Wednesday, October 07, 2009

Cheap cereal and dear overdrafts 

Can someone tell me why this is relevant?
"Banks and credit unions have become so sophisticated in driving up overdrafts that Americans now pay more in overdraft fees every year than they do for books, cereal, or fresh vegetables," said [Center for Responsible Lending, a liberal advocacy group] senior researcher Leslie Parrish. "These billions of dollars drained from consumers each year represent lost opportunities for families to save for a rainy day or buy necessary goods and services that could help spark the economy."
What is an overdraft? It's an attempt to have the bank offer you an unsecured loan, for which you would have to pay interest. The borrower sets the amount and the time. How much should one pay for this service? It's of value to the borrower; should not the lender get compensated for providing a valuable service?

As to the comparison, we live in a world that produces goods cheaply, particularly agricultural goods. I would think it's a great thing that cereal, vegetables and books are made as cheaply as they are; I don't see a theory that says they should not cost less than the right to put a loan on a bank's books.

Now if it turns out that banks are putting these overdraft protection arrangements in place (at high prices) without consumers' knowledge, you'd have a real point here. But if this is again a case of consumers signing checking account agreements without reading the clause of overdraft protection, is this just an attempt to legislate bad behavior? Nobody HAS to overdraw their bank account.