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The Dreaded Netflix Price Hike is Coming — Here’s What You Should Know

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The honeymoon will soon be over for Netflix’s most loyal subscribers. When the online video streaming service began raising the cost of its standard streaming plan in 2014 — first, with a jump from $7.99 to $8.99 monthly and, later, a jump to $9.99 monthly — existing subscribers got a break. They were able to keep their $7.99 or $8.99/month deal while new members paid the higher price point.

Since May, however, Netflix has been slowly rising membership costs for those early adopters to the current price point of $9.99/month for a standard membership. This summer, some 22 million subscribers — nearly half its total subscriber base of 45 million — will see their subscription costs rise. Netflix is undoubtedly hoping most subscribers won’t notice the few extra bucks on their monthly bill. Even so, an estimated 480,000 users will decide to cancel their plans, the company said.

How to know when your Netflix bill goes up:

The company will alert subscribers by email, so keep an eye on your inbox.

Do you have to pay the higher price point?


If $7.99 is all you have budgeted for streaming per month, don’t worry. Netflix is still offering a plan at $7.99 per month. However, at that rate you will only able to stream on one screen at a time. Paying $9.99 per month will allow streaming on up to two screens. Netflix’s premium subscription, $11.99 per month, will allow streaming on up to four screens.

If you’re a loyal Netflix user, it can still be a great value. Sharing online streaming subscriptions can be a smart, simple way to save on the cost of at-home entertainment. If you’ve got a couple of roommates who can split the bill, you could actually only be out of pocket a few bucks a month for unlimited access to Netflix’s catalog.

Good news: You’ve got plenty of other options

Amazon Prime. If you’re already an Amazon Prime member, you automatically have access to its video streaming service, along with other perks like free 2-day shipping. The cost of a Prime membership is $99 if you pay annually, which might sound steep on its face but really works out to $8.25 per month — less than what you’d pay for a standard $9.99/month Netflix plan. Just be sure you actually pay for Amazon Prime annually because opting into the monthly payment will run you $10.99 and therefore cost an additional $32.88 per year. Unless you’re a loyal fan of Netflix’s original series like Orange is the New Black and House of Cards, it probably doesn’t make much sense to pay for both Amazon and Netflix.

Hulu. For $7.99 a month you can stream all you want but you’ll have to deal with commercials. Hulu Plus offers commercial-free viewing for $11.99, on par with Netflix’s premium subscription plan. However, whereas you can stream on up to four screens under a single Netflix subscription, Hulu only allows you to stream on one screen per subscription.

HBO Now.  HBO now offers its streaming-only service, HBO Now. It costs $14.99/month and includes total access to the HBO shows and movies cable subscribers enjoy. Just be prepared for a glitch every once in awhile — fans of highly popular shows like Game of Thrones have been known to crash the service when too many users log in to stream at once.


Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com


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Warnings From An Insider: 7 Store Credit Card Traps To Avoid

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7 Store Credit Card Traps To Avoid

This holiday season, you will likely be offered a store credit card. You need to be careful before signing on the dotted line. Although the in-store discounts might look appealing, there are some real dangers and traps you need to avoid. (And I know, because I used to run a rather large credit card company).

Why are these products so dangerous? First, the retailer just wants you to spend as much as possible. So, all of the incentives will be to get you to spend more money than you had originally planned.

Second, the credit card companies pay a lot of money to the retailers in order to get the credit card deal. Typically, credit card companies have to pay a “bounty” for every credit card booked to the retailer. In addition, most credit card companies have to share a percentage of interchange revenue with the retailer. (Interchange is the fee paid by merchants to credit card companies when a card is used for a purchase). Because credit card companies have to give all of this money to the retailer, they need to make it up somehow. And the usual way to make back that money is by charging much higher interest rates.

You can get a good deal. I once moved into a new house. I was very tactical: I went shopping on a day with deep in-store discounts (Columbus day, ironically), and I applied for a credit card that had a 10% discount for purchases made on the day. Because I knew I would be spending more than $2,000, the savings (more than $200 for the credit card purchase alone) was a great deal. And, most importantly, I paid the balance in full at the end of the month. I had planned my purchase in advance and used the store card offer to save more money. That is the only way to get a good deal.

Here are the 7 traps to beware:

1. The interest rates are high, regardless of your credit score.

The vast majority of store credit cards do not offer lower interest rates for people with excellent credit scores. In other words, there is no risk-based pricing. In addition, the average interest rate on store cards is much higher than traditional credit cards, and often starts with a “2”. Even people with an 800 FICO would receive a 20% (or higher) interest rate on most store cards.

2. 0% financing is not really 0%.

Most store cards will offer some form of 0% financing. However, most store cards do not waive the interest. Instead, the interest is deferred. If you pay off the balance in full during the promotional period, you don’t pay any interest. However, if you don’t pay the balance in full you will end up getting charged interest retroactively at the high store card interest rate. Using deferred interest is a common practice. Even Apple, in partnership with Barclaycard, uses this offer.

