Why Banks Should Charge Hefty Overdraft Fees

Lately the papers have been full of terrible stories about folks getting charged $35 or more without warning every time they overdraw their checking accounts, and Congress is outraged and plans to fix this problem. Legislation has already been introduced. These stories make me crazy angry—I have to count to 10 and remember to breathe slowly whenever I think about it. Congress has it all wrong. In their wisdom, lawmakers want to help people by lowering these fees when what they should be doing is raising them much, much higher. Why not charge at least $100 if you overdraft at the ATM? That seems a reasonable fee to pay to get $20 that you don't have from the bank.

But the banks, fearing Congress's wrath, are caving. Bank of America, JPMorgan, and Wells Fargo have announced that they will reduce fees and will not charge at all for very small overdrafts. This is a terrible mistake. It won't stop the runaway arguments for still more regulation, and in the lingo of think-tank eggheads, it hurts the very people it is intended to help.

The politicians think they're doing the right thing. They argue that the bank fees disproportionately hurt poor people. Wrong. They disproportionately hurt people who spend money they don't have. That's the only group, rich or poor, that gets hit with overdraft fees. That's why it's called an "overdraft" fee.

Another common argument is that it's unfair for banks to charge you for five or six overdrafts in a row just before your paycheck kicks in, especially if they were small amounts. Wrong again. This is when it's most fair to charge you more. If you know the money is coming in a couple of days, and you can't help yourself from spending, then these fees are your friend.

Maybe some banks should cut off your debit cards when the account is drained, just like they do with your Visa when it hits pre-approved limit. Really, do you need to be told by the bank that you're about to overdraw your account? Are we so pathetic that we need Wells Fargo to be our mommy? You're the one who spent money you didn't have. You're lucky they cover it and only charge you a fee instead of letting you go to jail for kiting checks. In the old days they used to have a thing called debtor's prison, and people did not like to go there.

This is another symptom of our nanny state run amok, where every kid is gifted and talented, and every product comes with a warning label. I bought my son a pair of swimming goggles this summer, and on the packaging it said: "Will not prevent drowning." My boy may be a genius, but apparently the goggle company's not so sure. The label on Kraft Easy Cheese says, "For best results, remove cap" before using. (Then again, if you like your cheese to squirt out of a bottle, maybe that kind of guidance isn't as crazy as it sounds.)

It really comes down to a simple truth that we seem to have forgotten as a nation: if you spend money that is not yours, guess whose fault that is? And guess who should suffer the consequences of your profligacy? Your bank? The store? No. Welcome to Overdraftville. Population: You. You're the one who spent $300 on that god-awful Tommy Bahama sweater when you had only $250 to your name. The bank didn't buy that sweater. As best I can tell, the bank doesn't have arms and legs, or even a car to get to the mall. And besides, where could you find a sweater big enough to fit all the way around a bank?

Lest you think I'm a holier-than-thou jerk, I've overdrafted plenty of times. I did it when I was in a tight fix, when I needed cash to get through the holidays, or my car unexpectedly broke down. But I knew exactly what the penalty would be, and I sure as hell didn't expect a warning. I always felt that paying the exorbitant overdraft charge was kind of a shame enforcer, a rap on the knuckles that I totally deserved. But the politicians who want to lower these fees are teaching us that it's OK to spend what we don't have. (Isn't that what got us into this financial mess in the first place?) Maybe they should put one of those warning labels on your ATM card: "For best results, have money before using."