Over on Ethical Banker Erik wrote,
Is it ethical for Banks to let your checking account go negative in order to charge and profit from NSF fees?
From a purely business standpoint I see why this is such a profit center. A good percentage of people get into a financial bind from time to time. Unforeseen auto repairs, medical expenses, etc… but, the extent in which the banks charge these fees can make it almost impossible to recover from a financial issue.
For instance I had an emergency medical issue which tapped my checking account. The payment was posted to my account immediately putting me a few dollars negative. in the next few days charges made previous to the incident began to post. Things like a cup of coffee at starbucks, dry cleaning, etc. Small charges. Yet I incurred a $31 NSF fee for everyone costing me an additional $310 dollars on top of the negative balance. $310 dollars for charges totaling less that $50 dollars? This kick them while there down philosophy in my opinion is unethical. What are your feelings on this issue? Are there alternatives to traditional banking?
Most readers know that as I build my money-coaching business (Your Money by Design) I work part time for Citizens Bank of Canada. CB (as we insiders call it. Well, I do, anyway) prides itself on its ethics, and does business only with companies that are not in the nicotene, arms, nuclear, animal testing etc. business (that still leaves a lot of scope!).
We’re owned by a credit union (VanCity) although operate completely independently, but it means we genuinely put members first. Nevertheless, we absolutely charge NSF fees. First, there’s an OD fee of $5. The member has about 24 hours to get the funds in, before we send the item back NSF. If the member doesn’t, we charge an additional $25.
Why do we charge? Because it honestly costs us. For each OD, a live human being has to monitor the account: will the member get the money in? If not, a live human being also has to get the funds back from whoever we gave them to (eg. if it was a payment to your auto-insurance, we have to electronically contact them to reclaim the funds). Many people erroneously think this is all automated and instantaneous. It’s not as much as we think. There are massive regulatory and privacy requirements, so electronic data is not flying across the web like we think it may be. There are checks, balances and a wee bit of human intervention along each step.
The case you stated seems extreme. If a member called me and pointed out what would happen, I would likely go to the mat arguing for a refund of the majority of fees (providing it did all indeed occur in one fell swoop, rather than over a month of routine mishaps). The fact is, NSF fees frequently do hit us when it hurts – I’ve been there! (I’m a money coach because I took my share of lumps and bruises). It’s easy to interpret this as the bank hitting us when we’re down. It’s not. It’s simply a function of reclaiming costs-of-services-provided even though the ‘service’ is reclaiming your money (you didn’t have), an unwelcome service.