3. Your Credit Score Will Be Hit With A Hard Inquiry.

When you apply for a store card, a hard inquiry will hit your credit report and your score. Although inquiries do not have a major impact (it could be as few as five points), the impact could be consequential if you plan on applying for a mortgage or auto loan in the near future. With a mortgage, five points could be enough to put you in a different pricing bracket, costing you thousands of dollars over the life of the loan.

4. Rewards for “out of store spend” are usually much better on other cards.

Store cards often have great rewards for in-store spend. For example, the Amazon Visa offers 3% cash back for purchases at Amazon.com. The Target Red Card offers 5% off in-store purchases at Target. However, the deals are much worse for spending out of store. For spending outside of the store, many credit cards offer no rewards or only 1%.

5. You will spend more money than you planned. Yes, you will.

The oldest “trick in the book” is an offer that gives you 10% off in-store spending on the day that you apply for the card. The purpose of the offer is to encourage you to spend more money than you planned. And years of data shows that people will in fact spend more money.

6. Because interest rates are high (and retailers demand it), store cards are willing to accept people with very low credit scores who have a lot of debt.

Retailers sign agreements with banks to issue store cards. These agreements come up for renewal every five or seven years. Retailers force banks to bid on the business, and it is “all or nothing.” If a bank loses a deal, it can be a huge hit. So, the power really sits with the retailer, who owns the customers. Retailers will demand higher bounties (payments when cards are booked), better rewards for consumers and better interchange deals. Retailers want to pay very little interchange for in-store purchases, and they want to collect as much interchange as possible for out of store spend. However, one of the biggest requests is “approval rate.” Retailers want banks to approve as many people as possible, for obvious reasons. As a result, banks will charge very high interest rates and will often approve people through store cards whom they would otherwise reject. There is a real danger that people with bad credit who are already in too much debt will get a line. Some store card programs approve people with FICO scores in the low 500s.

7. You will be pressured by a sales person.

Retailers are most focused on increasing sales. And giving someone a store card with a same day discount will increase sales. So, they will put a lot of pressure on employees to push credit card sales at checkout. The financial incentives for retailers can be sizeable. As a result, you should expect to get this sales pitch constantly and regularly. Stay strong!

Store cards are not all bad. Here are the three reasons why a store card could be a good deal:

  • You are making a big purchase and want to take advantage of the discount offered. You can afford to pay the statement balance in full and on time. And you are not applying for a mortgage or auto loan in the next six to twelve months.
  • You do a lot of shopping with one particular merchant. For example, you live at Target for most of your needs. Getting the big in-store discount would be more rewarding than a traditional 2% cash back credit card. But, this only makes sense (like all cash back cards) if you can afford to pay the statement balance in full and on time every month.
  • You are looking to rebuild credit, and have a lot of discipline. Because store cards approve people with lower credit scores, this can actually be a good tool. A store card with no annual fee is actually a much better deal than most other credit cards targeting people with scores below 650. Just make sure you never spend more than 10% of the available credit limit and you pay your balance in full and on time every month. By doing that, you can increase your score over time without paying an annual fee or interest. But, if you don’t have the discipline, don’t do it.
Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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In Auto Lending, Dealer Discounts Are Dangerous And Potentially Predatory

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


This week, the Wall Street Journal reported that the Consumer Financial Protection Bureau’s crackdown on racial bias in auto lending could result in higher prices for many borrowers. Over the last few years, the CFPB has aggressively fined large auto lenders for charging higher interest rates to minority borrowers. In 2013, Ally Financial was ordered to pay $80 million in damages to harmed African-American, Hispanic, Asian and Pacific Islander borrowers. In addition, Ally also had to pay $18 million in penalties.

Although the CFPB does not have oversight of auto dealerships, it does have oversight of indirect auto lenders like Ally. Typically, auto dealerships will sign deals with multiple auto lenders. The lender will set a risk-based interest rate, called the “buy rate.” The interest rate charged to the customer can never be lower than the buy rate. Higher risk borrowers with lower credit scores would be charged a higher buy rate. For example, a lender may set a 4% buy rate for someone with a 750 FICO, and an 8% buy rate for someone with a 650 FICO score.

In addition to the buy rate, there is a “dealer markup.” Dealers try to get as much as they can, and for good reason. Historically, dealers have been allowed to add up to 2.5% to the buy rate and they are able to keep a big portion of that extra interest as revenue. So, the higher the interest rate charged by the dealer, the more money that the dealership will make on the loan. Auto dealerships make most of their money from financing and warranties, not from the sale of automobiles. And the dealer markup is a disproportionately large contributor to the dealership’s earnings. That is why MagnifyMoney always recommends that borrowers shop around for an auto loan interest rate before walking onto a car lot. Dealers have a lot of room to negotiate, and can often beat the rate that you find online before you shop for your car. But if you do not come prepared with good financing already in hand, dealerships will do their best to charge the highest interest rate possible.

