I only ever ASKED one poor person why they didn't have a bank account. A young mother of a student at a middle school I do work with. She has three kids and one month she was hit with fees for a) having less than a prescribed amount in her bank account. and b) writing a bad check. (Ironically, a check that was bad because of the fee taken for 'a').
Now for her, going to Walmart every month and putting her earnings on a prepaid card gives her everything she needs with little of the risk. And so that's what she does. It's not a "check cashing place" or "payday loan" place, but it is one of the places siphoning the poor from the banks. (My guess is that it's probably siphoning a lot of them too).
I think sometimes it's a little easy to lose sight of that single mother with three kids working a low end job. She really can't afford fees like that... though the fees may sound trivial to the middle class. When she gets home, she HAS to have food for her children. And among a lot of what you might term the "responsible single mothers", anything that would put their ability to do that at risk is, rightfully, eliminated.
Bank accounts, in their current form, are on the list of things that can put that at risk. And so, bank accounts are eliminated.
After that conversation, it was not clear to me that she had made a bad decision. I couldn't really question her priorities. A bank account was good for me... but maybe not for her. This is why I think that these sorts of decisions will be made more and more often by the poor. Because they only care about the ends, (feeding her kids). Not the means, (the bank account).
I guess I'm just saying that...
It wasn't clear to me that it was an... "...effing bad decision."
> (Ironically, a check that was bad because of the fee taken for 'a')
This is a real big problem in these kinds of situations.
To give you an idea of how this happens: when I was in college, I worked at a pizza shop. It was Thursday. I got paid Friday. I thought I had $20 in my bank account, but I didn't realize that day was the day that my World of Warcraft subscription was up, and that was $15. During the course of the day, I bought lunch, a snack, and some pencils or something. All that total was less than the $20, it was something like $10 for lunch, $2 for the snack, and $5 for the pencils. So I was good.
I wans't good. They applied the charges like this:
Still an expensive mistake on my part, but it's more subtle than 'made a bad choice.' I was able to convince the bank to refund two of the fees so I was only out $40, but that extra $70 was a _massive_ amount of money to me at the time. It basically meant that I could only exactly squeak by for the next month, since that was basically all of my discretionary income. You can construct a similar situation which would have forced me to then take out a payday loan to make my bills, had I made one or two more mistakes in that same timeframe.
When I was a student I was broke, and lived off a tiny income of $800 a month for food. I bought a 3G mobile stick which didn't work, and immediately returned it the next day and cancelled the service.
Of course, they never cancelled service so a year later I get collection phonecalls that I owe them $1,000. Regardless of me disputing the bill they instead debited my bank -$1,000 which I had no idea they could do since I didn't have overdraft. What they did was wait until 11:59pm the day before I was to be paid out $800 direct deposit from my pitiful p.t job and the bank allowed it to go through, then charged me interest on the negative balance for those few hours where they overdrafted the account.
I woke up to -$280 in my account in overdraft fees and the theft of my money from that telecom. Being that I couldn't feed myself I had to go out and do cash loans at extreme interest and was in a cycle of poverty for 3-4 months after that until finally got my money back from those assholes. I closed my account after that and asked to be paid out in cash from my job instead.
I had to go out and do cash loans at extreme interest and was in a cycle of poverty for 3-4 months after that
That's one of the biggest problems with poverty. You can get stuck in the trap and you can't work your way up. Often things get more expensive as you have less money. You can't buy things in bulk and get the savings of economy of scale. You can't afford to go further to get a cheaper thing. You can't afford to get that item today even though it's cheaper. You can only afford short term, more expensive solutions.
What a distressing story. The collection agencies are happy to pick on those who do not have the resources to defend themselves. The bank is happy to let your balance go negative, because it permits them to rack up fees. The interests of the customer (you) do not even register as a footnote.
Good on you for closing that account, and clawing your way back to solvency. One day you'll be wealthy, and that same bank will come a-knockin'. Tell them to go pound sand.
