October 13 2009|01.09 PM UTC

Jonathan Rivers

12 Ways Financial Institutions Screw You Over

Category: UncategorizedTags: , , , , , , , , , , ,



Nothing gets a group of people talking like a good “bank screwed me over” story. Dissatisfaction with banks, credit card issuers and stock brokers is so widespread that entire forums are bursting with complaints and horror stories to which most of us can personally relate. While it’s unlikely that any of these companies will listen, we thought it’d be useful to gather the most common (and sneaky) ways financial institutions screw people over into one place so you can keep an eye on your money.

Charging Interest On A 0% Balance


Source

Amazingly, SmartMoney tells us that creditors can even charge interest on those carrying a 0% balance. Puzzled as to how this might happen? Here’s the example they offer:

Say you buy a $900 refrigerator that you pay off in three months, paying $300 plus whatever interest charge you have each month. Then on the fourth month, after you’ve supposedly paid off the balance, you still receive a bill with an interest charge. That’s because the credit-card company has continued charging you interest during your third grace period, or the 20 or so days between receiving your third statement and the date you send in your payment, Sherry explains. “People tend to pay their bills on the due date,” she says. “This is opening them up to 20 days of interest charges.”

When asked if this was common practice or an exaggerated anomaly, SmartMoney was clear in stating that “50% of banks surveyed use this.”

Changing Payment Due Dates


Source

Another sneaky tactic banks and creditors are increasingly utilizing is the unannounced (or very softly announced) payment date switch. Very simply, creditors can arbitrarily change the day your payments are due with hardly any advance warning, which in turn triggers a late payment, which in turn triggers late fees and possibly even the permanent rate increases discussed earlier. It’s difficult to imagine any rationale for doing this other than bald self-interest and the hope that people will indeed trigger fees by missing payments they weren’t properly told about.

Fees For Credit Limit Increases


Source

According to SmartMoney, some credit card issuers reserve the right to charge you fees simply for requesting a credit limit increase – and heavy fees, at that. According to their article on the subject, “in the fine print you’ll find you could also be charged a fee for requesting a credit limit increase that equals a whopping 50% of the increase amount.” In practical terms, this means you can be slapped with a $500 fee as soon as you get approved for your new $1,000 of credit. Certainly people should not be saddled with extra fees for a credit line they presumably were deemed creditworthy enough to afford!

Overdraft Charges


Source

One of the most biggest complaints levied against banks is their enormously high overdraft charges. Typically, banks charge a standard fee (say, $30) for each time you swipe more than what is currently in your account. Now, in and of itself, an overdraft charge is not unreasonable. The screw job arises from how thoughtlessly the fees are applied. Since computers assess these fees rather than people, someone who overdrafts by 50 cents (likely by accident) gets slapped with the same fee as someone who brazenly overdrafts by $50. Some banks are kind enough to waive fees in the former example, but this is never standard procedure.

Allowing You To Overdraft By Default


Source

Perhaps an even bigger problem than the amount or frequency of overdraft fees is how you are allowed to overdraft at all. Believe it or not, most banks allow you to spend more than you have by default – it is not a feature you have to request. Many will be surprised to learn that you actually have to visit a branch and request that overdrafting be disabled if this is your preference – and even then, tellers may attempt to talk you out of it or tell you how “uncommon” this is. What this amounts to is lots of overdraft fees for unsophisticated people who not yet experienced in balancing checkbooks, such as teens and college students. Perhaps the fact that some banks earn as much as $1 billion per year on overdraft fees (according to CreditDebtLife) explains why they make it so easy to spend what you don’t have.