Many savvy auto shoppers understand how the game works. As a result, they are ready to negotiate hard with auto dealers. People who negotiate at dealerships tend to get much lower interest rates. People who don’t feel confident negotiating often end up paying more.

The CFPB performed an analysis of the borrowers, and determined that minority borrowers paid higher interest rates than white borrowers. The difference ranged between 0.2% and 0.3%. The statistical analysis has been widely disputed by lenders, dealerships and the Wall Street Journal. Car lenders complained because the CFPB was fining them for the activities of auto dealers.

In response to the CFPB actions, auto lenders have responded by eliminating or dramatically reducing the dealer markup. To make up for lost revenue, the buy rate has been increased. Before, good negotiators could get better rates than bad negotiators. Now, that ability to get a lower interest rate has been largely removed. Some borrowers will see higher interest rates, and some will see lower interest rates.

Fixing Interest Rates Is Not A Bad Thing

Economists generally believe that bartering is not an efficient way to manage supply and demand. Although tourists often enjoy bartering when on vacation, most people are happy that prices are fixed in grocery stores. Imagine if every item in a grocery store had a base price, and then a mark-up on top. When you take your items to the cashier, you are forced to negotiate on every item’s price. In this system, pricing goes down for those who are most willing or able to negotiate. But prices overall remain higher than they should. With fixed costs and transparent pricing, supermarkets are forced to compete systematically.

Unfortunately, auto financing has remained largely on the inefficient barter system. Rather than a national competition between lenders fighting to offer the lowest interest rates for people with certain FICO scores, the negotiating takes place behind closed doors in the back of auto dealerships.

Whenever you empower an employee to negotiate price, there are unintended consequences. Early in my banking career, banks would often allow branch employees to set the interest rate of loans. Here are some examples of the type of abuse that can happen:

  • A racist branch manager gives African American borrowers rates that are 2.5% higher than interest rates charged to white individuals.
  • An aggressive sales agent wants a big commission, and gets aggressive with the most vulnerable. Customers who had the least education, the lowest level of financial literacy or the least self-confidence would be charged higher interest rates.
  • A young, recent college graduate is enjoying his new pricing power. Whenever a young, beautiful woman comes into the office, he reduces the interest rate.

When I worked in banking, we regularly eliminated the ability of front-line sales agents to charge higher prices. But why has the barter system survived in auto lending?

Why Did This Happen In Auto Lending?

Why were auto lenders willing to give so much power to dealerships? Unlike credit cards, which banks can sell online or in branches, auto loans are usually sold in dealerships. The dealers are not controlled by the finance companies or banks. And the dealers want to make the banks compete. Banks would give auto dealerships big dealer markups to buy loyalty. Auto dealerships would be told that they could keep what they were able to charge. Banks would compete on the lowest buy rates and the highest markups.

A bargain-based system is inefficient, painful and particularly punitive for people who are least likely to bargain. At MagnifyMoney, we support transparent, public and painless pricing structures. Although we agree with the Wall Street Journal analysis that pricing will increase for many borrowers, we do not think that is necessarily a bad thing.

Competition should be systematic. A 750 FICO borrower should be able to shop for the best interest rate without having to fear a painful negotiation in the back room of an auto dealership. Lenders will still have to compete. However, going forward, anyone with a good risk profile will benefit from market competition, rather than side-deals for those who are the best at negotiating.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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A Bill Of Rights Has Been Created For Small Business Borrowers

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Today, a coalition of nonprofit and industry lenders, credit marketplaces, brokers, think tanks and small business advocates launched the Small Business Borrowers’ Bill of Rights in Washington, DC. Small business borrowers are not afforded many of the same protections that consumers receive. Unlike consumer credit, small business loans do not have uniform disclosure requirements. Lenders do not need to disclose all fees before a loan application, and lenders do not need to calculate an APR. As a result, it can be very difficult for potential borrowers to comparison shop and find the best deal. Given the limited disclosure requirements, lenders have created increasingly complicated pricing structures that rely upon a myriad of “low” fees. However, if the fees were converted into an APR, the effective cost would often be higher than 30%.

Karen Mill, the former head of the US Small Business Administration, said that “seeing industry and other stakeholders take responsible steps like this toward ensuring the basic rights and safeguards is noteworthy and will help shape the dialogue going forward in a way that protects America’s small businesses, without stifling innovation and access.” She is a keynote speaker at the event where the Bill of Rights will be announced.

The Bill of Rights focuses on six key protections. The first focuses on providing borrowers with clear disclosure of pricing and fees, including a commitment to providing an annualized interest rate. No longer will borrowers be confused by seemingly low fees. For example, a low 3% fee can actually translate into a 36% APR, which is higher than a cash advance on a credit card.

The second commitment is to avoid abusive products that trap borrowers into a vicious cycle of re-borrowing. Many products in the market are structured similarly to payday loans. There are small fees that are charged, and then the entire balance is due. The small business owners are given a choice to pay the interest coupon, or renew the loan. These types of products are created to keep borrowers in debt. Instead, amortizing loans, where principal is reduced with each payment, can be a much better and safer option for borrowers.

