Veeeerrry Interesting

Old-time church leaders as well as many modern Muslims frown on usury. In olden times, "usury" referred to charging interest of any kind. Religious leaders opposed interest in part because of its symbolic implications. When you charge someone interest, after all, you are essentially selling "time," and for mere mortals to trade in futures of, well, the future, was a heretical usurpation of God's prerogative. In the 16th century, Henry VIII loosened laws against usury, permitting moneylenders to charge reasonable interest and paving the way for loansharks and Diner's Club alike.

Nowadays, of course, interest is part of the cultural wallpaper. Annoying when charged against us, pleasant when offered to us. Usury is still a crime, but it's confined to the most egregious abuses of fair-lending. What that means in practice varies from state to state, but most people would probably agree that an interest rate of 3,000% likely qualifies for criminal penalties, if not eternal damnation. Still, that's an all-too-probable interest rate for many unwary consumers who fall afoul of their banks' "overdraft protection" policies. ("Overspending on Debit Cards Is a Boon for Banks").

Consider: You have $99.99 in your checking account. You make a $100 purchase. Most banks allow the transaction to go through; after all, what's a penny between friends? Well, actually, that penny will likely cost you at least $30 in penalties. So, effectively, the bank has lent you one cent at 3000% interest.

Now, some might argue (as banks unsurprisingly do) that account holders simply must keep track of the money in their accounts. That one cent example sounds egregious, but really the banks are providing a service, essentially offering an automatic extension of credit to people when they most need it--when they're standing at a cash register to purchase that life-saving prescription (or that venti latte). Fair play. But if that's so, and if banks are so certain that they provide a desired service, one wonders why they so vehemently resist the idea of an alert system: A consumer would be warned before the purchase goes through that the purchase would cause an overdraft and incur a penalty. The consumer could then decide if the purchase is really necessary and, if so, gladly accept the penalty.

We suspect our hypothetical shopper mentioned above might reject the 3000% loan--or at least negotiate with the cashier to sell him the item for $99.99.

What's truly outrageous about these fees is the way the banks game the system to maximize penalties. Let's say you have $100.00 in your account. In quick succession, you use your debit card to make purchases of $2.00, $4.00, $5.00, and $96.00--in that order. You would expect the bank to pay the first three charges, leaving you with $89.00, and that you would get hit with one overdraft fee when the $96.00 charge goes through. But the banks will often take the opportunity to put the $96.00 charge through FIRST, followed by the $5.00, $4.00 and $2.00 purchases. You're still only $7.00 overdrawn, but you've been hit with THREE overdraft charges. At (let's say) $30 each, that amounts to a seven dollar loan with $90 interest; if you're playing along at home, that's almost 1,300%.

We have some personal experience with this. Awhile back, WOS was hit with some overdraft charges by a bank that shall remain nameless (except to say that the bank's first name is "Bank" and its last name is the same as that of the country in which we live; its middle name is "of"). When we backtracked to figure out where we went wrong, we stumbled across an anomaly. At one point, before WOS went to make a purchase, she checked her balance. According to the bank's OWN ATM, her available balance was more than sufficient to make all the purchases she subsequently made. Only it turned out her "available balance" wasn't. Available, that is. See, the bank was holding back information about a previous overdraft fee. In other words, we had less money than we thought we did because the bank was planning to levy charges that it hadn't yet levied, which, in turn, caused MORE overdraft fees to be incurred. When asked how we were supposed to know this at the time we checked the balance--and how, therefore, to avoid further overdrafting--the bank's assistant manager simply shrugged and explained that it was really all our fault.

Suffice to say, we don't bank there anymore.

Congress is considering legislation to combat the worst of these abuses. We're just happy to know that Americans everywhere continue to do their part to bail out the troubled financial services industry!