Page 2 of 2 Previous
Of course those ideas are little help to people who have no money for a savings account and who can’t qualify for an affordable credit card.
Moebs Services, a research and consulting firm, reported earlier this year that 38 million of the 134 million consumer checking accounts have frequent overdrafts, not because consumers are sloppy but because household finances are just that tight.
Making the point that competition and clarity would bring down the cost of what are, in effect, hugely expensive small loans, Moebs noted that most frequent overdrafters also go to payday lenders. The median cost on a $100 advance from a payday lender is $16 vs. the much higher median fee for overdrawing a checking account.
Borrowing costs that high for low-income people are one reason why Eastside Financial Center, a program of Lutheran Social Service of Minnesota, is about to roll out its own prepaid debit card in conjunction with financial education. Eastside Financial provides budgeting and debt reduction counseling in St. Paul, and director Eva Song Margolis explained that the appeal of prepaid debit cards is certainty on exactly how much money can be spent and no unplanned fees.
And like me, she was struck by just how much money banks, thrifts and credit unions collect on overdraft fees.
“If it’s $32 billion that’s an incredible amount,” she said, “largely being harvested from low-income folks.”