I recently used my bank of America credit card to pay for a multi-space parking meter in Washington DC. The type electronic meter common in urban areas for parking on the street and which accepts credit card payments. The charge for parking was $2. Bank of America treats this charge as a cash advance. They charged me a $10 cash advance fee on top. So now I will be thinking twice before using any bank of America cards. A transaction that should cost $2 can come out costing $12. Also, my card currently has a 0% promotional APR on purchases, but they put the $2 parking purchase in a separate category subject to a much higher interest rate.Banks Begging For Regulation
Banks are just begging for more regulation. And they will get it. And they will complain. I am not in favor of more regulation, but I will not feel sorry for them one bit when it happens.
I can hear the complaints now. "Where's The Free Market?" Well I said banks were begging for regulation, but I also said I was not in favor of it. Finally, the conditions that fostered these credit excesses had their roots in cheap money from the Fed and lots of help from Congress, such as the Bankruptcy Reform Act of 2005.
In other words, the free market did not create this mess. Congress and the Fed created this mess. I am in favor of scrapping the entire bankruptcy reform act.
Bankruptcy Reform Act To Blame
The bankruptcy reform act of 2005 fostered the attitude from lenders that no credit lending was too risky to consider, that consumers couldn't default.
Armed with the idea that consumers could not default, banks engaged in all kinds of risky lending. Insane levels of risky lending was done in mortgages, credit cards, autos, home equity lines, and commercial real estate.
Yes, this was the very attitude that guaranteed a deflationary bust. And much of the attitude of banks can be traced back to that bill. I called it at the time. It just took a long time to play out.
For a more detailed discussion, please see Bankruptcy Reform Act Finally Blows Sky High.
Cash Advance Warning
Technically I see nothing wrong with charging interest on cash advances except that interest rates involved typically amount to what I consider usury. Besides, no money went directly into the consumer's hands, so this does not seem to be a cash advance in the first place. The big problem however, is charging $10 for a $2 transaction. Furthermore, I do not think there should be fees at all, regardless of the size of the advance. After all, interest starts ticking from day one, and the banks should set that rate to make a reasonable amount of profit.
This is begging for the next Congress to not only rewrite credit card legislation, but to completely rewrite the bankruptcy reform bill as well.
In the meantime, please remember that any cash or pseudo cash transactions might get you whacked for $10 or higher, plus interest.
Cash Transactions
- Cash back at grocery stores or service stations on credit card purchases.
- Buying chips at a casino.
- Parking meters.
- Cash Advances.
And if you routinely get cash back at the grocery store, sooner or later you will get hit with a $10 charge. They will notify you of the change, but trust me on this: you will never read it or even understand what they are saying if you do read it. So get out of the habit now.
Overdraft Fees Rise
USA Today is reporting Banks raise penalty fees for customers' overdrafts.
For more than a year, Wachovia has been urging its employees not to refund too many overdraft fees because they "make up a big percentage of our revenue and is (sic) a HOT button among leadership," according to internal memos obtained by USA TODAY.Fees Keep Going Up
Bank of America and Washington Mutual, meanwhile, have jacked up their overdraft fees and made it easier for customers to be hit with multiple penalties. The changes come as banks grapple with growing losses from bad mortgage loans. Overdraft fees have increasingly become a source of profits. Banks and credit unions collect about $17.5 billion in overdraft fees per year, the Center for Responsible Lending says.
Overdraft Fees, Overlimit Fees, and Credit Card Interest Rates are all going up. Credit limits are contracting. Inflation? Think again. In disinflation credit lines go to the moon. These conditions are what one would expect in deflation where banks and other lenders are worried about being paid back.
Here is another trick banks are playing. As a hypothetical example: you have $500 in your checking account and $550 worth of checks hit, as follows: $500, $25, $10, $15. The bank is apt to generate the highest amount of fees possible by clearing the $500 check and bouncing the other 3 checks. That's $75 of overdraft fees on $50 worth of checks. The payee sometimes charges a returned check fee as well. Double it and you have $150 worth of fees on $50 of bounced checks.
Bear in mind the article stated that Washington Mutual (WM) raised the number of times that fees could be generated from five to seven per day. Yikes!
The moral of the story is simple: Do not overdraft and do not take credit card cash advances. Instead, consider getting a credit line attached to your checking account for genuine emergencies, not for routine use. I have one but have never used it.
Addendum:
A Bank of America representative has made the claim they do not charge parking meter costs as cash advances. However, I believe the incident happened as described. Let's untangle the mess to see if both sides can be right, and to what degree.
Here is an additional snip from the Consumerist Article.
I spoke to their CSR twice and I never really got an adequate explanation. I am attaching a copy of the email explanation they sent me. From what I understood, they now treat payments to government entities as quasi-cash transactions. During my last conversation the CSR explained that parking meters and payments of fines would now be treated as quasi-cash transactions subject to a minimum fee of $10. I think this is something new that they recently introduced and I have requested an updated version of my terms of service to get a better understanding of these fees.
That the incident happened seems entirely believable. I have not seen the email but I am presuming the Consumerist would have insisted on it. With that in mind, the following reader mailbag likely explains what likely happened.
Mish,
Though I agree with you that the $10 fee is excessive, I do not believe you understand how this process works. I work for a card issuer so let me tell you how we do it. (I do not work for BOA)
Normally when we use our cards, there is a merchant on the other end of the transaction and they pay a fee which is netted against the payment they receive. For cash transactions, there is no merchant which is why there is a cash advance fee. The cash advance fee may be more or less than the merchant fee but the concept is the same as both charges will accumulate interest. Now you or someone else may not like that fee, but what I have explained is the business logic behind it. What must have happened in this case is that the parking meter was coded as a non-merchant.
I am willing to accept the above logic as the most likely explanation. Odds are the meter in question was improperly coded. Perhaps a string of meters was improperly coded.
Regardless of policy, Bank of America most likely charged at least this one person, a $10 cash advance fee for a parking meter payment. In that case, the customer service representative blew the call, and the customer has a valid gripe.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
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