2.19.2012

Geez.. I Hate Banks

But then, now that I know how to play the games, I should love them...

Online Banking
I tend to be ahead of the curve when it comes to technology, so it should be no surprise I've been banking online longer than most.  In fact, my bank itself is virtual - no brick and mortar locations (okay to be fair I DO use a local bank, but it isn't my primary bank).  

Of all the great benefits of banking online, one giant benefit doesn't exist, and banks won't allow it.  I'm talking about the overdraft charge.   

People like myself who automate payments online do so because we fully expect to have the cash in hand at the time payment is due.  And for the most part it works out well.   There have been one or two instances where I accidentally set up payments every week as opposed to every two weeks and as a result was overdrawn.  Which leads to this question - If my bank sees there's not enough money in the account, why process the payment anyway?  

The answer of course is fees.   Online banking, if a bank really cares about its customers, could prevent most overdrafts (it won't eliminate overdrafts though).   But banks do not care about its customers, they care about shareholders.  Of all the banks I've done business with, only one - just one - automatically cancels a scheduled payment if there's not enough cash - ING Direct.  I was really impressed with this online bank for a lot of reasons, but when I saw how they handle potential overdrafts, it really won me over.   Unfortunately the bank was sold to Capital One, and since I'm already familiar with Capital One, I had to dump that bank.

My challenge to all banks:  provide me with a means to avoid overdrafts and I will consider using your bank.   Note:  I said avoid overdrafts - which means prevent, stop, evade, cease, avert, overdrafts.  It does NOT mean I want your "overdraft protection" - which requires I put MORE money in your bank.  

History of Overdrafts
There is a bona-fide reason for overdrafts.  And I should note that I appreciate the "service" my bank gives me when it comes to withdrawing more money than I have available.   

For example, if my bank rejected a check I wrote to cover my rent, the landlord would A) charge me a bounced check fee, B) require all future payments to be made by money order, and/or C) sue.    In such a case, I would gladly pay my bank $35 to cover that check.   Of course the bank would gladly accept my money.  


By doing so, the bank can help preserve your credit rating.  In other words, if that check were allowed to bounce, your landlord will quickly report you to the credit rating agencies which in turn will make it exceedingly difficult for you to obtain credit or employment at a later date.  So by covering that check, the bank is doing you a big favor.   


An aside to that, the banks had a process of paying the larger sums first.  The idea was that for most people, the two biggest checks written each month were for rent and for a car note.   Both of which have a big impact on your credit score. As a result, you can get hit with an overdraft of $35 for a $5 cup of coffee even though you made that purchase before you wrote the check to your mortgage company.  Unfortunately for banks, that makes the situation worse because the perception is they are penalizing their customers for minor transgressions.  That rule has been made illegal under the new Banking Law.  It remains to be seen if it will be helpful or not. 

But those scenarios apply to checks - a financial instrument that can float (meaning I give a promissory note to a vendor, who in turn cashes at his bank at a later time).  In the modern era, I and many people like me do not write checks.  We pay either by ATM or online - both of which are transactions that do not float (meaning nearly instant).   Instead of a promissory note I give to a vendor, I tell my bank to pay the vendor directly.   A caring bank would tell me - "hey, you don't have enough money.  We won't honor this request".  What I have is a bank that gleefully pays my $5 latte just so it can tack on $35 in overdraft fees.  

And Now....
In addition to not providing me services I really want, banks have taken my tax money too!   How rude!   


Fortunately, I have the US Government to get my money back and I have reason to believe they will.  Other bailouts generated revenue for the US Treasury.  Banks are making money and eager to pay back these bailouts.  Shortchanging Uncle Sam would be bad for business.  


I now know how they make their gains - and their gambits.  And I've learned they do not want consumers to do what they do.  In short, banks borrow money to make even more money.  It was legal before the financial crisis and is still legal after the crisis, but with more scrutiny from regulators.   Big banks do not want Joe Schmoe to do the same because they fear they won't get their money back.   So on a lot of loans there are restrictions on what you can do with that money.  For example, you cannot take out a loan for a house and then buy stocks with it.  It MUST go to the house you said you were buying.  


But I have news for them.  I am going to beat them at their own game.  I won't break the law, and I'm not advocating for anyone breaking the law or lawful contracts, but all contracts have loopholes and I've found mine.   The result:  the next loan I get will go to my favorite stocks.  I've been investing with Monopoly money, and have done quite well.  I have also invested with real money and did well, just not as well as I have lately.   The goal - make my bank pay me, instead of me paying my bank.  


Of course, I'll keep you updated on my progress.  






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