Overdraft Hell Revisited

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Felix Salmon is every bit the hater of outrageous bank fees that I am, but he goes beyond the hate and responds to today’s NYT front pager with some practical ideas for reform. Here’s the Salmon Plan:

• Banks are allowed to offer automatic overdraft protection, but only if it’s free. (They can charge an annualized interest rate on the overdraft, but no set fees.)

• If a bank wants to charge fees as well as an interest rate for overdraft protection, then that protection has to be opt-in rather than opt-out, and the fees should be prominently disclosed at the opt-in stage.

• Fees should be be capped at $20, with a limit of one such fee per day.

I’m not sure I’d agree to even that much, frankly.  For my money, overdraft fees should be regulated as short-term loans with agreed-on interest rates, and banks should simply decide for themselves how to cap them.  If they don’t trust you, the cap is zero and you can’t overdraw your account at all.  If they trust you a lot, the cap is high and you can overdraw your debit card all you want while your bank rakes in the interest payments.  And yes, of course overdraft protection should be opt-in.  It’s a sign of how fatally corrupt the finance industry is that either one of us even has to say that.

Would this make banks less profitable?  Of course not.  They’d make up for the overdraft revenue somewhere else, which is exactly what I want them to do.  I want banks to compete openly, with simple annual fees, clear interest rates, and services with plainly advertised up-front costs.  If debit cards cost the bank money, they should charge annual fees to everyone who uses them, rather than subsidizing 90% of their business with hidden fees on the 10% who are least able to afford it in the first place.  It’s a disgrace that we’ve allowed this to go on as long as we have.

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We didn't know what to expect when we told you we needed to raise $400,000 before our fiscal year closed on June 30, and we're thrilled to report that our incredible community of readers contributed some $415,000 to help us keep charging as hard as we can during this crazy year.

You just sent an incredible message: that quality journalism doesn't have to answer to advertisers, billionaires, or hedge funds; that newsrooms can eke out an existence thanks primarily to the generosity of its readers. That's so powerful. Especially during what's been called a "media extinction event" when those looking to make a profit from the news pull back, the Mother Jones community steps in.

The months and years ahead won't be easy. Far from it. But there's no one we'd rather face the big challenges with than you, our committed and passionate readers, and our team of fearless reporters who show up every day.

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