The third commitment is to responsible underwriting. A lot of small business lending focuses on collateral. A lender will give you the loan so long as you have collateral that can be offered as protection. But the lender pays very little attention to the actual cash flow of the business or the ability of the business to service the debt. In risk management, this is called “second way out lending.” Imagine if mortgage underwriting was done this way. The lender ignores your employment or income, and just focuses on the value of the home. When that type of lending occurs, many more foreclosures take place. That type of abuse needs to be removed from small business lending.

The fourth commitment is a right to fair treatment by brokers. Because the interest rates are so high on many small business loans, the lenders make a lot of money. And because they make so much money, lenders are happy to pay big commissions to brokers who find customers. A big percentage of the small business lending market is still dominated by brokers. Brokers end up having a bad incentive. Some of the worst products for the borrowers pay the highest commissions to brokers. As a result, many brokers steer borrowers to bad products.

The fifth commitment is a right to inclusive credit, without discrimination. Consumer lending has become largely algorithmic and data-driven. As a result, it becomes more difficult for lenders to discriminate. However, there is a lot of judgment and human intervention in small business lending. As a result, the opportunity for abuse and bias is greater.

The sixth commitment is to fair collection practices. In small business lending, harassment of borrowers has been widely reported. Just as consumers have strong protections from bad collection practices, small business owners deserve the same.

The Bill of Rights is an attempt at self regulation. The CEOs of a number of lenders, including Lending Club and Funding Circle, have signed and committed their organizations. You can see the details of the consumer protections and the names of the companies that are participating at www.ResponsibleBusinessLending.org.


Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Citibank Fined $35 Million And Forced To Reimburse $700 Million To Customers

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Today the Consumer Financial Protection Bureau (“CFPB”) announced a $35 million fine for Citibank. In addition, it has ordered the bank to reimburse $700 million to consumers who were victims of deceptive marketing, unfair billing practices and deceptive collection practices. In a consent order, the CFPB used aggressive language to describe the actions of Citibank. For years, Citibank sold insurance products, credit monitoring and fraud protection protects to their credit card and store card customers. Those products included AccountCare, Balance Protector, Credit Protector, Payment Safeguard, IdentityMonitor, DirectAlert, PrivacyGuard and Citi Credit Monitoring Services. The CFPB took issue with how these products were sold to consumers. Citibank was also charged with over-billing consumers and extracting excessive fees from consumers in collections. The client reimbursements are supposed to happen automatically. If you think you should have been reimbursed, you can complain directly to the CFPB via their website.

Deceptive Marketing

Add-on insurance products historically have been sold aggressively by call centers and, for store cards, at the checkout counter. The CFPB found example of misrepresentation by the sales agents. For example, customers were told that the first 30 days were free. However, they were still charged for the first 30 days. In another example, customers were told that they would not be charged if they paid their balance in full. However, the customers would have had to make payments before the statement is produced. If there was a statement balance, consumers would be charged.

For the fraud products, Citibank over-stated the benefits. Customers were told that the product would detect fraudulent purchases. However, the product only had access to bureau data. And bureau data only has balance data, not transactional data. Citibank was not monitoring transactions for fraud, although they made that claim in their advertising.

During the sales process, consumers often did not realize that they were enrolling in the program. And there were examples of consumers being enrolled even though they were not eligible for benefits. For example, some credit protection policies may not cover self-employed individuals. However, even though Citibank knew that cardholders were self-employed and ineligible for benefits, they were still sold the product.

Collection Practices

For certain store card relationships, Citibank would offer “pay by phone.” There was a $14.95 fee to pay by phone. During the phone calls, the representatives did not make clear that the fee was to expedite the payment, and ensure it posted on the same day. Instead, the agents implied that the fee was charged for all phone payments. Many consumers paid the expedited payment fee when they didn’t need to make that payment.

Citi To Change Its Practices

Citibank will be reimbursing customers up to $700 million. $479 million will be given to customers who were the targets of deceptive marketing. $196 million will be paid to customers who were enrolled in credit monitoring services. And $23.8 million will be given to customers who paid excessive “pay by phone” fees. Citi is required to “conveniently repay consumers.” In other words, Citi cannot set up a process where consumers need to reach out. Instead, the burden is on Citi to reimburse its customers automatically. Some reimbursements have already happened, and more are on the way.

In addition, sales practices, fees and billing practices will be changing at Citi to ensure these breaches will not happen again.

Should We Ever Buy These Products?

Add-on products have generally been a bad deal for consumers. Call center agents typically receive large bonuses to sell the products. The value for consumers is usually low. And the objective for the bank is to sign up consumers into a recurring billing product. The chance of a consumer canceling or claiming is very low.

As a general rule, consumers should avoid buying insurance from providers of loans. If you need life insurance, you should shop around for term life insurance that covers all of your needs, not just your loan or credit card balance.

