July 13th, 2009
As the nation has moved toward more convenient, reduced cost and trouble banking via the use of those ubiquitous debit cards – you know, those not-really credit cards that allow you to make purchases without having to write a check – banks saw a perfect opportunity to fleece their ordinary (not-rich) customers yet again, to the tune of 1000% on small purchases. Who in their right mind would voluntarily sign for a loan at that sort of ridiculous rate? Well, if you use your debit card, chances are, you did.
It used to be that if there wasn’t enough money in your account to cover a purchase, your debit card wouldn’t go through. If you happen to be among the millions of Americans who barely make it from paycheck to paycheck, you’re much better off floating a check the day before payday so it won’t get debited until the paycheck gets recorded. But many people have found that they can still use their debit card, then have to pay the bounced check fee anyway.
As described by Chris Plummer in a commentary at Marketwatch, this can add up to usurious fleecing of the consumer. Particularly if you allow the bank to automatically deduct some of your monthly bills, which can leave you short even if you think you should have money enough to cover lunch the day AFTER payday! Plummer does the math and notes that if you end up having to pay the bank a $35 overdraft charge on a $3.50 lunch purchase, the effective interest is 1000%.
Moreover, if somebody else uses your debit card – steals it and manages to find your code in order to use it, or (in many cases) a child or other relative decides to withdraw on a card you lent for a one-time use – YOU are on the hook. If it were a credit card, the lender’s money is at-risk, so fraudulent use has built-in protections that you won’t be stuck with the bill. Since that debit card can only access YOUR money, you have to pay regardless of theft and fraud.
Plummer details the risks very well, so do check out the link and arrange your money management accordingly. Pay your bills on line only after the paycheck has been deposited and immediate purchases are covered, don’t let the bank do it for you. Always get your card back from anyone you’ve given it to for a one-time purchase, to protect yourself against them using it when it will overdraw your account. Keep strict track of your usage and fees, and if they’re costing you a lot you can go back to a regular checking situation. Which may be more trouble and generate more paperwork, but will protect you from the bank’s greed as well as protect your financial privacy. Check fraud IS protected just like credit card fraud in most states, where debit card fraud is not.
If your bank account is like mine, your money flows through and doesn’t sit in the vault earning a lot of interest for you or the bank. The bank is in business to make money, not to make your life convenient. Don’t trust them with the details of your financial struggles or you may find yourself paying them a big chunk of your income every month for nothing.Filed under Credit, Credit Cards, Debt | Comment (0)