Came here to post something on the order of this. One time I was nailed for > $250 and the correct ordering would have been only one overdraft for about 30cents and a penalty of $35. I was working at a min-wage job at the time and taking home less than $200/week. I lost over a week and a half of pay to the bank, couldn't afford to pay rent and had to leave my place. I got slammed less than two weeks later and that pretty much finished me. Situations like this happened to me a few times and happened quite often to a few friends I had. I walked into the bank and told them I wanted overdraft protection or they can close my account. They refused and I haven't had an account since then. I'm still on chex systems over that snafu, but why would I pay them for money I never had or used?
Banks are just awful things for people who are poor. There really isn't much point when you live payday to payday and you have zero dollars by the time payday comes.
You have to pay $3 for ATM fees and you may forget exactly what you have in the account, overdraft by $1, and then get hit by $150 overdraft fees. It would be helpful if the ATM showed the real amount of money left on the cards, but no, they showed one number then another number the next day.
I still don't know what banks can do for me, but I thought the idea was a safe haven to keep and save your money. All I've experienced are predators who take my money and then refuse me basic services.
As for the reason for reordering, since I didn't use it for anything high priority, they couldn't use that story on me. The bank blamed the merchants and the way that the system ordered the money. I cried foul, saying that I can't believe that a bank, who's singular expertise is managing money, can't figure out how to add and subtract a few numbers.
As an experiment, try this for three months: Open up a bank account, put $150 in it and use it for paying for the bus, your food, clothes, soap, shavers or whatever expense you may need. Of course, if you get hit by the overdraft, you can't pay it. The next month, put $150 in the account and live off that minus the overdraft fees. See if you can manage it and then come back and tell me poor people are making a stupid choice by keeping the money in their wallet.
Dealing in cash is an excellent choice. Not only do you avoid getting screwed by banks, you experience the gut-churning visceral reaction of handing over a Benji - something you just don't get with a credit card swipe. So it's a financial and psychological win. That's why Dave Ramsey advocates for it (plenty to critique about the guy, but he nails that part).
The stupidity comes from the wretched check cashing agencies (aka liquor stores). Pay us for access to your money, minus 3% for our trouble. What a racket!
It's called transaction re-ordering. The bank claims the that large transactions (like rent, mortgage, etc) are likely to be the most important and that you, the customer, would want those to be processed first. But, the math works out in favor of the bank because you get more fees (exactly as you showed in your example).
I remember this being in the news several years ago. I don't remember if anything came of it, maybe somebody else here does. But, personally I did opt out of all overdraft services from my bank - so if I did run out of money my charge would simply be denied. As far as I know this never results in any penalty. Any automated billing I have set up seems to be fault-tolerant and will just notify me to verify my card information and re-try the charge a few days later.
IIRC Bank of America lost a class-action lawsuit over this practice. I didn't opt-in to overdraft protection precisely because of stuff like this. I'd rather just be denied.
I got hit with several overdrafts after some tickets I purchased finally got charged a month after I purchased them. Even better was that I never got any text messages to warn me. I set up alerts for low balances and whatnot, and somehow this was the one day it failed to work. If it had, I would have transferred money from another account and avoided any problems. I've been meaning to find a new bank (or credit union) since.
My brother didn't have an account but he needed someone to cash a $3K check from an acquaintance of his. He told me he'd give me 10% if I did it, and I was dead broke at the time. So I do it and the next day my bank (one of the big names) lets me take it all out, at which point I give it to my brother and he gives me $300. On the same morning, the check-writer cancels the check and the bank hits me with a -$3,000, plus overdraft fees. A week later they closed my account of good standing of 10+ years. My brother spends the money, refuses to pay it back and swears he wasn't 'in it' from the start with his buddy, the check-writer. That was 4 years ago and I haven't spoken to my lovely brother since. To top it off, I wasn't able to open another account in the US for a few years.
My favorite story for this type of stuff was in college when the bank double cashed a check I had written. I went below 0 (it was my rent) and 5 other checks (for less than $50) bounced. Cue $175 in overdraft fees.
I went in to fix it and they realized they double cashed my rent (still not sure wtf that was about), and they added back on the amount of the rent. It took another 2 weeks to get the fees removed. I had to call and visit 8 times. Being $175 down in 1988 was not fun.