Credit monitoring is now basically a free service. Websites like CreditKarma, CreditSesame and Quizzle all offer free access to your credit reports. CreditKarma can help you set up basic fraud monitoring. There is no real reason to pay for this advice any longer. And if you want the best form of fraud protection, you should put a fraud block on your account. That is the best way to ensure your account is not compromised. And if you want true transaction monitoring, you should sign up for alerts with each of your credit cards individually.

But there is an even simpler rule. If you are ever being sold insurance at the end of any purchase, you should probably avoid buying it. Insurance is great. But you should shop for it and find the best deal. And it should protect all of your needs. If you call customer service to make a payment, and then hear “for less than the cost of a Pepsi a day, you can protect your family,” you should probably just hang up.

Although these fines are steep, they are still much less punitive than equivalent fines of British banks in the UK. Not only did customers receive a refund, but the refund was compounded at an 8% interest rate annually. Although the $735 million will be painful to Citibank, management should feel lucky that British regulators didn’t set the fine.


Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Banks Generate $30bn Of Abusive Overdraft Fees

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


Banks generated $7.65 billion of overdraft revenue during the first three months of 2015, according to the Wall Street Journal. On an annualized basis, banks are poised to generate $30.6 billion in overdraft revenue this year. Despite the passage of Regulation E, multiple lawsuits and the threat of regulation from the Consumer Financial Protection Bureau (“CFPB”), fees have only reduced by 4% compared to 2014. Overdraft fees have historically accounted for an outsized percentage of checking account revenue at the largest banks in the country, and it looks like these fees will remain a meaningful contributor to revenue in the near future.

Are Overdraft Fees Predatory?

The average overdraft fee is about $30 per incident. In addition, many banks charge extended overdraft fees. At some banks, it can cost $70 to borrow $6 for six days as a result of the extended overdraft fee. Even worse, nearly 50% of banks in the country will re-order transactions to increase the number and amount of overdraft fees charged. Rather than debiting money from your checking account in the order that the debits occurred, banks often debit your account in the order that they wished the transactions would have occurred.

Because overdrafts are so expensive, the vast majority of people avoid them. In Europe, an overdraft line of credit is a cash management product that makes sense for everyone. Keeping too much cash is expensive, because it could be better invested or placed into a long-term certificate of deposit. People of all economic backgrounds take advantage of generous overdraft lines of credit, which charge very low interest rates. Borrowing $6 for six days would only cost a few pennies in most large European banks.

However, American banks have made going overdraft a sin and high overdraft fees the punishment. As a result, people with money have completely avoided overdrafts. Only a small percentage of the population uses the overdraft product. 8% of bank customers generate 75% of overdraft fees. Overdrafts have become a short-term borrowing mechanism for people who have no other option. And overdrafts offered by banks are often more expensive than payday lenders. The typical payday lender charges $15 to borrow $100 for 2 weeks. As I mentioned in the Bank of America example, large banks are charging much more than that.

A banking practice is considered predatory when it meets a few definitions:

  • It targets people with low income or limited financial means
  • It charges a price that is dramatically higher than the cost of providing the service
  • It has opaque and complicated pricing that makes it difficult to understand the true cost of the product
  • It charges the fee when someone is in a vulnerable position and has few alternatives

Overdraft fees meet all of those requirements. The price of an overdraft is dramatically higher than the cost of providing the service. Banks charge an average of $30 to decline a transaction, which costs the bank close to nothing. When banks approve a transaction, credit risk is taken. However, the banks are charging effective interest rates above 400% in the form of fees. The banks are addicted to the revenue, which is why the revenue remains despite the backlash.

As overdrafts become more expensive, fewer people will use the service. Banks will extract more revenue from people who have fewer funds and a lower net worth. In my opinion, overdrafts are predatory and action is required.

Isn’t The Situation Improving?

Most headlines have reported the reduction in overdraft fees. And a 4% reduction is material. This reduction has come from banks eliminating high-to-low transaction ordering and putting limits on the number of overdraft fees that can be charged per day. At many banks, it used to be unlimited.

However, banks have not reduced the headline rate. Bank of America has been bragging about its commitment to the customer. But lets look at what they have really done:

  • The overdraft fee remains $35 per incident, and 4 incidents can happen each day
  • The extended overdraft fee remains in effect, charging $35 after 5 days
  • The bank eliminated the option to opt in to debit card and ATM overdraft fees. However, very few people are opting in to this service

In short, the changes have been cosmetic. And without rules from the CFPB or competitive pressure, I doubt the policy will change. The poorest Americans will continue to find Bank of America more expensive than most payday lenders.

What Alternatives Exist

I personally do not like doing business with institutions that create intricate webs of “gotcha” fees. That is why I switched to Ally Bank, which has virtually eliminated overdraft fees from its product offering. Most internet banks have done the same thing, and you can compare accounts here.