“Teaser” Interest Rates


Source

Banks and credit card companies alike are perennial perpetrators of the “teaser” interest rate. It works like this: a bank or credit card company states that you can get a credit card with a super-low rate (say, 1 or 2 percent) with little or no screening or paperwork. The average credit-seeking person believes they’re getting a great deal and signs up. But lurking beneath the glowing promises and sales pitches is the cold, hard fact that the super-low interest rate is temporary. After some period of time buried in fine print, that 1 or 2 percent rate climbs as high as 28 percent or more, usually with no warning to the card holder. The worst companies don’t even verbally state this at all, preferring instead to trust that you will discover it on your own in fine print. LendingTree discusses teaser rates on bank loans, as well as how to avoid being suckered in.

Sneaky Interest Rate Hikes


Source

A similar problem lies in how sneakily some banks and credit card companies jack up your interest rates. Frequently, credit card agreements contain obscure (and no doubt hard to read) stipulations that skyrocket your interest rate – permanently – for such trivial offenses as being one day late on one payment. Such penalties effectively punish you for as long as you hold that credit card, even if you truly only messed up once. Even if your card has no such stipulations, you are still at the mercy of the credit card company’s ability to raise interest rates at any time, for any reason, including no reason. Such practices suggest that banks and credit card companies not only hope you mess up, but actively and zealously tempt you to do so.

Intimidating Collections Agencies


Source

Having credit card debt is bad enough, but it’s nothing compared to the debt collections agencies that credit card companies hire. When the credit card company itself cannot persuade you to pay, a collections agency is called in to put real pressure on you. Once your phone number falls into the hands of one of these agencies, things can get very ugly, very fast. Common complaints include harassing phone calls at all hours, demeaning insults (including calling you a deadbeat) and threats to bring you to court unless you promptly pay up. The more collections agencies you get passed on to, the nastier your contact with them becomes. One legal advice website even claims that collections agencies file suit in hopes that you will default (which 90% of debtors do) because that saves them the trouble of proving your debt in court.

Unexplained Contracts


Source

One of the most sinister tactics of all is the unexplained contract, where unpleasant provisions likely to arouse objections are simply not discussed at all by the person encouraging you to sign. The most frequent perpetrators here are gyms and health clubs. Bally’s Total Fitness, for instance, is known to push contracts that forbid you from leaving unless you become crippled, die or move someplace where there are no gyms. Yelp.com’s forums are full of people claiming that this was never explained to them and that they are now powerless to escape a gym membership they no longer use and cannot afford. Of course, the real injustice comes when such contracts are passed on to the aforementioned collections agencies, who pursue you just as ruthlessly as if you racked up reckless credit card debt.

Universal Default Rate Increases


Source

Many will read about the tactics mentioned so far and conclude that they’re safe because they never overdraft, sign contracts they don’t read or fall for teaser rates. But you still might not be in the clear yet. Enter universal default rate increases, which entitle banks or credit card companies to increase your interest rate when you miss payments to unrelated creditors. Even if you don’t miss payments to anyone, you can still be the victim of a universal default rate hike. ConsumerAffairs.com lists several events that can trigger such a hike, compiled from surveys with customer support reps:

• Credit score gets worse: 90%
• Paying mortgage, car loan or other credit obligations late: 86%
• Going over credit limit: 57%
• Bouncing a payment check: 52%
• Too much debt: 43%
• Too much available credit: 33%
• Getting a new credit card: 33%
• Inquiring about a car loan or mortgage: 24%

Billing Cycle Double Charges


Source

It is often assumed that you can only be charged interest on the outstanding debt you still owe. For instance, a $200 purchase of which you have paid $150 should only subject you to interest on the $50 you have still yet to pay. However, thanks to billing cycle double charges, this is actually not the case. Credit card companies can, in fact, dock you for interest twice on your monthly purchases. Any remaining debt the following month can be assessed interest-wise as if you still owed the full amount from the month before, rather than just what you currently owe now.

