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In the book "The Big Short", Michael Lewis mentions how one CEO admitted to an audience that free checking accounts were simply a way of screwing over poor peop

In the book "The Big Short", Michael Lewis mentions how one CEO admitted to an audience that free checking accounts were simply a way of screwing over poor people for all these additional fees, like overdraft, etc. It's really because people with less money need to spend more time managing their money because they are closer to drawing down the account, and the banks are betting on this. It's basically predatory banking, and I guess based on the numbers, extremely profitable. It's the exact type of behavior I would expect from a bank. But let's not swallow everything that the article said. It's not like banks of yesteryear were so magnanimous. Back in the Great Depression, it was the banks that screwed over so many farmers and home-owners that many states, including California, made mortgages non-recourse meaning that banks could only take back the house in the case of foreclosure, something that many people took advantage of during the latest housing boom.

hugh3 15y ago
Well, let's face it -- it's not like banks actually make money any other way out of checking accounts. Any bank account with less than... I dunno, $50K in it... is probably costing the bank far more than it's worth. The bank ain't a charity.
- fennecfoxen 15y ago
  I don't think it's how much the account has in it, these days, half so much as the amount of payments they put on their check card. Cash flow and merchant fees are where it's at.
- pyre 15y ago
  There are more honorable ways to make money than to label something as 'free' and then attempt to incorporate as many hidden fees as possible.
  - minikomi 15y ago
    Bah! It's not like anyone would ever fall for that. Sent from my iPhone
  - johngalt 15y ago
    True which is precisely why banks used to charge a small monthly fee to have an account. Then one bank offered "free checking" and all the rest had to follow suit or lose all their DDAs. There are evil banks out there, and customers flock to them. Frankly if you were looking for dishonorable behavior there is much worse going on at banks. For instance its widely known that a certain bank will report its current customers to chexsystems for the slightest infraction (a few overdrafts, or a returned deposit). Effectively this makes the customer unable to open an account at a competitor. So they remain stuck with bank of scam-erica.
- nknight 15y ago
  Yeah, tell me, how much are those electrons costing the bank, again? Unless they're also giving you free checks, that's pretty much the cost. A human being will rarely look at anything. Everything is handled by automated computer systems.
  - notJim 15y ago
    I think you're missing out on a lot of things. The bank definitely has costs that go into supporting its customers: branches and employees to staff them (most banks, not all of course), phone support people, the very computer systems you talk about, and people to keep them running and add new features to them. Most mainstream banks' free checking accounts make these things available to account holders, so I don't know how you can say they don't cost anything.
    - nknight 15y ago
      I haven't set foot in a bank branch in over a year, and then only to deal with a problem caused by the confluence of their antiquated model and that of another company. I've never once made a phone call to, or received one from, my current bank in the ~7 years my current checking account has been open. I don't know who you think they're maintaining such anachronisms for, but it ain't this free checking user. The computer systems have to be created and maintained for their wealthy depositors regardless. The marginal cost of adding less affluent customers is laughable, and more than paid for by the interest they can earn from a few hundred dollars in deposits.
      - enjo 15y ago
        Next time you walk by a bank branch, take note of how many people are inside. That would likely indicate that your something of a anomaly.
        nknight 15y ago
        Um, zero? That was pretty much the case whenever I went in to a bank branch in past years. Often I was the only one there, never was the employee to customer ratio less than 5:1, and anyone who was there was most likely to be 60+. A visit to a physical bank branch is the anomaly today, not a lack thereof.
fennecfoxen 15y ago
It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory". This isn't to absolve any banks, but rather to mock the federal government and their chronic flailing about while trying to control the financial sector(+). It's shades of the same mindset which led to subprime mortgages being subsidized, purchased by the million by Fannie Mae and the FHA. "Banks are a bunch of meanies. They ought to do charity instead." (+) and this isn't to say that the sector couldn't use a little control, just that the Feds aren't proving themselves very competent at it.
- eru 15y ago
  > It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory". In a sense, yes. But you should rather compare it to the good examples mentioned in Europe, which also have free accounts for poor people. I wonder what those banks do different.
Confusion 15y ago
It's the exact type of behavior I would expect from a bank. From an American bank. There is no German, Dutch or French bank that does that and I doubt Spanish, Italian or Swiss banks do it. Sure, if I overdraft, I pay (serious) interest over the amount overdrawn for as long as I am overdrawn, but you aren't hit with any fine at all. In fact, I have arranged that I actually can't overdraft. Automatic bills just bounce when I'm underfunded. That's between me and the companies whose bills bounced.
- joelhaasnoot 15y ago
  As a European I still marvel at the craziness of American banks. I just graduated college this summer, working at a startup now, so cash is tight, have some student loans, yet I never overdraft cause I can't. If I could, I know the temptation would be too big. (Do have a credit card though, which essentially is an overdraft as the bill comes the 26th of each month, but is automatically paid in full).
- furyg3 15y ago
  As an American who moved to the Netherlands, I can vouch for this. My fellow countrymen don't know what they're missing: * There are no ATM fees levied by another bank's ATMs. * There are no ATM fees levied by your bank for using another bank's ATMs. * There are no fees or minimum transactions for using your debit card at a business. * You are allowed to overdraft, you just pay an interest rate to the bank for the money you owe (mine is 10%, up to €2,500). * There are no bounced check fees, because: * There are no checks. Non-debit card transactions are done via online banking, are free, and usually instantaneous. * All banks use 2-step authentication (phishing is nearly impossible). I was confronted by the joke of US banking again recently when I had to mail someone in the US a check, which they lost, found 6 months later and cashed... generating an overdraft fee in my US account. Totally unnecessary.
  - joelhaasnoot 15y ago
    "There are no fees or minimum transactions for using your debit card at a business." isn't always true. For (small) business with not enough transactions, accepting debit cards is an expense, and below 10 euros they often charge 0.25. Nothing major though. And the big downside to all of the above? Credit card acceptance is very very low. Tourists can only purchase train tickets by credit card at Schiphol Airport. Everywhere else the option is disabled due to fraud issues.
steelaz 15y ago
I had a free checking account with TCF National bank (US). After getting hit number of times with overdraft fee, I went to my local branch, asked for a manager and explained that I want to disable overdraft protection on my checking account. Manager told me he can't do it and that I have to write a letter (they didn't have any forms for that) explaining things and send it to their HQ. Needless to say, I closed my account the same day.