Unfortunately, if you need a branch, most branch-based banks remain expensive. And most credit unions are not far behind, charging $25 when the big banks are charging $30. Community banks, credit unions and large banks are all getting fat from these fees. Despite the regulatory pressure, lawsuits and negative press, our nation’s poorest will give banks another $30 billion of overdraft fees this year.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Regions Bank Fined $7.5 Million For Overdraft Abuse

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


This week, the Consumer Financial Protection Bureau (“CFPB”) fined Regions Bank $7.5 million for unlawful overdraft practices. In addition to the fine, Regions Bank has refunded approximately $49 million of fees to customers. Regions Bank is based in Alabama and has more than $119 billion in assets, making it one of the largest banks in the country.

Regions Bank was fined because it failed to receive the necessary opt-in from consumers, delayed fixing the problem for a year and mis-represented certain fees to its consumers. The CFPB has been looking closely at the overdraft practices of banks. Director Cordray has made it clear that he is not a fan of the way banks treat overdrafts, and bigger reforms are expected later this year. In the interim, we can expect more fines of banks that are violating existing rules and guidelines.

Regions Bank earned $218 million during the first three months of 2015. The CFPB fine does not represent a significant portion of the bank’s earnings.

Abusive Overdraft Practices

Overdrafts in the United States are incredibly expensive for consumers, and unimaginably lucrative for banks. During 2014, banks generated over $30 billion of overdraft fees. When you look at how banks charge overdraft fees, you can see how easy it is for banks to generate so much revenue.

If you make a transaction in your checking account without having sufficient funds in your account to cover the transaction, you are at risk of being charged an overdraft fee. Imagine you have $100 in your bank account, and you try to write a check for $120. The bank has two choices: it can approve the transaction, or decline the transaction. If the bank declines the transaction, it will charge a non-sufficient funds (“NSF”) fee. The average NSF fee is $35. If the bank approves the transaction, it will allow the account balance to go negative. In effect, the bank gives you a loan. Banks charge, on average, $35 for an approved overdraft. So, you will pay $35 if you are approved, and $35 if you are declined.

Even worse, most banks have an extended overdraft fee. For example, Bank of America will charge an additional $35 if you do not bring your balance positive within 5 business days. Some banks even have a per day charge.

Some banks offer “overdraft protection.” That means you can link your checking account to a savings account or credit card. If you spend money that is not available in your checking account, the bank will sweep the money from the linked savings or checking account. However, most banks will charge a transfer fee, which averages $10. Given that most savings accounts only pay 0.01%, you would need to have $100,000 in your savings account in order to earn $10 in one year.

Even worse, if you link your credit card for overdraft protection, the sweep will be treated as a cash advance on your credit card. In most cases, that means you would be subject to an additional cash advance fee and interest would stat accumulating immediately at high double-digit rates.

As if the overdraft process wasn’t complicated enough, many banks reorder transactions to increase the overdraft fees. According to Pew, nearly 50% of banks engage in high-to-low transaction processing. Imagine you have a balance of $100. You make a purchase at 9AM for $10 (your new balance is $90). At 10AM you make another purchase for $10 (and your new balance is now $80). And then at 1PM you make a purchase for $100. The last transaction would cause you to go overdraft, resulting in a $35 charge.

50% of banks would reorder the charges, from highest to lowest. In this example, they would process the $100 transaction first, reducing your balance to $0. The other two charges would each cause the account to go overdraft. As a result, your fee would be $70 instead of $35. And that is all perfectly legal.

Consumer Protection

You do have certain rights. You can opt out of overdraft protection for ATM and debit card transactions. That means that if you use your debit card to make a purchase, and there is not sufficient money in the account, the transaction would be declined and you would not have to pay an overdraft or NSF fee.

However, you cannot protect yourself against checks and other electronic (bill pay) or recurring transactions.

Are There Cheaper Options?

Overdrafts can be incredibly expensive. The best way to avoid high cost overdraft protection fees is to consider an internet-only, branch-free bank. Many of the new start-up banks charge no overdraft fees and offer free overdraft protection from linked savings accounts. You can see some of these new providers here.

If you do not want to switch banks, you should consider opting out of overdraft protection, which will protect you from high fees on debit and ATM charges. You should consider linking your savings account or credit card, because the charges would still be less than standard overdraft fees. Finally, you should consider taking advantage of balance alerts to ensure that you are on top of your balance.

However, many people go overdraft because they have a short-term borrowing need. You should consider opening a low interest rate line of credit with your local credit union, or a personal loan from a marketplace lender. Credit unions and marketplace lenders offer significantly lower interest rates.



Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Deceptive Debt Collector Fined by CFPB

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


This week, the Consumer Financial Protection Bureau (“CFPB”) took action against National Corrective Group, a debt collection agency that had been consistently breaking the rules and telling lies to customers. As a result of the action, the company and its owner, Mats Jonsson, will be forced to pay a $50,000 fine and dramatically change their collection practices.  The CFPB would have issued a greater fine, but “the poor financial condition of the companies and Jonsson make them unable to pay a greater sum.”

