My daughter is a freshman in college and is learning a lot, including how to manage her money. Recently she got a powerful initiation into the predatory practices of banks—a lesson more and more of us are learning each month.
She miscalculated and thought she had more in her account than she did. When she went to make a withdrawal from an ATM machine, the bank let her, even though she was in deficit. Comerica bank continued to let her withdraw, charging her $32 a pop. A $4 charge at a coffee shop became a $36 charge. A $6 sandwich became $38. She had not authorized the bank to permit deficit spending; like most people, she had no idea that the bank would still let her use her card if she was broke. The bank doesn't tell you it will do this. Why? Because it's a huge source of profit.
BusinessWeek reported on a student whose bank, Pittsburgh's PNC, allowed him to charge $230 on his debit card even though his account was in the hole. PNC charged him $217 in fees for the privilege. A PNC spokesperson says such a policy "helps our customers avoid embarrassment." The student said he would rather have been embarrassed than gouged.
In 2004, banks pocketed $32 billion in service fees, up from $21 billion in 1999. According to BusinessWeek, such fees accounted for 76 percent of profits at the Midwestern bank TCF. Wells Fargo in San Francisco reportedly charges $2 every time someone with a low balance calls a service representative, and a whopping $30 an hour when a rep helps someone reconcile an account. Not surprisingly, the majority of these fees fall on the poorest customers. One out of five customers switches banks because he or she is so outraged by these charges.
The barely regulated banks are getting away with one usurious practice after the next. In addition to the subprime fiasco now threatening the entire economy, there are the extortionate service fees on your bank accounts and the escalating interest fees, late fees and truncated payment cycles on your credit cards. Millions of us now get credit card bills that give us 10 days—not 10 business days—to pay up or get hit with a late fee. No wonder the credit card industry has been one of the most profitable in the country, earning some $30 billion annually. The rates credit card companies charge retailers have gone up 85 percent since 2001, and those are passed onto us.
In 2005, Congress passed the infamous bankruptcy "reform" act after major lobbying by the financial-industrial complex, adding to the enormous pressure many people are feeling from the mortgage-housing-credit crisis. Designed to protect creditors, the law makes it harder and more expensive to declare bankruptcy.
Before, people in financial trouble could file under Chapter 7, which typically allowed them to keep their homes while other property was sold off to help cover credit card and medical debts. Now most must file under Chapter 13, which requires them to accept a 3- to 5-year repayment plan on all debt. This may lead to even more foreclosures. For those who still can use Chapter 7, it now costs twice as much to file as it used to. While many conservatives blame individuals for charging and borrowing irresponsibly, one of the major reasons people go into such debt are medical expenses.
And you can't renegotiate mortgages in bankruptcy court. Reps. Brad Miller (D-N.C.), Barney Frank (D-Mass.) and others have introduced a bill that would allow bankruptcy courts to do this, but lobbyists for the banking industry are already working to scotch it. Chris Hayes recently reported in The Nation that "Blue Dog" Democrats—the moderate-to-conservative Dems who vote with Bush Republicans—urged House Judiciary Chairman John Conyers (D-Mich.) to delay the Miller-Frank bill despite the fact that foreclosure rates continue to zoom.
The Democrats ought to ask their constituents what they think of their credit card companies, their banks and their mortgage companies. What they might hear is that these are leeches people want pulled off of the body politic immediately.
