Banking ridiculosity

If there’s one lesson I’ve learned about managing my money (which I’m notoriously bad at), it’s that banks are out to get me.

Banks have set up a system designed to trap people into paying ridiculous amounts of money to them either for making what seem to be minuscule mistakes in managing their money or for doing absolutely nothing at all.

Take the practice of automatic overdraft “protection” that many banks implement as an example.

The bank that I use (although I’m planning on switching soon), JPMorgan Chase, takes each day’s purchases out of chronological order and instead ranks them from most to least expensive.

This makes it possible for the bank to charge multiple overdraft fees at ridiculous rates for multiple purchases instead of just one if I happen to overspend by a few dollars.

For example, let’s say that on Monday I had $100 in my bank account and made five small purchases of $2 each and bought lunch for $10, equaling $20 in purchases, but forgot that I had an automatic utility bill payment of $90 that was paid later on the same day, which would put my account in the red by $10.

Under existing banking rules, Chase would reorder my transactions so that the bill payment came out of my account first, then the lunch for $10, putting my bank account balance at $0, then each of the five $2 purchases would put me in the red and allow Chase to charge me $35 for each of them.

This would put me $185 in the red in my bank account, as opposed to what would have only been -$45 had they taken the transactions in chronological order, something that would have been much easier for a broke college student to fix.

This is usurious and should be illegal. By taking my transactions out of chronological order and instead ordering them by how large each transaction is, the bank is effectively charging me a 1750 percent interest rate for $10 worth of small purchases.

It is estimated that the banking industry collected more than $38.5 billion dollars from overdraft “protection” plans during 2009, so it makes sense why they do it considering that they make so much money by simply ripping consumers off.

But any banking reform bill that comes before Congress should include a blanket ban on unsolicited enrollment in overdraft “protection plans,” something most banks automatically enroll their customers in without telling them how to get out of it.

These practices are unethical and unfair to consumers.


E-mail: zammerma@indiana.edu