National Corrective Group is in the business of collecting bounced checks through a program called the “bad check diversion program.” Writing a check that bounces is a crime, and people who write checks can be prosecuted. Many state and local prosecutors partner with debt collection agencies to see if they can arrange payment plans with the consumers, rather than proceeding with legal action. According to the law, the debt collection agencies are not allowed to reach out to customers until the prosecutors office reviews the case and determines eligibility for a payment plan to commence.

National Corrective Group did not follow the rules. They reached out to consumers right away. And, when they sent letters, they used official letterhead to make it look like a state or local prosecutor was writing the letter. The company tried to scare consumers into believing that they were about to be sued, when no legal action was pending. According to a review of the cases by the CFPB, only 1% of the people who received letters threatening lawsuits were actually prosecuted.

The debt collection agency also became creative. They invented a financial education course, and told people that they needed to enroll in the course in order to avoid prosecution. The cost of the course was $200, which was often much more than the amount of the original check that bounced.

Through a combination of aggressive collection activities, misrepresentation and outright lies, National Corrective Group attempted to intimidate and scare people into paying. In addition to the fine, the CFPB will be monitoring National Corrective Group to ensure that the fake letters are no longer sent, and that no consumer is forced to enroll in their course.

The CFPB has been targeting collection agencies on a regular basis, and this is the most recent in a series of penalties.

Collection Agencies Often Bend The Law

Collection agencies are famous for using aggressive tactics. They will often impersonate law enforcement agencies, make threats that they cannot legally keep, and attempt to use personal account information to regularly debit checking and savings accounts in an attempt to extract as much money as possible. In addition to collecting the original amount due, agencies will often add significant fees on top. The paperwork used by collection agencies, especially when they are buying and selling debt, is often limited or non-existent. Many collection agencies are collecting debt which they have already sold or not even purchased. All of this can make it overwhelming for an individual to defend themselves.

The CFPB started accepting complaints from the public regarding debt collection agencies in July 2013, and it is now the second most frequent topic of complaint received by the agency, after only mortgages. You can read more details on the complaints here.

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Consumers Have Rights

Consumers have a number of legal protections in place. The Fair Debt Collection Practices Act (FDCPA) is a federal law that covers most debt collection practices. Here are some of the most important rules:

  • Collectors cannot contact you at an unusual time, such as before 8 a.m. or after 9 p.m., unless you have specifically authorized them to do so.
  • If the collector has been informed that you are not allowed to take calls at work, then the collector is not allowed to call you there.
  • If you have an attorney representing you, the collector must contact the attorney directly (so long as you provide the contact information of that attorney to the collector).
  • You can tell a collector to stop contacting you completely, and they must do so. The collection agency can still proceed with legal action, but they can no longer call you. If you want to stop a collection agency from calling, you can use these sample letters prepared by the CFPB.
  • Collectors have to prove that you owe the debt.

If you feel that any of these rights have been violated, you can and should complain directly to the CFPB. You can call them at 1-855-411-2372 or submit your complaint online.

Not only will you receive help in your complaint, but the CFPB will be able to identify patterns and trends in the complaint data. If a lot of people start complaining about a particular debt collection agency, the CFPB could launch an investigation, and ultimately take legal action, like the action taken this week.


Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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The OCC Acts Unilaterally Against Abusive Bank Overdrafts

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


Earlier this month, the OCC (Office of the Comptroller of the Currency) quietly issued Bulletin 2015-13, which announced the publication of a revised handbook on deposit-related consumer credit. The OCC is getting tough on bank overdrafts, which have come under increasing scrutiny for being predatory. At MagnifyMoney, we have long called overdrafts one of the most expensive forms of short-term borrowing in the world.

The last booklet was issued in March 1990, and was used by OCC examiners to assess a bank’s deposit-related consumer credit activities, including overdrafts. The new handbook has established standards which would dramatically change the overdraft products currently offered by banks in the country. If the banks actually follow the rules outlined by the OCC, we should expect a revolution in the way products are designed, priced and marketed. However, banks are very good at making minimal change in the face of new rules, particularly when significant revenue is at stake. Banks generated an estimated $32 billion in overdraft fees during 2013, so they will not give up this revenue stream easily.

Bank overdrafts are marketed by banks as a “protection” that can help a consumer if they are running short of cash, or if they make a mistake.  However, they are extremely expensive. If you do not have overdraft protection (a linked account), a bank will typically charge you $35 if they approve the transaction (an overdraft charge), or $35 if they decline the transaction (an NSF, or non-sufficient funds, fee). The fee is charged on a per incident basis, regardless of the actual transaction value. If the transaction is approved, the total amount of the overdraft (which includes the shortfall and fee) is due immediately. Many banks will charge an incremental extended overdraft fee if the account balance is not brought positive quickly. For example, it could cost $70 to borrow $6 for 6 days from Bank of America, based upon their overdraft fees and rules. In addition, even the method of posting transactions has caused controversy. Rather than posting transactions as they happen, nearly half of the banks in America re-order the transactions, posting the highest value transactions first, thereby increasing the number of times that an individual can trigger an overdraft charge.