hugh3 15y ago

Well, let's face it -- it's not like banks actually make money any other way out of checking accounts. Any bank account with less than... I dunno, $50K in it... is probably costing the bank far more than it's worth. The bank ain't a charity.

fennecfoxen 15y ago
I don't think it's how much the account has in it, these days, half so much as the amount of payments they put on their check card. Cash flow and merchant fees are where it's at.
pyre 15y ago
There are more honorable ways to make money than to label something as 'free' and then attempt to incorporate as many hidden fees as possible.
- minikomi 15y ago
  Bah! It's not like anyone would ever fall for that. Sent from my iPhone
- johngalt 15y ago
  True which is precisely why banks used to charge a small monthly fee to have an account. Then one bank offered "free checking" and all the rest had to follow suit or lose all their DDAs. There are evil banks out there, and customers flock to them. Frankly if you were looking for dishonorable behavior there is much worse going on at banks. For instance its widely known that a certain bank will report its current customers to chexsystems for the slightest infraction (a few overdrafts, or a returned deposit). Effectively this makes the customer unable to open an account at a competitor. So they remain stuck with bank of scam-erica.
nknight 15y ago
Yeah, tell me, how much are those electrons costing the bank, again? Unless they're also giving you free checks, that's pretty much the cost. A human being will rarely look at anything. Everything is handled by automated computer systems.
- notJim 15y ago
  I think you're missing out on a lot of things. The bank definitely has costs that go into supporting its customers: branches and employees to staff them (most banks, not all of course), phone support people, the very computer systems you talk about, and people to keep them running and add new features to them. Most mainstream banks' free checking accounts make these things available to account holders, so I don't know how you can say they don't cost anything.
  - nknight 15y ago
    I haven't set foot in a bank branch in over a year, and then only to deal with a problem caused by the confluence of their antiquated model and that of another company. I've never once made a phone call to, or received one from, my current bank in the ~7 years my current checking account has been open. I don't know who you think they're maintaining such anachronisms for, but it ain't this free checking user. The computer systems have to be created and maintained for their wealthy depositors regardless. The marginal cost of adding less affluent customers is laughable, and more than paid for by the interest they can earn from a few hundred dollars in deposits.
    - enjo 15y ago
      Next time you walk by a bank branch, take note of how many people are inside. That would likely indicate that your something of a anomaly.
      - nknight 15y ago
        Um, zero? That was pretty much the case whenever I went in to a bank branch in past years. Often I was the only one there, never was the employee to customer ratio less than 5:1, and anyone who was there was most likely to be 60+. A visit to a physical bank branch is the anomaly today, not a lack thereof.

