[dm8]

0 overdraft fees. Yay. More like it. It will force major banks to rethink their overdraft fees as a revenue center. As someone who was not so well financially just a decade ago, overdraft fees seemed like penalty for being poor. When you are living paycheck to paycheck, you never know when your account will get overdrawn. And most evil thing was - bank will deny the charge because you didn’t have enough funds but will still charge you for $34 fee.

Some banks offer overdraft protection but it’s not obvious in lot of banking websites/apps in my experience and has been recent development. Plus - lot of people don’t understand the concept of overdrafts. They assume bank will deny if your account doesn’t have enough funds.

I’m surprised congress didn’t take action on overdraft fees as it mostly affects middle class and poor people.

[the_snooze]

https://www.fdic.gov/consumers/overdraft/

Overdrafts have been opt-in by regulation since 2010. What banks have done is try to trick people into opting into "overdraft protection," which is really just the old system that allows a customer's checking balance to drop below 0: https://www.wellsfargo.com/credit-cards/features/overdraft-p... As long as a customer takes no action or just says "no," they won't be allowed overdraw their checking balance.

[angott]

Yes, but if you do not opt into overdraft, you will still be charged a “non-sufficient funds” (NSF) fee when the bank declines your transaction. And the NSF fee is usually higher than the overdraft fee.

This doesn't make any sense and is just a money grab on the poor and desperate, because there is absolutely no technical reason why declining a checking or debit card transaction should cost $35+ to process.

[BayAreaEscapee]

Back in the day (when we had to go to school uphill both ways), I met a banker who told me, "whatever your bank is charging you for a bounced check, it isn't nearly enough". Then he described how the system worked: the actual physical check had to be sent back from your bank, to the Federal Reserve branch of the receiving bank, then to your branch of the Federal Reserve bank, and then to your bank. Not electronically: I'm describing the movement of the actual physical paper check. So, there was a real cost to everyone for a bounced check and of course the person who wrote the bad check should pay. That makes sense.

Of course, this makes no sense in a world of electronic transfers via ACH. The banks that are still charging $35 for a bounced transfer are engaging in something barely more legal than theft.

[Dylan16807]

Let alone the cost changes for a bounce, a decline is very different from a bounce.

But also that bounced check was in a big stack and probably got 3 minutes of employee time spent on it across all those institutions combined. I bet that banker was describing some exceptionally double-dipped charges if they thought it wasn't high enough.

[OliverGilan]

Super interesting to learn this. I find that people often assume the things that don't make sense in today's world simply never made sense but often that's not the case! You're right, overdraft fees DO make sense in the world of physical checks the system just hasn't caught up (intentionally or not). Thanks for sharing!

[jjulius]

Depends on the bank, I would imagine. Anecdotally, I've never been charged a fee for having a transaction declined because of insufficient funds, nor has my wife, and collectively that's ~5 different banks.

[angott]

Based on my personal experience, all the big banks in Canada do it. The fee is 45-48 CAD for each declined transaction, no matter the amount.

[yellow_lead]

So how do you opt-out? Or is this an action you have to take when creating the account.

[yardie]

You opt-out or opt-in when you set up the account or anytime afterwards. I know only because I just setup checking for my teenage son and it was something the agent asked during the process. I pushed back and declined even though they gave me the end of the world spiel.

[mcherm]

> It will force major banks to rethink their overdraft fees as a revenue center.

I wish that were true. For significantly more than 10 years I have worked for a major bank that does not charge fees for overdrafts that pull from a loan or savings account. I still have seen few signs of the major banks deciding to follow our lead.

[duped]

The tyranny of scale creates terrible incentives in banking. Someone whose average balance hovers around $100/month might well cost the bank more money than they can earn off the balance, while someone with $10,000 is basically free.

Normally in services you charge more from the people who are more able to pay, because they'll be willing to spend more money for the same service. Yet in financial services and banking, the more money you have to spend on the services results in the lower fees and costs across the board.

I think if there's something that needs to be systematically altered to close wealth gaps, that's a fine place to start.

[GloriousKoji]

I remember over a decade ago or so my bank offered this new overdraft "protection" where you could setup an amount of money to use from your saving account to make up the difference in the event of overdraft. One day I cut a check that was $5 over what was in my checking account and found out there was a $75 fee for overdraft. It was not at all obvious in their advertising that fees would still apply. Never made that mistake again.

[Kluny]

> Some banks offer overdraft protection

I've always thought overdraft protection was disturbingly like "fire protection". As in, three dudes come to your door, and the skinny one says "Nice place ya got here, be a shame if it burned down" while one of the beefy ones fiddles with a Zippo lighter.

[MisterBastahrd]

Yeah, this is huge in an age where a lot of people are dinged through recurring subscriptions. You could rack up 5 or 6 charges and not even realize it, at which point you're out hundreds of dollars in overdraft fees.

[mittermayr]

I always struggled with this concept, why not stop at 0 when the account is overstretched? Here in Europe, for most people I would say, it's quite rare that the account goes to 0, and if it does, the transactions simply don't go through (unless it's a credit card). Isn't that asking for borrowing money at no fee? Don't get me wrong, I absolutely despise predatory bank charges, but wonder if that's a bit much to ask a a consumer (i.e. no charge for borrowing money I don't have?). Or is this just about the penalty fee for going into overdraft, and not the actual fee for loaning of money?

