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."
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:
Starting Balance: $20
WoW: -$15
---------------------
$ 5
Lunch: $10
---------------------
-$ 5
Overdraft fee: -$35
---------------------
-$40
Snack: -$ 2
---------------------
-$42
Overdraft fee: -$35
---------------------
-$77
Pencils: -$ 5
---------------------
-$82
Overdraft fee: -$35
---------------------
End total: -$117
Starting Balance: $20
Lunch: $10
---------------------
$10
Snack: -$ 2
---------------------
$ 8
Pencils: -$ 5
---------------------
$ 3
WoW: -$15
---------------------
-$12
Overdraft fee: -$35
---------------------
End total: -$47
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.
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.
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.
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.
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!
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.
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.
http://consumerist.com/2011/11/10/bofa-scraps-plan-to-let-cu...
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 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)
I agree though, I like to trigger my payments.
Pew has a nice little infographic depicting your exact situation: http://www.pewtrusts.org/our_work_report_detail.aspx?id=8589...
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.
http://www.forbes.com/sites/halahtouryalai/2012/02/22/are-ba...
I'd be happy if I could just turn off overdraft "protection" altogether.
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".
For example, PayPal: https://www.paypal-prepaid.com/prepaid-debit-card/paypal_fee...
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.
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.
In other words, all of this is not brought about by myopia, but simple business decisions.
Fully experiencing bay area traffic for the first time, I was pretty annoyed, so I went into 1. my national bank of multiple years, 2. a local credit union, and 3. The dealer itself to try to get a brief loan so I could get a nice sportbike. I make a decent salary, and have been working since I was 13.
Every single financial institution made me fill out my residence history for the past two years, which (on their paper forms) was a several hour process and a huge pain in the ass - why does it matter where I lived when I was eighteen? I'm not sure I remember the names of the people I was living with, much less the landlord's secondary phone number. It seemed especially pointless with my main bank, because they had full historical data on my salary, and knew damn well that I could pay off the loan in full with a month's salary.
Long story short, all of these places denied me for not having lived in the same house for multiple years. I waited a week, got a bonus, and bought one from a different dealer in cash. The next time I need a loan, you can bet I won't be going to any of the companies I visited previously.
It's ridiculous to make financial judgments based on length of residence at an address in 2013 when there's so much more accurate data available (actual income/purchasing data). I think this is a policy that's going to change - many if not most of my highest-earning peers move around frequently to meet needs of the modern job market.
There's definitely a mix of opinions out there on this, but there have been some good challenges against community lending targets as a significant cause of the crisis.
Somewhat more polemical: 1. http://www.forbes.com/sites/stevedenning/2011/11/22/5086/ 2. http://www.washingtonpost.com/blogs/wonkblog/post/no-the-aff...
Wikipedia can sometimes provide a pretty good record on controversial topics with sufficient visibility.
The current article on causes of the US housing bubble, and specifically the section covering loan policy, cites useful literature on both sides. While it's not a completely one-sided argument, it appears the weight of the evidence goes against the CRA and similar government initiatives as a leading cause of the crisis: http://en.wikipedia.org/wiki/Causes_of_the_United_States_hou...
At the very least, given the number of other sections on that page, you should conclude that the CRA wasn't the sole cause of the crisis.
Note from the same page, (and in some of the above polemics), it seems like there's a similar cry to blame deregulation for the crisis. There are reputable economists, even Bill Clinton claiming that the repeal of Glass-Steagall probably wasn't sufficient to cause the crisis. Regulation and deregulation make suggestively convenient bogeymen for the right and left respectively, so they should draw a sort of heightened scrutiny.
Events like this are naturally complex. Alarm bells should ring if anyone boils down the entire crisis to something so simplistic as "too much or too little government." Some problems and some solutions don't fit conveniently on a postcard.
Shareholders aren't always even citizens (can be foreign, can be other businesses).
Hell, I'm having trouble keeping a steady place to live because I'm an intern in the Bay Area for 2 months at a time. Housing market is too hot for anyone to have offered rentals even loosely timed to what I needed.
And then, even if you (the low-income person) avoid the overdraft fees, eventually monthly fees start appearing. So far, in 10 years of using banks, I've twice closed checking accounts because they started charging monthly fees. I might try a credit union next time I need a bank account.
Keep a $3000 minimum balance or have a regular job depositing money into your account electronically, and the monthly fees disappear. Banking is, in absolute terms, too expensive for the poor.
I guess at the end of the day, poor people present poor revenue opportunities for banks. So the banks resort to underhanded methods (ie ones that customer would not agree to if they were given a choice). In turn, these customers learn to mistrust the banks and turn away.
#4 is a lot of why Kiva exists and works here in the U.S. as well as the rest of the world. By being charitable we can offer these higher risk loans, and in the end we end up still having a very high repayment rate.
I also mistrust banks. Most banks are confusing and make it difficult to tell exactly how much money you can spend, and then lie in wait to hit you with overdraft fees. For now, I'm trying out Simple Bank, but they're in closed beta. I don't personally know anybody who wants to use the invitations that came with my account.
I'm also suspicious of "know your customer" laws and all that tracking information. I reduce the amount that they can know by keeping a small amount in cash, to use when shopping locally.
It's not just the US - as patio11 knows, here in Japan, the banks charge you a "convenience fee" for using the ATM when the bank isn't open.
Using an ATM vs a teller actually SAVES them money. This is the most ballsy thing I've ever seen, and exists only because most Japanese don't realize it isn't normal
1) Many poor people mistrust banks, for reasons ranging from cultural ("Where I come from, they're far more likely to vanish with your cash than the mattress") to personal experience ("I was just going about my business one day but then I ran the account a little low, $300 vanished in fees, my rent check bounced and I got arrested for 'uttering.'").
2) Banks have some assumptions made about their customers which are institutionalized by practice and sometimes regulation or policy. These assumptions map fairly well to the middle class but sometimes don't travel well. Here's four things I could tell you about an adult member of the middle class: they're literate, have a primary address which changes relatively infrequently, carry identification with them, and do not fear speaking to Authority because they're not cognizant of a reason why that should result in their immediate arrest.
3) "Free checking" was a multi-billion dollar ongoing wealth transfer from poor bank customers to banks and relatively wealthier bank customers. ("Free checking" was a marketing tactic very popular in the 90s and early 2000s where banks eliminated monthly fees for checking accounts while slashing minimum balances to open them. The flipside is that they then started cranking up fees generated by e.g. overdrafts. This combination generally tends to not be to the benefit of (many) poor people.)
4) The alternative financial sector has a product mix which more closely matches poor people's needs than traditional banks. For example, short-term loans for small amounts of money available with minimal documentation required are a) astoundingly high risk, b) relatively expensive to process, c) have fairly low margins, and d) carry explosive reputational risk. These counsel against the typical retail bank even trying to offer them. Much better to loan a middle class American $8k out of a credit card limit of $20k at 12% with a 3% loss rate then to loan a poor person $100 with $110 due a week later. (If you APR-ize that it becomes "A number which one never, ever wants to get asked about when you're called to testify before Congress about how you're causing poverty in the community you serve.") Business thus flows to the alternative financial sector.
5) (The literature is a bit circumspect about this one, but it's there.) Sometimes poor people make decisions which, if you appreciated their limited options, individualized viewpoints of the world, and the sociocultural context and structural issues at play... are still very effing bad decisions.