We've given the banks $ 350 billion to bail them out for bad loans. Both Bloomberg News and Fox have, under the freedom of information act, asked the Fed and the banks to provide them with an accounting of who received what. Further, they asked for a breakdown on what the funds were used for. The answer they received was an uniquivocal "no."
This may surprise you. After all it's your money. You and your children will be paying for this bailout for many years to come. The arrogance is mind boggling; The implication obvious; We are good for two things only; Elections and as a source of capital.
Speaking of which, business at the banks goes on as usual, although these days they more like check cashing stores as they are no longer make loans.
They are however making large amounts of money effortlessly on a daily basis. How?
Through the use of guilt, arrogance and shame in extracting elicit fees from their customers.
I refer to the seemingly innocuous overdraft and returned check fees – the great rip-off that nobody talks about. Or as I would put it more plainly, theft; On a grand scale.
This little nugget is a prime profit center for banks through which they made $ 19,000,000,000 (nineteen billion) in fees in 2007. Nineteen billion dollars my friend extracted from the pocketbooks of people like you and me.
Do you know how much it costs a bank to cover an overdraft (nothing) or a returned check ($ 3.50)? Banks charge you anywhere from $ 32 to $ 40 to 'process' these events.
Let's think about that for a moment. That "fee" is five to six times the minimum hourly wage, to cover one charge. For many, it's a day's wages.
You may think that this is an isolated incident incurred by the odd financial incompetent here and there. It's not.
It happens in excess of 630,000,000 (630 MILLION) times a year. That's not an 'ooops,' that's a massacre.
Banks defend charging these fees by haughtily telling you that, for example, you need to manage your money properly; That you need to be more responsible, and a myriad of other shame enacting themes. And they're right. However banks are experts in finance and human nature. They rely on speaking to you like you're an idiot because it covers their reliance on this human tendency to err, as a significant income source. Otherwise they would not offer the means to overdraw in the first place.
Any overdraft will trigger the penalty. A $ 3 Starbucks charge equals a $ 32 fee (or your banks equivalent). A $ 1000 over-draft does the same. Do it five times, you get five fees.
Typically it occurs when there are multiple small charges that people put on their debit cards over a weekend. People like teenagers, low earners scraping by, the poor, the financially inept, people with families; You know, regular folks. Adding insult to injury, if it's a check they may take the fee and return the check; Twice, as they redeposit it again in three days.
How does this happen? Banks do this by giving an overdraft facility to customers. This facility is not, as you might think, out of the goodness of their hearts. Well, it is except, it is designed to warm their own cold hearts.
The point is to encourage the 'accidental' overdraft. Banks know consumer weaknesses and they leverage it. It's their business. Just look at the revenues they garner.
Let's talk about interest for a moment. Assuming we get paid every two weeks and replenish our over-drawn account: a single $ 1,000 overdraft than incurs a $ 32 penalty annualizes to 77% interest. A $ 50 similar charge comes out to 768% annualized interest. No wonder it's so popular. They make loan sharks look positively professional.
In any other business if you had in excess of 600 million problem charges a year, this is telling you that your consumer is in need of counseling; Most likely in financial management. As a financial institution, banks (you would reasonably think) would provide these services. You would reasonably think wrong – they do not. Like a thief who knows he's onto a good thing, they keep their heads down. And keep taking.
Deep down, as with the mortgage mess, they know that the good times will end. Probably abruptly and not too pleasantly. Despite their spending $ 500,000,000 ($ 500 million) in lobbying fees to Congress over the past ten years, someone is going to call them to task for this. It could be you.
The reality is that these charges are a burden on the young, and poor, both of which receive no financial management training at all from a bank during the course of their custom. Not once. Why would they need such advice you might ask; Does not everyone know how to balance a check book? No, they do not it would seem. Financial management is not taught to the people who need it.
The way it bought to be, of course, is that these banks (who should be on their knees drooling and muttering in ceaseless ramblings of gratitude) should be providing these over-draft facilities as a courtesy; As a small 'thank you' to the people who have saved their jobs, institutions, livelihoods and bonuses.
The tide has already turned. In the United Kingdom the Royal bank of Scotland was sued over this gouging practice and the bank lost. The bank settled on refunding money to it's customers.
In the US the timing for action – a class action – against the banks could not be more fortuitous. Banks are under intense public and presidential scrutiny. In practical terms – without us – they're broken, helpless.
Now may the best time for a class action lawsuit to force them to return the fees they have garnered (stolen) over the past five years and to reduce the over-draft fee, never to exceed a single digit dollar amount. Just think of what US consumers could do with $ 100 billion just now.