[dimmke]

You used to be automatically opted into overdraft. Also, you could still get hit with an overdraft fee even if they rejected the charge. Banks also used to structure transactions to force overdrafts if they could. It was really bad.

[sofixa]

In France many banks propose an overdraft service which is limited ( as an example, for a student with no banking history to 200 euros), and is basically a mini free loan. There are rules like you can't stay on overdraft more than X days ( iirc the only one I've seen is 30 days), in which case you pay a fee.

[namdnay]

Being able to go below 0 is not tied to having a credit card. Nearly all debit cards issued in Europe can do this to. The only ones that don’t are things like Electron (systematic authorization), but they don’t play well with “fast” systems like motorway tollgates

[gambiting]

So what happens here in the UK with my visa debit card, is that if I somehow go below 0 using it(very difficult, but it has happened before) then my bank sends me a text saying "hey, you have gone into unarranged overdraft, please pay in some money before tomorrow 3pm or we'll charge you a fee".

But of course, that implies that the bank isn't greedy.

[donmcronald]

> you never know when your account will get overdrawn

How? It’s not that hard to keep track of money in vs money out. I bet most of it is people that don’t understand it takes time for a cheque to clear or people that know an auto payment will overdraw their account but can’t do anything about it (ie: no money).

Overdraft fees should be illegal, especially for electronic transactions that get rejected.

[mellavora]

maybe you have never lived through a period of sustained financial stress. Yes, people in that situation understand that it takes a few days for a check to clear. One of those checks is your paycheck, which you need to clear to cover your other costs. The other is the check you wrote to the grocery store so you could eat, or your rent check. Which clears first? Did you time it right? What if your paycheck was delayed by a day?

Money in vs money out is very hard to keep track of when you don't have a buffer and you are always balancing empty.

I want to make an analogy to a seemingly simple buy known hard computer science problem, like resolving bugs caused by race conditions. Stuff which is simple if you can assume a single processing thread can become a nightmare when this assumption does not hold.

[roland35]

This is true. Having an extra few hundred dollars made a huge difference to me since I was always juggling the payday vs rent money as well.

Credit cards are not easy to get with no credit history either. I eventually was able to get a card but it had a $250 limit.

[dimmke]

Banks used to structure these charges to create overdrafts whenever possible. They made it very difficult for you to see what your actual usable balance is.

They also used to be allowed to simply reject the transaction if you didn't have the money and still charge a $36 fee. It was insanity.

If your checking balance never reaches close to zero, you wouldn't notice this. I was a teenager in 2010 and definitely got hit with a bunch of overdraft fees. Banks know these fees are bullshit (even now, with increased regulation), that's why they're so quick to waive them at first.

[bananaportfolio]

In 2006 PayPal tried to deduct ~$500 dozens of times in a 48 hour period due to what was obviously a software bug. This resulted in me being overdrawn by around $900. No matter who I spoke to on the phone with Bank of America, nor which branch manager I met with in person, nobody could do anything to help me.

The most I accomplished was having a branch manager agree to waive 1 overdraft fee since I had never overdrafted my account before.

PayPal was even less helpful.

If I enable overdraft protection with my current bank (Wells Fargo) then they will charge me something like $17 to transfer money from my savings account to cover a charge that my primary account wouldn't have enough funds to cover.

This was a good reminder that I need to switch banks. Maybe I can find a good Credit Union in my area.

[artificialLimbs]

Anecdata: I overdrafted a few months in to having my credit union account. The bank manager literally called me on the phone that day and asked if I could come in and cover the charges. I couldn't because I was too far away or out of town or something. Manager asked if I could come in the next day, to which I said yes, and did, and received no overdraft fees.

Another credit union (which I have since left) in my area was a total nightmare to do business with. 6-10 transactions were met with shocking resistance and frustration. Check reviews for your propsective bank if possible.

[35fbe7d3d5b9]

> This was a good reminder that I need to switch banks.

When you do, try your best to do what I've done ever since my mortgage processor screwed up and double charged me: never use anyone else's online services; do all the banking that's possible from your bank's online bill pay. At least that way the people who are pushing money out of your account via automation report up through the same people who manage the rest of your account ;)

Also, credit unions seem to be happy to let you maintain an account with a balance but no fee in a way that banks aren't. As a result, I have my main checking account that I use for everything, and a second account at a completely unrelated institution where I keep 30 days worth of cash. I spent $10 for che(que|ck)s and an hour of time getting it set up, which was well worth buying me a month of insulation against any number of risks.

[anonAndOn]

You must not be familiar with the banks' previous tendency to rig the game and make sure the charges all hit your account and in the most profitable sequence before the deposit was applied?[0]

[0]https://scholarship.law.unc.edu/cgi/viewcontent.cgi?httpsred...

[steveklabnik]

I wrote about how this happened to me in a comment here (8 years ago, dang!) https://news.ycombinator.com/item?id=6424493

[dclusin]

Instead the extortionary practices will be moved to the foreign exchange rate or some other more opaque mechanism.