending debit card transaction will hold the "available" balance before the transaction even posts to the account.

This can cause other items to overdraw the "available" balance, causing an overdraft, plus when the actual transaction goes through, it will charge an additional overdraft if still negative. Basically, a pending debit card transaction can cause 2 overdraft fees using this method.

Another description is here. In addition to the double charge the first commenter I mentioned discusses, I am also particularly troubled by the fact that this can happen with debit card purchases (not just the check example I used)--you swipe your card, go over, you're immediately assessed a fee, even if you make a deposit before the end of the banking day.

I'm not at all saying that customers should overdraw their accounts and face no penalties. What I'm asking is, with the way the practice is (d)evolving, how is this distinguishable from predatory lending--excessive rates and fees that disproportionately affect the most vulnerable customers while banks find more and more ways to assess them? I mean, while reading, I ran across articles that mentioned that not only are customers not warned they're overdrawing their accounts and being extended credit they didn't ask for, but banks that do set a number of maximum overdrafts per day set the number high, at six or seven, so that you can rack up $200+ in charges in one day. Like payday loans, overdraft fees can dig you into a hole out of which it seems impossible to climb. You don't even opt-in or get info on the ridiculous interest rates of what amounts to an overdraft loan.

So while I am glad for the Credit Card Holders’ Bill of Rights, please, somebody, do something about these banks!

ETA: This video explains the "Gotcha Fees" and the disproportionate effect on the young:




(H/T Los Anjalis)

(Crossposted)
_____________________________________
*They do the same with checks. I remember years ago, my bank paid checks in check number order. Now, they pay them from largest to smallest.

**Pre-paid phone plans are something the rabid right has never heard of, apparently. God, am I glad I missed all this.

***Poor people are among those least likely to have a landline.

How the Economic Crisis Affects Two Families

To say that I was pissed when I saw, over at Shakesville, that Karl Rove and Bill O'Reilly posited that much of the economic crisis is negative spin, the product of a liberal media conspiracy, would be a gross understatement. I called mrs. o and asked her to help me tell the story of how the "imaginary" crisis is taking a not-so-imaginary toll on our families.

These stories overlap, because we share some relatives and some of our family members work(ed) at the same places.

As background, some significant layoffs and shutdowns have occured in north Louisiana in the last few months. Most devastating for my home town/parish has been the economic trouble that has shaken Pilgrim's Pride, which has filed bankruptcy. Once the largest employer in Union County, AR and Union Parish, LA, Pilgim's Pride has had to scale back dramatically. For our families, that has meant:

My mother lost her job after 23 years.

My brother lost his job after 19 years.

My cousin, Tesha, a single mom of two, lost her job after eight years.

mrs. o's aunt lost her job after almost 20 years.

mrs. o's husband has faced serious cutbacks--he was off every Wednesday for a while.

My mother is more fortunate than some--my father receives social security/retirement payments and 90% disability payments from the VA. They own their house. Her utilities will be paid. She wants another job, but she has a high school education and spent most of her working life doing unskilled labor. She is 59 years old.

But for the others, the picture is even more grim. Losing their jobs means the loss of income for families who were living paycheck to paycheck. If you were already "behind" because of hard times, this can spell disaster. It takes a few weeks to get unemployment payments. And when those run out, where do unskilled, but "young"-enough-to-work people in area that already had little job opportunity go?

Losing the job also means losing health insurance. My mom worries about how she will afford medicine and regular doctor visits--she is largely healthy, but she is diabetic and has had some heart issues.

My brother has six children, four of whom still depend on him for health insurance. His ex-wife is an LPN who is struggling to make ends meet and is providing most of the financial care for their granddaughter. My oldest niece (just 21) is already working two jobs to help her mom. My brother's layoff means my ex-sister-in-law will, for a while, lose the child support benefits for her youngest two kids, worsening their situation. It also means that when he does secure another job, he will be behind on his payments.

My present sister-in-law is a self-employed hairstylist who does not have health insurance and who is facing the very real fact that salon appointments quickly shift from "necessity" to "luxury" in times like these.

mrs. o is a veteran teacher who has some job security, true. But keep in mind, she is working in one of the lowest paid parishes in the state. She and her husband are buying a home and have two young children as well as a college-age son for whom they still provide some support. Things are tight, even when her husband can get in a 40-hour week. They will lose income in at least two ways if he loses his job, because it will be much more expensive for her to insure the family through hers.

The long term outlook is not all-positive, either. mr. o has been unable to match Pilgrim's Pride deposits into his 401(k), meaning that he has been unable to save much towards retirement. That problem has been compounded by the loss of value of the 401(k) (in part, mrs. o says, because Pilgrim's Pride invested in its own stock which plunged this year). If he had retired 16 months ago, he would have received $303 a month. According to a statement he received last week, that amount has dropped to $35, after 14 years working for the company.

And, the security of mrs. o's job is not written in stone. The parish has been plagued by underperforming schools and a lack of money to run the schools. One local paper observed a few months ago:

Currently, [the school board superintendent] said the school district receives $3,855 per student, which amounts to $296,835 at [mrs. o's school]. It currently costs $600,000 to run [mrs. o's school].

It represents a significant operating loss for a school district, which is already financially strapped.

So there is talk of consolidation, of shutting some schools down, of reducing staff. Again, mrs. o has some security because of her master's degree and her time in the district, but little is certain.

The school situation renders my sister's position much more tenuous. With one year of service under her belt in the parish, she is the new kid on the block, worried about being "the last hired, first fired." She and mrs. o have both begun looking at other districts, but my sister has an even greater sense of urgency.

In the months since her fiance lost his job, he has only been able to find work through temporary agencies. For now, most of the financial responsibility for their household and the kids falls on her. She has taken an afternoon job through a tutorial program. Working two jobs and mothering an eight-year-old who's struggling with school this year and a seven-month-old who is a little busybody takes its toll. My mother helps with childcare and chores that can be done out-of-the-home (e.g. washing), but my sister is still tired and worried.

There have been a number of bankruptcies filed in mrs. o's and my families this year, but widespread relief has yet to be felt.

These are our lives right now. There's nothing "spun" or "manufactured" about them.