Credit Card Abuses Moving into the Public Eye
Today I discovered that Yahoo!'s featured story highlighted credit card abuses. Through the main page link, David Bach writes about universal default clauses and other tricks that credit card companies don't want you to know about. The main page also linked to a Motley Fool article discussing problematic "grace periods" and a bankrate.com article about problems with check cards. This is clearly a discussion that is gaining momentum; let's keep it going.
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About check cards (debit cards). They are a lesser evil than credit cards. The contracts are still not good, but you can protect yourself by writing a letter to the bank and requesting that your "overdraft protection" service be discontinued. It is a hidden lending account that the bank or credit union makes an unbelievable profit from. Also, I don't use my debit card on my main checking account. I use another checking account that I keep only enough money to cover my expenses, with a small buffer. That way if my debit card account is used without my authorization I stand to lose little money, and with my overdraft service discontinued, I haven't agreed to those rediculous overdraft fees. It is the bank's responsibility to deny any charge that overdraws my account.
One other point, I don't use a bank, I use a credit union. Credit Unions are non-profits, and they are not as greedy as banks. I find doing business with them a bit more pleasant than a bank. One note though, if you use a Credit Union credit card, the agreement allows them to use deposits in your other accounts as collateral for the credit card balance. Under no circumstances should anyone have a high interest credit card collateralized by your main checking account!
Jim Anderson
The Truth About Credit
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March 14, 2007 8:22 PM | Reply | Permalink
Not ALL banks have 'hidden' overdraft protection on debit cards. My bank does not, I had to request it for my checking account. It was as simple as linking a savings account to my checking. While I've only ever had an overdraft of my checking perhaps 3 times in 35 years (and 2 of those were bank errors, not mine) it's still worth it to me to have the 'protection'. IF it happens, the bank charges a 'transfer fee' of only $5, while an overdraft fee is $39 !!!
I've also had my debit card number stolen twice, but the bank has permanently reversed the fraudulent charges both times with no loss to me whatsoever. It does help that I check my account EVERY day on-line. If you have on-line banking and use a debit card as I do, doing anything less is asking for trouble - you must always be vigilant.
March 15, 2007 8:27 AM | Reply | Permalink
You are correct that the fraud protection is better in some respects with debit cards because the bank tends to respond quicker, as long as you are quick to respond to a problem. However, my point is, regardless of your experience, the contractual terms still leave you potentially liable after a transaction is approved.
If a bank approves a charge that puts your account into a negative balance, you have an overdraft service. Approving your savings to cover the overdrafts means they don't have to use the overdraft service. They don't have to lend you any money, if they can dip into your other accounts.
Overdraft fees are higher, but if a debit card transaction is denied there is no "check bounce" fee. Overdrafts result from the bank approving a charge that puts your account in the negative. Allowing access to your savings account to cover overdrafts only makes the money in your savings vulnerable instead. If someone decides to charge your debit card, and the bank decides it is legit after you dispute it, regardless of the fact that you didn't approve it, the money is gone. Limit your liability, don't increase it for the convenience of the bank. Make them deny charges on your debit card that would overdraft your account. The fee is $0 for that, AND the money is still in your savings account. It is harder to get your money back, than to keep it in the first place.
Jim Anderson
The Truth About Credit
Facebook Profile
March 15, 2007 8:05 PM | Reply | Permalink
I don't mind bank fees on an ATM card, that's fair as far as I'm concerned, it mainly pertains to the usage fees which cover upkeep of the ATM's which are very handy, and I like being able to use a debit card at the store, but I've learned my lesson with credit cards, and hopefully I'll never hold another one. That old PBS special that talks about 39% penalty interest rates and so forth, it smacks of usury, and should be directly opposed in a federal court. Loan industry, sure, but loan sharking/usury should be clearly defined.
March 17, 2007 12:27 PM | Reply | Permalink