Posts Tagged ‘overdraft fees’

Avoiding The Debt Trap

Not all debt is bad and most people can’t avoid accumulating some debt, unless they’re heir to some massive fortune. Having said that, some debt is just plain toxic and should be avoided like the plague.

Payday Loans/Cash Advances

Payday loans let you borrow money from your next paycheck. They’re meant to act as a stop-gap when you have an emergency expense that is outside your budget. However, payday loans are a deadly trap because of the way they’re structured and the expensive costs associated with them. For one thing, they’re extremely short term and must be paid back, in full in one to two weeks.  If you’re already living paycheck to paycheck,  you’re almost certain to be short after paying back the payday lender and need another advance from your next check, plus an additional fee to last you until your next pay day. This is how payday lenders make their money and how the payday debt trap closes.

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ING Direct’s Overdraft Line Of Credit Saves Money

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Normally, I am pretty hard on banks and the financial services industry in general. However, when I read a story about the Internet bank, ING Direct and its overdraft policies, I had to give kudos where kudos are certainly due. It turns out that ING Direct won’t have to change one thing about how it does business in the wake of the new law effective July 1 of this year requiring banks to specifically get permission via an opt-in request for overdraft protection.

ING Direct has always offered overdraft protection on the basis of opt-in only, and only in the form of a low interest line of credit. To make people aware of the high cost of conventional overdraft protection, ING now offers up its overdraft  calculator.

Using the calculator, overdrawing your account by $100 for a ten day period will cost you $30, which is 20 cents of interest per day.  With ING Direct’s method via an overdraft line of credit, you would be charged 20 cents in total for that same $100 overdraft.

As ING Direct’s CEO, Jim Kelly puts it:

That’s $30 for 10 days equates to an interest rate somewhere north of 1000%. That doesn’t seem right. The way those transactions get stacked up — in terms of clearing checks, debit card transactions — you get three or four of those for a few dollars and end up paying $100 or $200 in fees in a day or a month.

That doesn’t seem like the value is in the hands of the consumer. It seems like all the value is going to go to the bank.

Read the complete story here.

Bad Credit Financing: Designed For Failure

bad credit

Lenders and brokers who loan money to people with lower incomes and spotty credit will all claim that they provide a valuable service to a community that is underserved by traditional lenders. But do they really? Or are they instead exploiting the plight of our most vulnerable citizens by promoting an endless cycle of debt and making a killing off the interest and other fees they charge?

While it is a good idea to give people who might not normally have the access to financing a leg up, surely that leg up should not also come with a heavy weight attached to it in the form of draconian and exotic terms that make it close to impossible for the borrower to successfully meet his obligations.

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Really, Big Banks? Really?

crybaby

 

Even before the ink was dried on President Obama’s signature on the credit card reform bill, the banks were already on the hunt for loopholes in the law to exploit in the name of profit.  In the absence of loopholes, they wanted to find new ways to generate the same amount of profit as they had before the law took effect.

An article on smartmoney.com, which is a subsidiary of the Wall Street Journal and certainly no friend of Main Street,  predicted that banks would stop offering free checking accounts.  Probably the single most laughable comment in the entire piece is this shining gem:

Already cash-strapped banks anticipate declining revenue from credit cards as rules from the CARD Act take effect, says Hank Israel, director of Novantas, a financial services consulting firm in New York.

If the banks are so cash-strapped, then how can they afford to give their top executives such large bonuses? It is true that the new law will cost the banks revenue, and recent action by the Federal Reserve to limit overdraft fees starting this summer will cut those profits even further. Let’s be clear here: the new law won’t bankrupt the banks…not even close! The banks will still bring in revenue, and plenty of it. It just won’t be quite as much.

That said, those profits that the banks are trying to reclaim can be fairly characterized  as “ill-gotten,” and complaining about their curtailment is a bit like a bank robber complaining that he can’t rob any more banks after he is caught. Further, finding new ways to make the same sorts of profits is akin to that bank robber switching to robbing armored trucks.

“The banks need to make up the lost profits due to the law in other ways,”  whine bank cheerleaders and apologists, with the inference being that but for passage of the law, the banks would not resort to such tactics.

Don’t get me wrong: there is nothing wrong with making money. There’s nothing wrong with making a lot of money. The wrong lies in how that money is made. It is just as wrong for banks to make 80% of their revenue from 20% of their most vulnerable customers as it is for someone to make his money by thievery.

Instead of whining about being regulated after years of massive deregulation that precipitated the financial crisis in which we now find ourselves, the banks should be looking at new ways to make money that add value.  No one would complain about paying for  a service that is helpful and actually does something.

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