[e63f67dd-065b]

I'm continually surprised by the political influence held by the thousands of tiny banks in the country. I must applaud the people behind the Check 21 Act: it's the combination of a neat backwards compatibility trick (if you want paper, we'll print it and send it to you) and political maneuvering that I must admire it.

> Since the standard U.S. bank account is a checking account, even if it cannot write checks, it is necessarily a credit product.

Why is this the case? Checking accounts without the ability to overdraft and thus create credit risk exist; I've always wondered why they're not more widespread. Is it a problem that people who are Chex blacklisted are unprofitable anyways?

[digging]

> I've always wondered why they're not more widespread

Historically, it's a major source of revenue for banks[1]. I used to use BOA, when I switched to a local credit union they at least offered me the choice of "overdraft protection," which obviously I declined.

Fortunately, overdraft fees appear to be growing less profitable[2], so hopefully banks will phase them out.

[1] https://www.consumerfinance.gov/about-us/newsroom/cfpb-resea...

[2] https://www.consumerfinance.gov/data-research/research-repor...

[telotortium]

Even without the bank giving the check writer the privilege of overdrafting, either the bank or the check recipient has to absorb the loss if they accept a check for which the check writer has insufficient funds (unless the bank goes after the check writer). By contrast, with a debit card, the credit risk is much less (since the bank knows before the transaction whether sufficient funds are available).

[lxgr]

That doesn't make a checking account (especially one without check writing) a "credit product" though, no?

If anything, anybody accepting a check for payment and delivering goods/services before it clears is extending credit in a way, but that has less to do with the bank account and more with pre- vs. post-payment for goods/services.

[davidw]

> political influence held by the thousands of tiny banks in the country

Car dealerships are pretty bad too.

[lxgr]

I also don't understand that part.

Why is it not possible for a bank to just always decline payment for checks drawn on overdrawn accounts as a matter of policy?

The other, and probably more relevant, credit aspect of checking accounts is depositing a check which might bounce (due to an overdrawn account) – but that also seems avoidable by just making checks available as late as legally allowed (i.e. on the second business day after deposit as far as I understand)?

[toast0]

> but that also seems avoidable by just making checks available as late as legally allowed (i.e. on the second business day after deposit as far as I understand)?

But checks can bounce much later than that. When the originating bank demands the money back, you'll have to ask the customer for it back if they've already taken it out.

[lxgr]

Ah, good point – I was only thinking about non-sufficient funds; I suppose a check can bounce for fraud much later than that, and as far as I know, the depositary bank is liable for at least some fraudulent checks.

[otteromkram]

An alternative might be scaled NSF fees.

Instead of one standard overdraft fee, smaller miscues might amount to a few bucks or something.

Transactions in the hundreds or thousands could be proportionately larger.

Maybe a "window" should be available for reversal of NSF fees if a balance is brought up to cover the credit amount.

I can see the point of waiving the fee, but someone has to cover the cost of funds aren't available.

Should the grocer have to eat the cost of goods you purchased? How about the bank?

Arguably, no.

[lxgr]

> An alternative might be scaled NSF fees.

Why should these fees be scaled? There's no variable cost to the bank returning an item (i.e. a check, ACH debit etc.) as unpaid, unless I'm missing something.

Overdraft fees, on the other hand, have always seemed very strange to me, since I grew up with European-style banking: Overdrawing an account is standard procedure in most European countries and is just considered a form of credit, with standard interest rates and everything.

Calling it anything other than credit seems to me to be mostly an artifact of the structure of US banking (i.e. the fairly strong separation of the lending and deposit-taking sides of US banks).

[timerol]

If I write you a $500 check and you accept it for $500 cash (or $500 of goods), you are extending me credit. You don't actually know that my account has the $500 until you cash the check. Someone has to pay that $500, even if I only have $100 in my account. And if I read the article right, the bank is legally required to take the loss.

[nradov]

No, banks aren't required to honor bad checks. They reject checks all the time for insufficient funds (bouncing). Some banks offer overdraft protection to checking account holders so that checks won't bounce (within some limit) but that's a separate feature.

[rkeene2]

A bit off-topic from the original thread, but if you use a Debit card (only validated on the Visa network) it's possible for a merchant to issue an "Advice" without any kind of Authorization (or even after a failed Authorization) in which they will debit your account even if you lack the funds.

Your only option there (as a banking provider) is to debit the account (even if it causes the balance to go negative) or eat the loss, and then manually dispute the charge.

It's not (yet) clear to me who ends up responsible for this -- but I suspect it's the bank side.

[lxgr]

That's possible on most payment card networks that have their historical roots in credit or "dual message" processing.

Historically, the default assumption was that a credit card was always good for payment; the issuer took the credit risk for the cases where that was not the case. Ubiquitous electronic/real-time authorizations (a concept also known as "zero floor limit") have changed that default assumption and liability, but are a relatively new feature for credit cards.

Since debit cards in the US usually feature at least one international "credit" scheme/brand (credit in the historical and processing sense, not in terms of actually being funded that way), there can accordingly also be force-posts.

The issuer can trivially charge back any such charge in case of insufficient funds, though, just like they can with checks.

This is mostly true for credit cards as well, by the way! For historical reasons, some merchants (like hotels or car rental agencies) treat the two differently, but there is no formal basis for the distinction anymore. There is still a practical difference though: Opening and maintaining a credit card usually requires having a non-disastrous credit score; the fact that somebody can present one that still allows authorizations by the bank to go through can therefore serve as a weak proxy for that customer's credit.

tl;dr: The merchant (or their bank) is almost always liable for this, not the issuing bank, with very few exceptions.

[rkeene2]

We asked our network representative and they said we could not automatically dispute these transactions, so because of this we have to add overdraft fees to our product which otherwise never allows your balance to go negative.