Applying Payments to the Lowest Interest Rate Balance First


Source

Credit card issuers have full discretion in deciding how to allocate the payments you make to that. That is, if you owe money on several payments, the credit card company can decide to put the bulk of your monthly payment toward the balance with the lowest interest rate, thereby prolonging the time you remain in debt on the other, higher interest charges. This is usually invoked when debtors get a new credit card for balance transfer purposes. Someone transferring existing debt to a new card with a low introductory rate may find that their monthly payments go first to the older, lower interest transferred debt, rather than the current charges with higher interest they are presently making and might wish to pay off first.

Share this article:
  • Digg
  • Reddit
  • del.icio.us
  • StumbleUpon
  • Facebook
  • Tipd
http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/digg_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/reddit_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/stumbleupon_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/delicious_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/google_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/yahoobuzz_48.png http://www.billshrink.com/blog/wp-content/plugins/sociofluid/images/twitter_48.png

{ 13 comments… read them below or add one }

Mark Montoya November 30, 2009 at 11:09 am

I hate the games credit cards play, but you know what you are getting into when you sign up with them.

Reply

Bob November 30, 2009 at 6:29 pm

I work for a bank and we do all this and more. The simple solution is to educate yourself on your banking services. Ask for information on the cheapest options, monitor all your banking records daily and query any unexplained or changed fees and charges immediately. Banks will usually refund you if you ask, or suggest you might take your high value investment (eg your mortgages) elsewhere if they don’t reduce your banking costs.

Reply

Joe November 30, 2009 at 7:35 pm

Here is a simple thought. Credit is a privledge not a right. You PAY for spending money you don’t have. Pay your bills on time and you’ll never even experience anything “sneaky.”

Reply

Michael November 30, 2009 at 8:07 pm

Unfortunately many of the big banks live off of unfair practices. It only makes sense that they extend these practices to credit cards as well.

Remember, they made all those bad mortgage loans because it made them money. They’ll do anything for money, even risk collapse since the government has been bailing banks since the colonial era (this is fact).

Reply

Steve K. November 30, 2009 at 9:28 pm

Yes, Bob that is the SIMPLE solution. Or, we could institute some regulation making it illegal for banks to play these shenanigans with their customers. What is with this concept that businesses must “trick” the consumers? There doesn’t seem to be an ethics anymore. Businesses used to value their customers loyalty. Nowadays they don’t give a shit about anyone and just want to rip the consumer off. I say regulate the hell out of banks. We’ve seem what happens with de-regulation.

Reply

Hey Joe December 1, 2009 at 12:15 am

Hey Joe,

Did you read the article? “Pay your bills on time and you’ll never even experience anything “sneaky.”” = not a valid statement. Many of these practices occur even when you pay your bills on time. If you’ve never experienced any of this, more power to ya. It happens though. Often. You literally have to become a master at their tricks and outfox them. I would suggest folks move away from traditional credit card companies and onto P2P lending. It is fair and community based. Dozens or hundreds of lenders like me and you making a buck honestly by lending to our neighbors. Check out LendingClub.com. I’ve used them for over a year now and LOVE it. Fair interest rates, no surprise interest raises (cc companies again do this even if you pay ON TIME), and no obscene fees if you are a few days late on your payment (i have auto debit from my bank account so don’t have to worry about that). Anyway, P2P lending… check it out! Great article, btw. Thanks.

Reply

Matt Parker December 1, 2009 at 5:45 am

Dont get a credit card and dont belong to a bank. Problem solved.

Use a Credit Union.

Reply

Rick December 1, 2009 at 8:27 am

I got tagged by both of the overdraft mentions. One week I got sidetracked at work and had left my paycheck in my desk and forgot about it. The following week, not realizing my mistake, I hit the overdraft. For example, the first $35 dollar charge was for a $2 breakfast at McDonalds. Since the only warning they give me is via snail mail, I’m blissfully unaware I’m about to get fleeced by my bank. Over the next three days before the first warning arrives in the mail, I make 12 purchases for a grand total of $21.40, and $420 in overdraft charges. I fixed the problem immediately once I found out it existed, and with nearly 10k in the associated savings acount you’d think they realize that this was an abberation and not fraud. They wouldn’t budge a bit off it, and in fact treated me like it was me robbing them.

