One serious problem for consumers is the fees they pay to banks. Congress found them so onerous that it passed the CARD Act to help consumers in 2009. Banks still charge exorbitant penalties and even encourage consumers to sign up for needless, high-interest credit-card lines to absorb the overdraft fees. These debts, almost like payday loans, can lead to bankruptcy. A similar shifty practice debtors should be aware of is the agreements between big banks and colleges and universities, which The Wall Street Journal investigated in late January and produced disturbing results.
Essentially, college and university campuses are goldmines for banks, and colleges are the gatekeepers. Colleges hold populations of young people, many of whom have no bank accounts when they first arrive, and people aren’t that likely to switch banks once they commit to one. Colleges, of course, want more money, so the there’s ample room for agreement: a school will commit to one bank as its preferred lender, and the bank sets up its advertising tables and ATMs on campus.
If that sounds exploitative, then be glad that the worst abuses are in the past, for instance when New York University signed a preferred-lender agreement with Citibank in which NYU encouraged its students to borrow student loans from Citibank while Citibank kicked back some of the loan income to NYU. This is illegal in New York, and the state put a stop to it in 2007. Thus, in today’s context it’s actually thanks to Department of Education disclosure rules that the WSJ was able to explore the above-mentioned agreements at all. Here are some of the findings.
In exchange for access to students, colleges and universities receive royalties (ranging from just $2,000 to $1.7 million), payments based on how frequently students use their debit cards, and portions of ATM fees. Some students paid upwards of $70 in overdraft fees, notably to Wells Fargo, which is above the norm.
For student consumers, the fear is that they may pay excessive overdraft penalties compared to consumers at other banks. More importantly, once a big bank affiliates with their campus, many students won’t think to explore what other banking options they may have, stifling competition and further raising costs to students.
The WSJ article is here.
Large banks will go to great lengths to entice young people into opening accounts with them. Even if students don’t overdraw their accounts and pay exorbitant fees, they still have an incentive to open a credit-card line with the same bank and work with it going forward, even if they don’t need a credit card. If you owe significant credit-card debt because of bank overdrafts, then talking to an experienced New York bankruptcy lawyer will help you assess your options.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