Reg E did provide some additional consumer protection. It required banks to receive opt-in for overdrafts that are triggered by ATM cards (when withdrawing cash), and debit cards (when making purchases in a store). However, the regulation did nothing to protect all other forms of transactions, which includes checks, automatic payments, billpay and others.

Bank overdrafts in the United States raise every red flag imaginable. The incredibly arcane and complicated fee structures lack transparency and exist to extract maximum value from consumer mistakes or misfortune. The costs charged by the banks for what is effectively a line of credit are obscene when compared with the actual cost of providing those services. And, although banks like to point fingers at payday lenders and focus on their CRA activities on reducing the number of unbanked, many people have left the banking sector because overdrafts are more expensive than overdrafts.

The new handbook has some shocking new requirements, which we detail below:

  • Opt-in for all overdraft products: under Reg E, customers are only required to opt-in to overdraft protection for debit/ATM overdraft protection. However, the handbook requires proof of opt-in for all protection, dramatically expanding the scope
  • Banks will have to perform underwriting of customers before extending an overdraft product. The OCC explicitly requires an analysis of income and debt. which provides information for an affordability check.
  • Our favorite requirement focuses on “prudent limitations on product costs and usage.” Most importantly, the OCC states that “while permitting appropriate returns, fees should be reasonably correlated to the actual costs of offering, underwriting, and servicing the product as well as associated risks.” The OCC is particularly concerned about “repeated usage of high-cost, short-term loans for longer-term borrowing needs.”
  • Critically, the OCC requires that “banks should structure credit terms to reduce the principal balance of the loan over a reasonable period of time.” The worst form of short-term loan offers a customer a choice: pay off the entire balance today, or renew the product for another fee. This method, a favorite of the payday loan industry and copied by many deposit advance products, creates the perfect debt trap. Consumers are unable to pay off the full balance at once, yet banks do not offer an amortizing option. So, people just pay a fee and never get out of debt.
  • Finally, the OCC suggest that “banks should consider reporting payment information to credit bureaus.” Currently, the banks tend to report negative information, on a haphazard basis, to Chex Systems. Responsible customers are not able to benefit from on-time repayment. And an alternative credit reporting universe is created, with limited transparency.

Using common sense as our guide, these new rules make a lot of sense. Before lending someone money, make sure they can afford it. Don’t force people into the product: let them have a choice before you start charging them fees. Don’t rip them off with outrageous fees. And provide a repayment method that actually gives someone the chance of getting out of debt.

Overdrafts have become so out of control, that even these new rules will really shake up the overdraft market if banks actually follow the spirit of the requirement. However, I think banks will likely hire expensive law firms to build a robust defense. They will somehow prove that it actually costs $35 for an automated computer algorithm to approve a $6 loan. I just hope the OCC backs up these rules with strict enforcement. And we hope the CFPB builds on this and issues explicit rules that remove the predatory structure of these products.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Evergreen Bank “Needs Improvement” on CRA

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.


The Community Reinvestment Act (CRA) was established to force banks to build branches, offer services and lend in low and moderate income areas. The act was passed in 1977, and on a monthly basis the FDIC will publish the results of its regular review of compliance with the CRA.

Today, the FDIC published its results and identified that Evergreen Bank Group of Oak Brook, IL was the only bank to receive a “needs improvement” rating. Their last rating, in March 2014, was a “substantial noncompliance.” While this is an improvement, it still shows that the bank still requires significant improvements. The bank has $424 million of deposits.

In the same report, there were a few banks called out for their outstanding level of compliance:

  • Farmers State Bank of Calhan
  • Peoples State Bank (in Kansas)
  • American Bank Center (in North Dakota)
  • Union Bank and Trust (in Nebraska)
  • Central Pacific Bank (in Hawaii), and
  • D.L. Evans Bank (in Idaho)

The FDIC has monthly reviews of banks, and publishes those results regularly.

Why is compliance important to consumers?

The CRA is designed to fight discrimination by banks, most notably the practice of redlining to avoid lending to minority and other disadvantaged communities that banks perceive as high risk.

Even when banks would lend prior, minorities were sometimes subject to higher down payment requirements, interest rates, and shorter repayment terms than others, prior to the CRA.

Homeownership rates among previously disenfranchised communities climbed considerably since the act was enacted, but critics have noted that the increased lending that results from the CRA isn’t necessarily good for communities, and encourages predatory practices.

The CRA expanded its influence during the Clinton administration, when CRA compliance became a condition for banks who wished to merge, creating the concentrated nationwide banking institutions we see today.

After a period of aggressive lending prior to the financial crisis, CRA results are once again receiving increased attention, especially in light of recent redlining that resulted in fines and legal action.


Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com