fennecfoxen 15y ago

It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory". This isn't to absolve any banks, but rather to mock the federal government and their chronic flailing about while trying to control the financial sector(+). It's shades of the same mindset which led to subprime mortgages being subsidized, purchased by the million by Fannie Mae and the FHA. "Banks are a bunch of meanies. They ought to do charity instead." (+) and this isn't to say that the sector couldn't use a little control, just that the Feds aren't proving themselves very competent at it.

eru 15y ago
> It's true that this is predatory. It's also notable that if banks don't reach out to poor people with free checking and the like, the federal government gets on their case for being "discriminatory". In a sense, yes. But you should rather compare it to the good examples mentioned in Europe, which also have free accounts for poor people. I wonder what those banks do different.

Confusion 15y ago

It's the exact type of behavior I would expect from a bank. From an American bank. There is no German, Dutch or French bank that does that and I doubt Spanish, Italian or Swiss banks do it. Sure, if I overdraft, I pay (serious) interest over the amount overdrawn for as long as I am overdrawn, but you aren't hit with any fine at all. In fact, I have arranged that I actually can't overdraft. Automatic bills just bounce when I'm underfunded. That's between me and the companies whose bills bounced.

joelhaasnoot 15y ago
As a European I still marvel at the craziness of American banks. I just graduated college this summer, working at a startup now, so cash is tight, have some student loans, yet I never overdraft cause I can't. If I could, I know the temptation would be too big. (Do have a credit card though, which essentially is an overdraft as the bill comes the 26th of each month, but is automatically paid in full).
furyg3 15y ago
As an American who moved to the Netherlands, I can vouch for this. My fellow countrymen don't know what they're missing: * There are no ATM fees levied by another bank's ATMs. * There are no ATM fees levied by your bank for using another bank's ATMs. * There are no fees or minimum transactions for using your debit card at a business. * You are allowed to overdraft, you just pay an interest rate to the bank for the money you owe (mine is 10%, up to €2,500). * There are no bounced check fees, because: * There are no checks. Non-debit card transactions are done via online banking, are free, and usually instantaneous. * All banks use 2-step authentication (phishing is nearly impossible). I was confronted by the joke of US banking again recently when I had to mail someone in the US a check, which they lost, found 6 months later and cashed... generating an overdraft fee in my US account. Totally unnecessary.
- joelhaasnoot 15y ago
  "There are no fees or minimum transactions for using your debit card at a business." isn't always true. For (small) business with not enough transactions, accepting debit cards is an expense, and below 10 euros they often charge 0.25. Nothing major though. And the big downside to all of the above? Credit card acceptance is very very low. Tourists can only purchase train tickets by credit card at Schiphol Airport. Everywhere else the option is disabled due to fraud issues.

steelaz 15y ago

I had a free checking account with TCF National bank (US). After getting hit number of times with overdraft fee, I went to my local branch, asked for a manager and explained that I want to disable overdraft protection on my checking account. Manager told me he can't do it and that I have to write a letter (they didn't have any forms for that) explaining things and send it to their HQ. Needless to say, I closed my account the same day.