When Banks turn Evil

Banks made $50 billion dollars a year just in service charges alone.

Liz Pulliam Weston of MSNBC writes: Banks have to make money to stay in business. I was an economics major, so I get that.

What I don't get is why so many consumers do nothing as banks get bolder and bolder about picking their pockets. It's no longer nickel-and-diming -- we're losing $10, $20 and $30 a pop as banks come up with ever-more-creative ways to "fee" us to death.

Liz says the banking industry collects more than $50 billion dollars a year just in service charges alone, more than twice the total a decade ago.

Unless consumers take actions, the banking will charge more and more and without any limit. You can contact the lawmakers or go open a new account with a better bank.

Here are some bank practices that make money from consumers and what are the steps one needs to deal with it:

Checks clear almost immediately; deposits take days

Federal laws have made the banks possible to clear the checks quicker, before it used to take three to four days to clear for the banks to communicate and transfer the funds. Now it takes less than a few hours to clear by electronic means. But the deposits on the other hand take too much time and the cash is not available until a few days later. That is where the banks make money.

The same federal laws that helped faster check processing recently decided against requiring banks to make deposits available sooner. Their reasoning: Essentially, regulators concluded that even though money disappears from your account a lot quicker these days, it still doesn't disappear fast enough to warrant the extra costs banks might face from crediting you with your deposits more quickly.

In other words Liz says, Heads you lose, tails the banks win.

What you can do: We must contact the lawmakers to change the laws such a way the deposits also clear the same faster way as the checks are cleared. Banks make billions from the savings of the consumer accounts; they should use some of those funds to speeding up the deposits. To contact your U.S. representative click here and your Senators here.

Stacking the deck against you

The bigger banks, and many smaller ones, process checks that arrive the same day in order of their size, with the largest check processed first. Banks gives an explanation for this to help the customers process their big checks faster. Consumer advocates on the other hand say, the bank jack up over draft fees, so they can collect more money in case of bounced checks. Liz gives an example, if you have $500 in your account and write three checks in the amount $10, $55, and $450. If the bank proceeds to clear from the smallest value, there will be only one overdraft charges, on the other hand if they proceed from the bigger value, there will be two overdraft charges. So the banks employ the later method in all cases.

What you can do: Have a second savings account and use it for overdraft purposes. Make a point in having a minimum balance in the second account at all time. There are fees for the second account, but is very less when compared to the overdraft fees incurred. In the Netbank, they don’t charge for the second account if you keep a minimum balance of $500 or certain low amount.

Charging for 'potential' overdrafts

A poster named haberschmidt recently alerted the blogosphere to Wachovia bank's policy of charging for "potential" as well as actual overdrafts. Here's how it works: You use your debit card like a credit card at a store, signing your name to the transaction instead of entering a personal identification number (PIN).

Since you used the bank debit card as a credit card purchase, the cash takes a few days to actually leave your account. The banks should charge an overdraft only when it is charged, but Wachovia does the opposite and charges you overdraft on the date of purchase itself.

What you can do: As above, it's important to closely monitor your accounts and to keep a pad of cash in them (read "Why you need $500 in the bank" for more details). Keep a minimum balance in the Savings bank at all times to prevent such overdrafts and watch the bank account daily for any strange withdrawals. Contact bank right away if there are such charges. Since banks like Wachovia won’t change their policy contact your lawmakers to change the bank laws..

The oxymoronic 'courtesy overdraft'

Courtesy overdraft, also known as bounced-check protection, is a far cry from true overdraft protection. It will tell you that you will have enough money to withdraw from your bank account without any problem. The name sounds nice but is not a courtesy at all, the banks let you borrow money from them and ask you to pay hefty bank charges for the privileges. In many cases, they sign you up with this service with their fine print forms and customer service that sells all this services with a smile. Read this article about the bounced check protection.

What you can do: Call your bank and ask if you have "courtesy overdraft" or "bounced-check protection;" if you have this service remove it and have real overdraft protection by establishing another savings account that will protect you in case of overdraft problems.

Fat fees for using personal-finance software

One of the best ways to track your accounts and prevent problems like overdrafts is by using personal-finance software such as Money or Quicken. Microsoft Money or Quicken’s software really helps in balancing your account and monitoring it on a regular basis. Most of the banks allow this software to access your accounts in a secure manner and get the transactions updated on your desktop. Many banks offer this free of charge, but some banks make money even from this, charge $6 to $10 every month. Contact your bank and find out about this, you may be paying without your knowledge. Many banks like Bank of America, Citibank and Wells Fargo charge a fee every month for this service.

What you can do: You may be able to get around the charges by using a more manual download process that involves going to the institution's Web site and clicking a few buttons, but that's a hassle. I used to do manual download before, now my bank allows free access service, so it gets updated automatically in Money account in the desktop.

Another one that is not mentioned here is the Automated teller service charges, to prevent the bank charges, you can withdraw cash using debit cards from your regular purchases. So, you don’t have to pay additional withdrawal fees every time you use a bank card for cash withdrawals.

If the banks give us good savings interest then we can understand the fees, but they don’t give us good savings rate and charge us with high fees. Check your bank fees and make sure you are getting a good service for it.

Ref: Money Central MSN