I switched banks, but as a student I am pretty sure these days I would have used something from Walmart or another group. I bank with a credit union now and they are amazing.
> I didn't realize that day was the day that my World of Warcraft subscription was up
I no longer allow any automatic payments from my bank account because of this issue. Maybe one is ok but if you start to have 5 or 6 monthly payments automatically coming out of your bank account, it can be hard to keep track.
Also, if they make an error and you are dealing with a large company, it is probably going to take months to get the money back whereas paying invoices leaves me in control and I can choose not to pay if something is wrong.
If I do have a subscription, it just goes on my credit card and then I pay at my convenience. This also allows me a buffer in case of any unexpected emergencies should I need some extra cash flow. I could pay the minimum monthly amount for a month or two should I need it.
I really don't know why people do this. Let's let some large company have direct access to debit my account at will.
(Sorry for the tangent but I feel strongly about this)
"Just use a credit card" isn't necessarily an option (if your parents have bad credit, they aren't going to be able to help you get starter credit which means a secured card, which means having the cash to secure it...).
A similar thing happened to me in college (compounded by the bank charging me another $35 every day until I had money again) and I was lucky I had a paid-for place to live and a paid-for meal plan to scrape through till payday.
Banks mostly stopped transaction reordering when it got a lot of attention post-financial crisis, but they're slowly going back to it, so some orgs and the CFPB are starting to shine a light on the problem again.
Ahh this is why I've always gotten an account that can not overdraft, and I refuse to opt-in to any overdraft crap. If I am out of money, I want to be out of money, and to not be able to buy things, period.
That such a thing is possible. If I try to get below my limit in the Netherlands I am simply not able to. The only services who can go below my limit are my rent and gas/water/electricity bills. And then I just pay a high interest rate. Which doesn't really matter if you deposit money the next day.
I just got something in the mail about a class action lawsuit against my bank for that very thing (processing transaction out of order to maximize overdraft fees)
I'd be happy if I could just turn off overdraft "protection" altogether.
Because they only care about the ends, (feeding her kids). Not the means, (the bank account).
I don't like this ends/means thing here. I mean bank accounts aren't 'ethical things'. Not having a bank account isn't 'unethical'. In the context of money people only see accounts as an ends. Very few people have a bank account "just because".
Except those debit cards have all kinds of predatory fees. They're smaller and predictable, but way more expensive than using a checking account from a credit union correctly.
I must have missed something. I didn't read what patio11 wrote to suggest that he thought paying with cash (or it's equivalent) would be a bad decision. It seems to me like your friend made a sane and responsible choice when she ditched the bank.
Really, if asked, I don't know anyone struggling financially who has a line-item in their budget to cover not having money. Maybe overdrafts should be capped and charged the going annual interest rate for short-term loans. If I understand correctly, that is how they are handled in Germany.
have an uncle who is a bank dev since forever... he says when he started banks had a "cost per client" that they had to make up for lending/investing that clients money.
nowadays they have only consideration for "profit per account".
and he says thats because banks are now almost required if you want to get paid for your job, so you dont have to give anything for free anymore.
Now for her, going to Walmart every month and putting her earnings on a prepaid card gives her everything she needs with little of the risk. And so that's what she does. It's not a "check cashing place" or "payday loan" place, but it is one of the places siphoning the poor from the banks. (My guess is that it's probably siphoning a lot of them too).
I think sometimes it's a little easy to lose sight of that single mother with three kids working a low end job. She really can't afford fees like that... though the fees may sound trivial to the middle class. When she gets home, she HAS to have food for her children. And among a lot of what you might term the "responsible single mothers", anything that would put their ability to do that at risk is, rightfully, eliminated.
Bank accounts, in their current form, are on the list of things that can put that at risk. And so, bank accounts are eliminated.
After that conversation, it was not clear to me that she had made a bad decision. I couldn't really question her priorities. A bank account was good for me... but maybe not for her. This is why I think that these sorts of decisions will be made more and more often by the poor. Because they only care about the ends, (feeding her kids). Not the means, (the bank account).
I guess I'm just saying that...
It wasn't clear to me that it was an... "...effing bad decision."