Overdraft fee overload: Can we get a little help here?

Banks will charge a shameful $38.5 billion in overdraft fees to the American public this year, and most of them are the ones who can least afford it -- the working poor and the unemployed who are constantly juggling utility bills and can barely afford groceries.

Congressional Democrats are finally moving toward limits on banks' ability to charge overdraft fees, calling them "criminal" and a "rip-off." Given my long and once-cozy relationship with the banking industry, I agree -- and think it should have happened years ago.

We had a particularly good year in 1997, in what is now Wachovia's investment banking division. My former favorite boss had taken the position of head of investor relations, and he came in the wake of annual financial reporting to proclaim the truth: the real money was in fees.

We'd made millions structuring syndicated loans and securitizing assets, yes, but the bank's millions of retail customers had funded far more profit with their overdraft and ATM fees. It was double what we'd made in all of investment banking, even in this record year.

I was uncomfortable at the time -- heck, I was a retail customer and paid my share of ATM fees even though I worked in a building with a First Union cash machine right there next to the elevator banks, and a branch a few yards to the south.

But I understood that the reason I had my cushy job was because many of its consumers were living check-to-check, and that is an exaggeration which gives one the illusion that one check is enough to last workers and the unemployed until the next check arrives.

That was before I had a family and knew how it was to write checks and click little cheerful online "PAY" buttons on the day a monthly check arrives and realize you now have only $76 to last you a few weeks, and must decide whether you can buy your child new shoes or organic raisins and ohmygod $#@% honey did you really pay PTA dues? We totally can't afford that! I just splurged on a $4 coffee drink because it's payday and it's going to cost us $33 after the overdraft fees come in.

This is no longer 1997. It's 2009, and overdraft fee growth has gone on, untrammeled and now mostly due to debit card transactions -- my $4 coffee splurge and my brother-in-law's $5 pack of cigarettes and my oldest son's $6.49 Bakugan battle brawler (we promised!) and my youngest son's $6.99 box of diaper wipes -- that end up costing consumers as much as hundreds of dollars a month when they can least afford it.

Big banks like Bank of America order transactions largest-to-smallest, ostensibly to ensure consumer's rent gets paid, but we all know really to increase the likelihood and quantity of overdraft fees. (An old boyfriend working as an associate in Bank of America's legal department wrote an opinion in 1994 that this should be stopped as it would eventually cause large losses in class-action lawsuits; this hasn't happened, though consumers and their lawyers surely have tried.)

Instead of slowing in the economic crisis, banks have opened up new frontiers of overdraft revenue, allowing debit transactions even though consumers' bank balances aren't enough to cover them, essentially providing a vastly expensive payday loan. If that weren't enough, many banks hold checks that are about to be deposited, causing overdraft fees for consumers whose bills are paid automatically through the zillions of "convenient" services and who make the mistake of counting on money due to them. Overdraft fees have risen over the years, from an average of $10 when I was a budding investment banker to $35 today -- even though that $35 fee is frequently charged on a "loan" of $3 that the consumer really didn't want at that expense.

The proposed bills generally just concern the consumer's ability to opt out of the debit card loan program; in other words, give bank customers the chance to say "no" to transactions if funds aren't available. Some ideas go farther; I like the concept of fees that are proportional to the transaction. The fact that a fee on a $3 prescription or a $5 sandwich is a flat $35 is outrageous.

I wish Democrats would go farther, though, and make fees more in line with what the banks' actual costs are. I'm sure the interest the bank pays -- and the computer transaction that catches the fee -- are closer to a few cents than $35. I'd be willing to pay double the actual cost for that service.

But that might be entirely too fair and we have the banks' health to contend with! Working poor and unemployed, be damned.
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