That was just shy of a weeks take-home pay for a couple of cheap breakfasts and lunches at work. Just for the record, an $18 dollar biscuit doesn’t taste any better than a $1 biscuit!

Reply

El Ingeniero December 1, 2009 at 9:25 am

I wonder how long it will be until direct action against bank execs, along the lines of tarring and feathering, beatdowns, arson, etc would be considered a socially acceptable response by the majority of the population. I mean, if the law won’t protect you from fraud, why should perps get the protections of the law?

Reply

Ed December 1, 2009 at 12:45 pm

El Ingeniero.

1. Its not fraud. Its in the contract. READ YOUR CONTRACT BEFORE SIGNING. ABIDE BY THE TERMS OF YOUR CONTRACT AFTER YOU SIGN OR CUT UP THE CREDIT CARD.

2. Don’t live beyond your means if you can’t afford the interest and penalties. If you haven’t got the money don’t live off your credit card and blame the banks for the costs of doing so.

3. If you think the banks are evil, keep your money in the mattress.

4. If you think the banks are making obscene profits buy the stock and share in the joy. Otherwise STFU.

Reply

tronson December 1, 2009 at 4:18 pm

Ed-

You’re a shill and your attitude disgusts me.

Having said that, I hope some desperate person doesn’t break into your home and beat the ever-loving tinkle out of you with a crowbar as you sleep. It would be a shame if you had to swallow your smug self-satisfaction for a bit and call up your buddies at the bank for a loan to get your skull glued back together.

It would make me sad to see you struggle to make the payments with your now drastically reduced income, and I think I would cry too when your whore wife left you for the swarthy pool boy and his working penis.

Of course, losing your house and your kids because you couldn’t make ends meet (not that it could ever happen to a good honest responsible fellow like ED) could never happen because all those bank folks are sympathetic to things that weren’t your fault to begin with.

Still, it would be too bad, after all those lonely, long, and painful months of rehabilitation, if the highlight of your week, sometime long after this tragedy, was the pride the manager of your rooming house, your only “friend” left in the world, felt when you were finally able to stop drooling and shitting yourself long enough to pat yourself on the back for being such an upstanding citizen and participating with the utmost good faith in the entropic parasitism that is the financial world.

I guess we can take comfort in the knowledge that, even if you were forced to cede your lifestyle, your family, and eventually your very soul to make these payments, through no fault of your own, your pride would sustain you, but I hope it doesn’t happen all the same.

Reply

feeblemind December 1, 2009 at 10:08 pm

The tactic I did not see mentioned here and the one that caused me to quit using credit cards is the one where the due date on the statement is the day they ‘receive’ your check, not the postmark on the envelope. This is a license to steal. Several times I had payments sent in a week to 10 days before the due date, and my check was posted one day late every single time, incurring a late charge for me each time.

Reply

Tyler August 5, 2010 at 12:07 pm

You can’t take your eyes off these ethically-challenged beasts for a moment. They will suck you dry whether you make charges or not. I let a checking account fall into inactivity for over a year (I started using another bank because I was tired of all the broken ATM machines and primitive online banking at this one), leaving in it ~$120 to allow for the annual safe deposit box charges. After merging with another bank they began assessing an “account inactivity fee” of $15.00 per month, until the account was depleted – then they added the NSF fee of $38.00 in addition to the monthly inactivity fees, until the account was over $100 in the RED!

To those parroting the Bankers’ Nuremburg Defense (it’s mentioned in the contract you signed!), they could put sacrifice of the firstborn in the d*** contract, it is still unethical and depraved. Nothing quite tops the fitness clubs, but banks are close.

Always treat these people as if they are trying to **** you and rob you.

Reply

Leave a Comment

Previous post:

Next post: