Using cash is expensive - especially if you're poor
September 9, 2013 11:44 AM   Subscribe

The costs of cash. Economists know that using cash has a built-in cost, compared to electronic forms of payment like credit cards or direct deposits. (Prepaid cards, not so much.) This creates a "digital divide" that may contribute to income inequality. A new study out today from Tufts quantifies these costs, which hit the poor over three times as much as wealthier folks, on average.
posted by gottabefunky (136 comments total) 33 users marked this as a favorite
 
I am seriously inclined to see this gross injustice as an opportunity. As in, set up a debit card system for the have-nots that undercuts the predatory systems out there currently. Make money, and make a better world.
posted by ocschwar at 11:49 AM on September 9, 2013 [2 favorites]


I still can't believe people get paid in pre-paid cards. The scumminess in that business blows my mind, even if it is basically banking qua banking.
posted by pmv at 11:52 AM on September 9, 2013 [11 favorites]


Maybe this is covered in TFAs, but not just cash but change has a time cost. I use a coin-operated laundry machine and many of my outings are calculated to build up those extra quarters in time for laundry day (a total of 14 for washer and dryer both). I guess I should just get a bunch of rolls from the bank?
posted by Schmucko at 11:55 AM on September 9, 2013 [2 favorites]


I only learned in the last several months that there are millions of people who actually can't get bank accounts, and this was such an eye opener for me. As long as we deny people access to the cashless economy on one hand while make the cash economy more and more expensive to them, we're going to make it that much harder to let people escape poverty.

I don't like banks, but I understand why they don't want to give accounts to people who are more likely to write checks that bounce, etc. But...I think even if we were to, for the sake of argument, assume that good intention on the part of banks, it's gross that the financial services industry now profits from denying people access to the cashless economy. The whole thing makes me feel pretty filthy.
posted by MoonOrb at 11:56 AM on September 9, 2013 [17 favorites]



I don't like banks, but I understand why they don't want to give accounts to people who are more likely to write checks that bounce, etc.


I'm trying to figure out just why this would stop banks from offering savings accounts to those people. No checkbook. Only a debit card. Should be an easy call.
posted by ocschwar at 12:01 PM on September 9, 2013 [15 favorites]


Wealthier people are more likely to have bank accounts, which means that they can visit an A.T.M. run by their bank without paying a fee

Even more than that, many "cash management accounts" offered by brokerage companies will reimburse any ATM you are charged (including the extortionary charges at casinos, on cruise ships, etc.). So if we have the bank account-less poor on one end, and then the banking "wealthy" in the middle who have some free access to their funds at their own institutions, there's a further end of the spectrum that bear no costs anywhere. And, of course, the wealthy economy is not a cash economy in the first place, which further lowers costs.

It never ceases to amaze me how it is so very, very hard to be poor in this country and how very, very easy it is to be wealthy.

No checkbook. Only a debit card. Should be an easy call.

Well, because transactions don't clear in real time, so multiple draws can be made against the same funds, and the rationale is that if you write checks on funds you don't have, you'll make EFT purchases with money you don't have, and the bank will hold the bag on Monday morning when they post.
posted by Admiral Haddock at 12:04 PM on September 9, 2013 [4 favorites]


81 cents per month? Five or nine minutes more per month? I expected to see much larger figures, to be honest.
posted by jepler at 12:05 PM on September 9, 2013 [4 favorites]


1. MOST of us pay more to access our money these days, thanks to bank fees, etc. It falls most heavily on the poor, but...

2. Plastic is NOT the answer. Cash is fungible and anonymous; that is IMPORTANT. There are groups of people who want to move to a cashless society for just those reasons.

3. Cash isn't the problem here, it's the assholes who control the bulk of it who are.
posted by Benny Andajetz at 12:09 PM on September 9, 2013 [23 favorites]


I still can't believe people get paid in pre-paid cards. The scumminess in that business blows my mind, even if it is basically banking qua banking.

Prepaid cards are often much cheaper than checks for the under- and unbanked. Check cashing fees can be much higher than prepaid fees - and payroll cards are nothing new.

Every now and then journalists notice than there are tens of millions of people interacting with a fringe banking system - nobody they went to liberals arts schools with of course.

These pieces are just the tip of the iceberg. Rewards points-driven interchange increases costs for poor families ~$150 a year as well. The rich get 1% cash back, raising prices for merchants by more than 1%, who raise prices of goods, so that those paying with cash or EFT or non-rewards cards pay more.

But hey, fringe banking is hard and unsexy. Let's just write more puff about bitcoins.
posted by allen.spaulding at 12:12 PM on September 9, 2013 [11 favorites]


I'm trying to figure out just why this would stop banks from offering savings accounts to those people. No checkbook. Only a debit card. Should be an easy call.

Mainly because giving poor people free bank accounts doesn't make money. They want customers who rack up fees, carry a balance but don't default on a credit card, and sign up for big car loans and mortgages. A poor person who lives paycheck to paycheck is going to make them much less profit. Which means that banks don't put branches in low income neighborhoods, so poor people mostly use check cashing places that have usurious rates.
posted by burnmp3s at 12:19 PM on September 9, 2013 [3 favorites]


Prepaid cards are often much cheaper than checks for the under- and unbanked. Check cashing fees can be much higher than prepaid fees - and payroll cards are nothing new.

The insidious thing to me about this is, though, that the check cashing fees are only higher for people who don't have bank accounts, and it's the financial services industry that prohibits many, many people from having bank accounts.

If everyone could get a bank account, I'd be okay with this. I'd say, well, just sign up for direct deposit like I do and everything will be hunky dory. In fact, I thought this right up until a few months ago when I learned that, well, shit, that's just not possible for a lot of folks. So my ire here is a little more directed at financial institutions who profit all over the place on this like bookies profiting from the juice, then it is directed at employers who pay via debit card.
posted by MoonOrb at 12:19 PM on September 9, 2013 [1 favorite]


These pieces are just the tip of the iceberg. Rewards points-driven interchange increases costs for poor families ~$150 a year as well. The rich get 1% cash back, raising prices for merchants by more than 1%, who raise prices of goods, so that those paying with cash or EFT or non-rewards cards pay more.

Not just cash, but different kinds of cards have different fees. Canada recently prevented merchants from being able to reject rewards cards that were costing them (and consumers) more in fees.
The bureau had brought the complaint against Visa and MasterCard to the tribunal, arguing the differing fees were among the highest in the world.

Many retailers have asked for the rules to be changed so that they can reject higher-fee cards while still accepting others, or possibly add a surcharge on to customers when they pay, to cover the rising costs.

"Canadians are paying more than they should be at the register because of these high fees," retail council spokesperson David Wilkes said. "Totalling more than $6 billion annually, these fees have a negative effect on merchants and consumers alike."

A $400 purchase on a premium card with a three per cent transaction fee would cost a retailer $12 to process, the retail group says. That's 100 times more than the cost of that same sale on a debit terminal, which charges a flat fee of 12 cents per transaction.
Here in the US, some merchants place unspoken minimum and maximums on what people can buy with credit cards — or they put a surcharge on CC purchases — even though all of that violates agreements that merchants have with the credit card companies.
posted by Blazecock Pileon at 12:29 PM on September 9, 2013 [2 favorites]


That's the thing... we think of banks as this semi-governmental institutions, but they're not. They're businesses that are operating for the purpose of profit. If we want banks to be institutions operating for the public good, the government is going to have to take on that responsibility.

I wonder if the Bureau of Engraving and Printing or the Treasury are already working on plans for their role in a world that relies less on physical cash.
posted by the jam at 12:35 PM on September 9, 2013 [2 favorites]


If all you have is in a bank account, what happens if their system fails?
If all you have is in a bank account, what if there's a glitch in the computers and it's wiped out?
If all you have is in a bank account, what if for ANY reason, right or wrong, somebody locks you away from it?

That's not science fiction. Yet many people tought the prices of houses was never going to collapse or that a global financial crisis was just crazy talk.
posted by elpapacito at 12:40 PM on September 9, 2013 [1 favorite]


Breaking Bad spoilers....




The cost of cash is hitting Walt pretty hard.
posted by Ghost Mode at 12:46 PM on September 9, 2013 [1 favorite]


The cost of managing cash for businesses makes sense in the report, you need to count it, store it, transport it, etc.

Same for the government, there's going to be more ... "forgetfulness" when paying taxes if transactions can't be tracked.

But the consumer conclusions seemed to be mostly problems with access to banking services, not to cash in particular.
posted by madajb at 12:46 PM on September 9, 2013 [1 favorite]


If all you have is in a bank account, what happens if their system fails?

A smart consumer does not have all their eggs in one basket.
One account insured by FDIC, one by NCUSIF, maybe one overseas in the event of governmental failure in the US.
And yes, a small but useful cache of cash accessible outside of a bank.
posted by madajb at 12:50 PM on September 9, 2013 [1 favorite]


We can always pay the poor in Bit Coins.
posted by Ruthless Bunny at 1:00 PM on September 9, 2013


I think about these issues a lot. I own a rental property, and my tenants are unable to get a checking account. They actually had one when they started renting from us, but I guess they overdrew it or bounced checks on it or whatever. So every month, they have to drive to a place to get a money order (which costs money) to pay their rent. They used to mail me the money orders until one month the post office lost the envelope with the rent in it en route to our house. I had doubts about their story, but gave them the benefit of the doubt and let them get me a new set of money orders late, with late fees tacked on, because you can't do a stop order on a money order -- you have to pay out of pocket for new money orders. And rent is a huge expense, which they were already struggling with getting the full amount together on time.

Three weeks later (so almost time for rent to be due again) a mangled envelope shows up in my mailbox with the original money orders. The dates stamped on them proved that they had in fact gotten them weeks before, so this was no lie. Lucky for them they showed up, because I think they would have had a hell of a time paying rent for the THIRD time in a two-month period. So ever since then, they've driving out to hand-deliver the rent, because they don't want that to happen again.

I don't even know how they manage the rest of their life (paying utility bills etc.). It's hard.
posted by rabbitrabbit at 1:01 PM on September 9, 2013 [19 favorites]


3. Cash isn't the problem here, it's the assholes who control the bulk of it who are.

Sorry, but that is simply not true.

Handling cash is expensive. Armored trucks are expensive. Insurance for your store is more expensive if you handle more cash at the end of the day.

And since the poor aren't going to launder political contributions or do anything similar with their shit wages, or really do anything besides try to save it up, they're better off with easier access to electronic fund handling. That might make it harder for people like me who DO have the opportunity to do somethwing where cash anonymity is important, but if I have to read up on bitcoins, I will.
posted by ocschwar at 1:01 PM on September 9, 2013 [2 favorites]


> And since the poor aren't going to launder political contributions or do anything similar with their shit wages

The poor want illegal drugs too. With the cost of a MMJ prescription, if my back hurt from standing all day, I might not want to deal with a "Dr." and dispensary.
posted by morganw at 1:05 PM on September 9, 2013


No checkbook. Only a debit card.

Such things do exist in the UK at least: cash only accounts, no cheques, credit card, overdraft, or interest on credit balances & limited use of counter facilities.

I know this all too well, as that's all I can get. Not because I have a poor credit record, I just don't (didn't) have one at all (i.e. equifax, et al can't find a record of me). This is presumably because I am self employed and had just used the business account & CC for everything. That and I have no loans, HP, mortgage or other documented financial entanglements. When I finally decided to get a personal account (basically just to make doing the accounts easier, one big owners withdrawal now and then is so much easier to enter than lots of little ones) I tried signing up for on-line accounts and was getting flat out "sorry, but FOAD" responses from all and sundry. Eventually I went into the bank my business account was in, and they couldn't credit check me, even though I had been banking (and in good standing) with them as a sole trader for about 12 years at that point; apparently that data wasn't considered, just the credit check agencies. They actually suggested the cash account as a way to build a credit record, and then come back and try again in 2 or 3 years...
posted by titus-g at 1:05 PM on September 9, 2013 [5 favorites]


Bring Back Postal Banking
posted by ghharr at 1:05 PM on September 9, 2013 [14 favorites]



Mainly because giving poor people free bank accounts doesn't make money. They want customers who rack up fees, carry a balance but don't default on a credit card, and sign up for big car loans and mortgages. A poor person who lives paycheck to paycheck is going to make them much less profit. Which means that banks don't put branches in low income neighborhoods, so poor people mostly use check cashing places that have usurious rates.


And I want a pony.

Letting poor people have a savings account in yoru bank doesn't make you a lot of money, but 1. it improves your balance sheet, allowing you to report a lower levarage ratio, and 2. it makes you some money, even if it's an appropriately miniscule amount from, say, a 50 cent monthly fee. If handling the poor makes you more money than you pay the hourly workers who interact with them to set up and maintain the accounts, then you should go for it. And if you don't, there is something wrong with the culture you're maintaining in yoru bank.

Hence my comments above. This is both an injustice and an opportunity.
posted by ocschwar at 1:08 PM on September 9, 2013 [2 favorites]


I would support banking via the USPS. Given the number of low-income people getting money orders at the post office near whee I work (downtown Providence, RI), it's a very important service already.
posted by wenestvedt at 1:09 PM on September 9, 2013 [3 favorites]


I only need cash for the pharm pot dispensary, that's all any of them take in WA. At least my black market guy would take Paypal once in awhile.
posted by Ardiril at 1:10 PM on September 9, 2013 [4 favorites]




> And since the poor aren't going to launder political contributions or do anything similar with their shit wages

The poor want illegal drugs too. With the cost of a MMJ prescription, if my back hurt from standing all day, I might not want to deal with a "Dr." and dispensary.


Holding on to a particularly broken cash based system that nickel and dimes the poor is something that requires better justification than "how else can we have a black market in oxycontin."
posted by ocschwar at 1:11 PM on September 9, 2013 [2 favorites]


Was just going to mention paying rent in money orders myself

My girlfriend doesn't have a bank account and people pay her in cash. They constantly owe her money so she has to scramble every month to collect. Once she has the full amount in cash she gets a money order. It is like a 2 day production every month.

She has utilities in other people's names so she has to track them down and hand them money to cover utilities.

One of the starkest examples of the overhead dealing with cash I've ever seen was a beer distributer I did some consulting work for. They had a vault, standing empty, in the office. I asked what it was for and they told me that before EZ-pass, they had to obtain and store coins to give drivers. They had armored truck deliveries of quarters and a vault to store them.
posted by Ad hominem at 1:12 PM on September 9, 2013 [5 favorites]


I'm trying to figure out just why this would stop banks from offering savings accounts to those people. No checkbook. Only a debit card. Should be an easy call.

That's not how savings accounts work. They're legally different from checking accounts. Specifically, checking accounts are on-demand accounts, where the bank is required by law to be able to provide the entire balance on a moment's notice. Savings accounts don't have that requirement, which is why banks can charge a higher interest rate on them. Further, most savings accounts only permit a limited number of withdrawals per month. As each transaction basically carries the same fixed cost--even if it's low--this also lets savings accounts carry more interest than checking accounts.

Giving someone a debit card linked to a savings account would defeat the entire purpose. It would make far more sense to have a checkbook associated with it, but then you run into that very problem of overdrafts and bounced checks, which can really cost banks money.

I'm starting to think that basic checking for the low-income ought to be something that the FTC just does on its own. If done right, commercial banks wouldn't even complain, because they don't want that business anyway. And if they do complain, well, f*ck 'em.
posted by valkyryn at 1:14 PM on September 9, 2013 [7 favorites]


Honest question: why must a checking account have a checkbook, rather than just a debit card? Is this a regulatory thing?
posted by Ardiril at 1:16 PM on September 9, 2013 [2 favorites]



That's not how savings accounts work. They're legally different from checking accounts.


Okay, so let's call this instant-clearing-checking. As in, a checking account that only permits transactions that clear instantly over the wire. Account holders are not given any means to start a transaction that could lead to Monday surprises.

I believe we have the technology.
posted by ocschwar at 1:17 PM on September 9, 2013 [4 favorites]


They should just bring back the company store where the poor had to buy from a company approved store with work vouchers.

The process of screwing over workers by limiting access to the "fruits" of their labor is a time honored tradition.
posted by vuron at 1:19 PM on September 9, 2013


Letting poor people have a savings account in yoru bank doesn't make you a lot of money, but 1. it improves your balance sheet, allowing you to report a lower levarage ratio, and 2. it makes you some money, even if it's an appropriately miniscule amount from, say, a 50 cent monthly fee. If handling the poor makes you more money than you pay the hourly workers who interact with them to set up and maintain the accounts, then you should go for it.

"If".

I don't have any special knowledge of the banking system, but I find it fairly difficult to imagine that if they could make a farthing off it, they aren't.
posted by Etrigan at 1:22 PM on September 9, 2013 [1 favorite]


Admiral Haddock: "Well, because transactions don't clear in real time, so multiple draws can be made against the same funds, and the rationale is that if you write checks on funds you don't have, you'll make EFT purchases with money you don't have, and the bank will hold the bag on Monday morning when they post."

I believe that's only true for purchases where you use the VISA part of VISA check cards in a pretend credit card purchase. PIN based transactions are cleared immediately. Banks could issue PIN only check cards without the VISA logo on them. Problem solved.
posted by Hairy Lobster at 1:24 PM on September 9, 2013


I believe we have the technology.

In one sense, yes, we do. Computers are fast and the internet is ubiquitous.

In another sense, no, we most definitely do not. If you're thinking that your idea is plausible, you clearly haven't spent any time actually dealing with ACH. I have. It's an enormously complicated system, and the technology part of it is trivial in comparison to the regulatory overhead.

Why so complicated, you ask? Let's just say there's a reason that the system has a practically zero percent error rate despite processing about 20 billion transactions and $40 trillion in funds every year.

Suffice it to say that you may think that you have real-time access to your account balance and the funds therein, but you don't. It can take up to a business day for transactions to clear. Longer if there's a problem. Changing that would be a monumental project that I'm not sure we even want to do anyway. That delay exists in part so that things like verification--sometimes by humans, believe it or not--can happen.

PIN based transactions are cleared immediately.

No, they aren't. They just use a different processing network.
posted by valkyryn at 1:25 PM on September 9, 2013 [12 favorites]


I don't have any special knowledge of the banking system, but I find it fairly difficult to imagine that if they could make a farthing off it, they aren't.

Having been in finance, I can say that people do leave money on the table if they think a better opportunity lies elsewhere, even when they have the ability to handle both at the same time.

Attention is a scarce resource, and it leads for-profit corporations to act in ways that don't match the simplified econ-101 model of how a corporation should act.
posted by ocschwar at 1:26 PM on September 9, 2013 [4 favorites]


If handling the poor makes you more money than you pay the hourly workers who interact with them to set up and maintain the accounts, then you should go for it.

From a purely pragmatic standpoint, though, it may not.

People choose a lot of factors when they choose banks. Some of them are the financial, others are the comfort factors - personal attention, not waiting in long lines, etc.

I recently switched to a bank that requires a higher initial deposit to have an account there, and I was really pleasantly surprised just by how nice it is. They have water and coffee on hand for when you come into the bank and have to talk to one of the bank people, everyone talks to you by name and asks about your family, etc. I know it's to lure me into doing more banking there, but it's a really effective lure.

That's something they can only provide if they have fewer customers, putting more money into their bank. As more customers putting less funds come in, bankers have less time to spend with each person, and it wouldn't make sense to do the water/coffee thing.
posted by corb at 1:26 PM on September 9, 2013 [1 favorite]


Maybe I'm being naive here but don't credit unions solve a lot of these problems?
posted by Doleful Creature at 1:27 PM on September 9, 2013 [4 favorites]


Banks probably got a lot less interested in giving poor people checking accounts a year or two ago when the government changed the rules so you couldn't force people into "overdraft protection plans" which charged them $37 per overdraft (even if it was a series of a half dozen under-$5 overdrafts on a debit card), where you rearranged the order of the purchases made in a given day so that the largest purchases went first, and the account could hit overdraft status first with the largest purchases and then accumulate overdraft fees for each individual smaller purchase.

Cause that's how every damned bank in America rolled until they were forced to stop.

Seriously, we hate poor people, that's what's wrong with America. This will only, maybe, if we're lucky, change, when almost all of us *are* poor people and admit it to ourselves. The "almost all of us are poor people" part should be true within a decade. The "admit it to ourselves" might not happen in my lifetime.
posted by edheil at 1:29 PM on September 9, 2013 [16 favorites]


> Holding on to a particularly broken cash based system that nickel and dimes the poor is something that requires better justification than "how else can we have a black market in oxycontin."

I agree, but wanted to point out that going cashless has previously unmentioned costs. Better example, maybe?: unlicensed, un-inspected to-go food by someone trying to earn a little side income.
posted by morganw at 1:29 PM on September 9, 2013 [1 favorite]


Well, because transactions don't clear in real time

That is generally true, but both credit and debit card transactions do authorize in real-time, so the bank can encumber the funds so as to disallow you from spending them again before the transaction actually clears.
posted by Juffo-Wup at 1:30 PM on September 9, 2013 [6 favorites]


Maybe I'm being naive here but don't credit unions solve a lot of these problems?

Not really. They definitely have a better angle on things like not spending a ton of money on marketing, being ruthless about keeping overhead down, and using profits to keep down prices, all of which they use to undercut commercial banks.

But neither they nor the commercial banks have really solved the problem of providing financial services for broke people. ISF and bounced checks are just a problem, one which the institution, whether credit union or commercial bank, frequently winds up eating.
posted by valkyryn at 1:30 PM on September 9, 2013




Suffice it to say that you may think that you have real-time access to your account balance and the funds therein, but you don't. It can take up to a business day for transactions to clear. Longer if there's a problem. Changing that would be a monumental project that I'm not sure we even want to do anyway. That delay exists in part so that things like verification--sometimes by humans, believe it or not--can happen.


Yes. I understand fully that a system like this needs a proper mechanism for formally assigning and handing off responsibility for a transaction, that's always going to be slower than a simple online system for checking an account balance.

But when the need for this results in a system that leaves the poor trapped in poverty, then it needs to be looked at again.
posted by ocschwar at 1:31 PM on September 9, 2013 [1 favorite]


valkyryn: "No, they aren't. They just use a different processing network."

http://www.transfirst.com/resources/glossary

"An ATM (Automated Teller Machine) debit card is a card similar in size and shape to a credit card with an account number and magnetic stripe on one side. When swiped through a point-of-sale terminal, the card holder is prompted to enter a PIN number via a pinpad. This will create an instant debit transaction to the customer’s bank account. Funds are authorized in real time, and if there are not sufficient funds in the customer’s bank account to cover the amount of the debt, the transaction will be declined. In addition to purchases, ATM cards can also be used at ATM machine along with a PIN to make cash withdrawals, deposits, balance transfers, and check on current balances."
posted by Hairy Lobster at 1:31 PM on September 9, 2013 [3 favorites]


Maybe I'm being naive here but don't credit unions solve a lot of these problems?

Only for the people who aren't shut out of them by their previous banking transgressions. But otherwise, credit unions are awesome and I'd encourage everyone to join one instead of a bank, if they could.
posted by MoonOrb at 1:32 PM on September 9, 2013 [2 favorites]


Should have added: the transactions may not clear until later but your bank will mark those funds as pre-authorized and you can't spend them twice. At least my bank does.

On preview, what Juffo-Wup said.
posted by Hairy Lobster at 1:34 PM on September 9, 2013 [2 favorites]


http://www.transfirst.com/resources/glossary

That's all well and good, but all it really says is that if the available balance is not sufficient for the authorization amount, the transaction will be declined.

Problem is that there are a bunch of kinds of transactions which don't use an authorization before they are charged. Checks. Pre-authorized debits (like recurring bill-pay). Online bill-pay debits. Etc. So the mere fact that a transaction authorizes with an ATM request doesn't mean that there's no possibility of an overdraft.

your bank will mark those funds as pre-authorized and you can't spend them twice.

Yes, you can. You just can't use your ATM card to do it.
posted by valkyryn at 1:41 PM on September 9, 2013 [2 favorites]



Problem is that there are a bunch of kinds of transactions which don't use an authorization before they are charged. Checks. Pre-authorized debits (like recurring bill-pay). Online bill-pay debits. Etc. So the mere fact that a transaction authorizes with an ATM request doesn't mean that there's no possibility of an overdraft.


So you set up accounts that don't allow it. No checkbook. No credit cards. Online bill pay that requires an authorization check, and fails on it.
posted by ocschwar at 1:43 PM on September 9, 2013 [2 favorites]


Having finally R'ed TFA, I'm really surprised to see that the cost of cash is 81 cents per month. Given how high bodega ATM fees are, I expected it to be much higher. 81 cents a month strikes me as a pretty minor line-item.
posted by ThatFuzzyBastard at 1:44 PM on September 9, 2013 [1 favorite]


Maybe I'm being naive here but don't credit unions solve a lot of these problems?

Not necessarily. Folks in this thread seem to have seized on hating on banks, but a lot of the issues are not caused by the banks but the cash-or-money-order-only places you have to spend at when you're poor. Rack up too many unpaid parking tickets, for instance, and you're liable to have your car towed - and virtually every tow-truck company I've ever seen had a strict cash-or-money-orders-only policy (including the one in a super-sketchy part of Somerville that I had to bring $300 cash to, that was a fun walk; not to mention that with no car it took a couple hours to get there). A lot of other businesses in poorer neighborhoods (not to mention landlords!) are the same way.
posted by mstokes650 at 1:45 PM on September 9, 2013 [1 favorite]


Yeah, that cost really surprises me. The cost of money orders, payday loans, and transportation to get the cash where it needs to be seems like it would be much higher.
posted by rabbitrabbit at 1:45 PM on September 9, 2013


An ATM (Automated Teller Machine) debit card ... will create an instant debit transaction to the customer’s bank account.

It's important to note, however, that the debit transaction may not be equivalent to the actual transaction. I discovered this when I went to a gas station and the pump failed. Because the transaction is OKed, before the purchase, they used a fixed amount (in this case, $50) for the authorization. I didn't get any gas, but I had a $50 debit on my account for three days until the transaction was voided.

So if you have $40 in your account, you may not be able to buy $10 worth of gas with a debit card.
posted by CheeseDigestsAll at 1:53 PM on September 9, 2013 [5 favorites]


So you set up accounts that don't allow it.

Can't be done unless you want to also disallow things like direct deposit of paychecks and government benefits, which would defeat the main point of having the account in the first place. Those sorts of transactions need to be two-way, believe it or not. Critical part of error correction.
posted by valkyryn at 1:55 PM on September 9, 2013 [1 favorite]


valkyryn, can you explain in more detail how and why bank accounts work like this? (Not doubting you, just very curious.)
posted by jeather at 2:00 PM on September 9, 2013


I don't think we need to worry about the drug dealers and their reliance on cash for transactions (or for that matter, drug-dealer stand-ins like people running illegal restaurants or working under the table or whatever). If you look at places where cash is prohibited -- prisons are the classic, extreme example, but if you don't like that you could consider Japanese pachinko parlors or any number of other situations -- it just gets reinvented in some other way.

Even if we went to an all-plastic system tomorrow, there would still be "cash" transactions via pre-loaded debit cards. You might have to insert an additional step in the middle of the transaction to call the number on the back of the card and check the balance or something, but you could still do it.

Or, you could just come up with some arbitrary-but-legal counter of value to use during the illegal transaction, and then swap it for legal electronic currency on either end. BitCoins would work fine; they have absolutely no intrinsic value at all (far less than a national fiat currency, which at least has an economy and people with guns backing it up) but if everyone were to agree that they were worth some amount, then you could use them for your black market transactions and then do the USD-BTC transaction at arms length from the illicit one. Right now there are too many speculators driving the market into bubbles and crashes for it to be much use this way, but if there were suddenly a demand for an alternative transactional (as opposed to investment) currency, it would work fine.

But you could do just as well with anything that is hard or impossible to reproduce. You don't need a ton of it, just enough to provide transactional liquidity in a particular black market so that your illicit activities occur separately from the cash-in and -out. A particularly specialized market could even use its own, de facto private currency, to control access to the market itself (think: casino chips).

So at any rate, that's not an especially compelling argument for keeping cash around; it will just be reinvented, if need be, under another name. However, the strong argument for keeping it around is that there's currently no competition to cash that's not operated by a private company either for direct profit (Amex, MC, Visa), or for the benefit of profit-driven institutions (pre-IPO MasterCard). The US Mint and the Federal Reserve Banks, while not necessarily attuned to the needs and wants of the average American, are at least not fundamentally driven to suck them as dry as possible.

Periodically I have read proposals to simply have the FRB give individuals withdrawal accounts, which would just be a matter of scaling up the banking operations that they have for institutions right now, and operating it as not only a national central bank but also as a "bank of last resort" for any citizen (or alien / corporation with an TIN) who doesn't have / can't obtain a bank account elsewhere. (The interest rates on deposits would be limited to the Prime Rate and it wouldn't offer loans, in the proposals I've read.) Government payments like SS and tax refunds would be paid into those accounts, eliminating huge federal expenditures on checks and wire transfers, and you could debit the accounts for tax payments, or to transfer money between accounts (via bilateral authorization from the payor and payee at a Post Office or other facility). It's not a bad proposal, at least in the fundamentals.
posted by Kadin2048 at 2:01 PM on September 9, 2013 [4 favorites]


Maybe I'm being naive here but don't credit unions solve a lot of these problems?

Mine has transaction-free ATMs around town, so that's one down. But what about access to accounts for the fiscal undesirables? I know there are community credit unions that help members establish credit with secured cards, etc - do they take customers who banks reject, I wonder?
posted by thelonius at 2:06 PM on September 9, 2013


"fiscal undesireables" = the "millions of people who actually can't get bank accounts" discussed above
posted by thelonius at 2:07 PM on September 9, 2013 [1 favorite]



Can't be done unless you want to also disallow things like direct deposit of paychecks and government benefits, which would defeat the main point of having the account in the first place. Those sorts of transactions need to be two-way, believe it or not. Critical part of error correction.


I don't buy it.

Lots of ways to know a priori the account and routing numbers of entities that should only be functioning as depositors in online transactions. The government for starters. And even if the account is part of a system that uses a protocol for two-way transactions, you can still set up your system to decline any transaction that is not going the right direction. (Hence the difference between authorizing a transaction and clearing it. - If the transaction is something you don't want to authorize by policy, then don't. And they you don't have to care about how to clear it.)

Email protocols were designed to be two-way. Yet lots of servers are set up so some accounts can only send, and others can only receive.
posted by ocschwar at 2:09 PM on September 9, 2013 [1 favorite]


I mean hell, I have direct-deposit for my paycheck. My employer might use a protocol that in theory also allows them to withdraw cash from my account, but if they ever did that, I should hope the bank would flag the transaction and decline it.
posted by ocschwar at 2:10 PM on September 9, 2013 [1 favorite]


You'd hope wrong. I've heard stories of, e.g., salesmen quitting, and their employer slurping back their recently-paid bonus via the direct deposit access.
posted by thelonius at 2:14 PM on September 9, 2013 [5 favorites]


ocschwar: "I am seriously inclined to see this gross injustice as an opportunity. As in, set up a debit card system for the have-nots that undercuts the predatory systems out there currently. Make money, and make a better world."

There is no way to make this system cheaper than cash, so your profits will come out of the pockets of the poor.

Less predatory != good.
posted by IAmBroom at 2:17 PM on September 9, 2013


You'd hope wrong. I've heard stories of, e.g., salesmen quitting, and their employer slurping back their recently-paid bonus via the direct deposit access.

Gah. Time to have a little chat with my wife about setting up another account Just. In. Case.

I stand by my original point, though. It is technically feasible for banks to decline such transactions by policy. And a decliend transaction never has to clear.
posted by ocschwar at 2:18 PM on September 9, 2013


I had a $50 debit on my account for three days until the transaction was voided.

One fun discovery I made, while writing an on-line payment system for a client, is that while authorisations do go through instantly (and reserve the money from the balance available): when making a void request the card companies seem to have a random number generator to decide when to actually void and clear it. Mostly this is around 3 days, but I did have one authorisation on a prepaid Mastercard I was using for final testing that was on the card and reducing the available balance for over a year before I finally called up the card company to clear it manually. The system is now locked to authorise for £1 which is immediately voided (as a validity check), the full amount is only ever authorised/settled when the order is actually shipped.
posted by titus-g at 2:20 PM on September 9, 2013



There is no way to make this system cheaper than cash, so your profits will come out of the pockets of the poor.

Less predatory != good.


As noted in umpteen ways, the costs of handling cash might not be listed directly on your receipt, but they are there. If the storekeeper has to pay more for armored truck visits and insurance, his customers will pay.

So yes, I CAN make this system cheaper than cash. And make a profit out of the pockets of the poor. Your worldview might disallow that kind of thing, but as far as I am concerned, if I am 1. acting in good faith, 2. offering the best deal available, 3. leaving my customers better off, and 4. acting in a market where misbehavior on my part will leave me getting undercut by a competitor, then I have no problem making a profit off the poor and sleeping like a baby at night.

Seems to me that #4 is where the failure is. We have an antiquated system that's part of the problem.
posted by ocschwar at 2:26 PM on September 9, 2013 [1 favorite]


If all you have is in a bank account, what happens if their system fails?
If all you have is in a bank account, what if there's a glitch in the computers and it's wiped out?
If all you have is in a bank account, what if for ANY reason, right or wrong, somebody locks you away from it?

That's not science fiction. Yet many people thought the prices of houses was never going to collapse or that a global financial crisis was just crazy talk.


I agree on the principle of your point... But I would also point out that if you have a credit union account in British Columbia, your savings in Canadian funds are 100% insured, including GICs. Credit unions are restricted from speculation as a form of income generation, thus are safer. Not to mention you have a vote and a say in how it operates so can mobilize how the funds are managed.

Most banks in Canada have insurance on deposits held up to 100,000 through the federal government. (Credit unions are provincial, so insured separately)

(RRSP equity and mutual funds are not covered by these plans)


One thing that I find interesting about this cash/plastic split is that businesses pay an awful lot of fees to accept funds by credit and debit. You pay for every transaction + monthly fee + plus "push fund" to move money from various banks to your account. So accepting plastic increases your cost of business, and your contract stipulates you can't tell people, or charge a fee. The smaller your business, the higher the fee.
posted by chapps at 2:30 PM on September 9, 2013 [1 favorite]


It is technically feasible for banks to decline such transactions by policy.

It seems like it should be. I really need to open a second checking account, and move direct-deposited funds into it as soon as they are available. Although my current employer has no history of abuse in these matters, what about the electric company, or anyone else who I've set up bill payment for? Suppose they decide that I owe them $500 because of some alleged error in the past, or something like that?
posted by thelonius at 2:31 PM on September 9, 2013


Suppose they decide that I owe them $500 because of some alleged error in the past, or something like that?

If they (or even your employer) attempt this, go to your financial institution and dispute the transaction. As long as they can return the entry within 60 days of the original settlement, the FI must refund your money (NACHA Operating Rule Section 3.11). Technically, they need your dispute in writing, but some will do it with a phone call.
posted by ogooglebar at 2:38 PM on September 9, 2013 [1 favorite]


I'm trying to figure out just why this would stop banks from offering savings accounts to those people. No checkbook. Only a debit card. Should be an easy call.

Federal law says savings accounts can only allow 6 withdrawals a month. BofA charges a fee after 3. After six it autoconverts to a checking account. BofA once autoconverted mine after 3.

Well, because transactions don't clear in real time, so multiple draws can be made against the same funds, and the rationale is that if you write checks on funds you don't have, you'll make EFT purchases with money you don't have, and the bank will hold the bag on Monday morning when they post.

This isn't how it works in the modern day, so this isn't an excuse. Your balance doesn't update instantly, yes, but your available balance does. The instant you swipe your card. If i have $100 in my account and i go buy two $50 things, then try and buy a $10 thing a few minutes later it'll decline unless i opted in to overdraft protection.

This is a fake reason if anyone on the banks side is presenting it, since they already put a bulletproof vest on their asses for this one.

As was mentioned above ACH is extremely complex and those gears turn slowly behind the scenes. But individual banks do this available balance thing in their own ways.
posted by emptythought at 2:57 PM on September 9, 2013 [1 favorite]


As noted in umpteen ways, the costs of handling cash might not be listed directly on your receipt, but they are there. If the storekeeper has to pay more for armored truck visits and insurance, his customers will pay.

That's not the issue at all. Shops offer cash discounts for a reason: Credit card transactions aren't free.

The issue is predatory bullshit like check-cashing places (which should be illegal IMO) and prepaid credit cards as payment (ditto). They skim from people's pay. That's their whole business model. And if your paycheck is already skimmed by the government and your pimp temp agency (ditto again), you're not left with a whole lot when all is said and done.

Certainly not enough for shops to bulk up their security.
posted by Sys Rq at 3:01 PM on September 9, 2013 [1 favorite]


Gah. Time to have a little chat with my wife about setting up another account Just. In. Case.

You can't win this way, people have tried this sort of thing with paypal. The corporation paying you, and the bank always win. They can never lose and be out the money they decided they're entitled to.

You end up with an account with a negative balance, which gets closed if you don't deal with it. Then a massive black mark on ChexSystems which is basically the bank mafia and a top secret credit report.

Having a separate account and just withdrawing the money immediately might leave you with the money, but it will likely destroy that account and cause other large problems for you.

There was a thread on here where this sort of thing was discussed in which several people posted stories about employers, elder care homes, and other places fucking them on this sort of thing when they had specifically set up a separate account to protect themselves in theory.

Ideally if things were actually designed to protect the consumer there'd be some kind of roach motel bank accounts that were 1 way streets. You'd set them up to make payments from, and to receive payments at. To rescind a payment from either end you'd have to go through a mediator/arbitration and the account holder would always have the option of going to court. This would make other companies actually willing to use them since you couldn't just charge back with impunity from the consumer side, but it would also protect people from getting automatically assfucked like this.

Would stop this bullshit right quick.
posted by emptythought at 3:04 PM on September 9, 2013 [6 favorites]


It's important to note, however, that the debit transaction may not be equivalent to the actual transaction.

This can also be a problem for hotel and car-rental reservations, and restaurant meals, where the final transaction amount differs from the authorization amount. As far as gas purchases go, there are two possible strategies for avoiding the three-day $50 (more likely $75 or $100, these days) authorization hold. First, some stations (since they are franchised, it can vary, even with the same oil company) will do a $1 authorization instead of the larger amount, just to verify that your account is open and has a positive balance. Second, the length of time the hold stays on is set by your financial institution, so if this is a frequent problem for you, it may pay to shop around.
posted by ogooglebar at 3:05 PM on September 9, 2013


thelonius: You'd hope wrong. I've heard stories of, e.g., salesmen quitting, and their employer slurping back their recently-paid bonus via the direct deposit access.

That sounds like an astonishingly stupid idea on the part of an employers, since it seems like it would be easy to reverse with a lawsuit and would almost certainly be seriously illegal. I'd be curious how often that sort of thing has been tried and what the outcomes were.
posted by Mitrovarr at 3:13 PM on September 9, 2013 [1 favorite]


Jeeze i'm just posting up a storm in this thread, but

Mine has transaction-free ATMs around town, so that's one down. But what about access to accounts for the fiscal undesirables? I know there are community credit unions that help members establish credit with secured cards, etc - do they take customers who banks reject, I wonder?

Nope! Somehow i'm persona non grata even though i've never screwed up or left delinquent a bank account, left anything overdrafted, etc because a past landlord sent me to collections after he criminally tried to extort money from me to repair water damage caused by flooding in another apartment.

No credit union will give me an account. I'm stuck with the one i have at BofA and clinging to that motherfucker for dear life.

All the ones i've talked to have some policy that they wont accept anyone whose been sent to collections for more than $200-250. My landlord sent me in for close to a grand, so i'm automatically out of the race before i even got to qualify. That shit was a few years ago too, not like it just happened last week.

And i have a solid rental history, stuff like contract phone plans and other credit-reporting things i've done, have had a bank account in good standing since i was like 14, etc.

I have no idea how to dig myself out of this hole. I definitely don't want to stay with a fee-happy big bank and am envious of the options of cheap loans, 5% on the first 1k savings accounts, and all the ridiculous other amenities a lot of the local CUs offer.
posted by emptythought at 3:13 PM on September 9, 2013 [3 favorites]



The issue is predatory bullshit like check-cashing places (which should be illegal IMO) and prepaid credit cards as payment (ditto). They skim from people's pay. That's their whole business model. And if your paycheck is already skimmed by the government and your pimp temp agency (ditto again), you're not left with a whole lot when all is said and done.


Which is why I've sat on this thread to propose a payments system designed to address these things.
posted by ocschwar at 3:14 PM on September 9, 2013 [1 favorite]


thelonius: You'd hope wrong. I've heard stories of, e.g., salesmen quitting, and their employer slurping back their recently-paid bonus via the direct deposit access.

That sounds like an astonishingly stupid idea on the part of an employers, since it seems like it would be easy to reverse with a lawsuit and would almost certainly be seriously illegal.


Under NACHA rules, the originator's (that is, your employer's) bank warrants and guarantees that each entry is timely, proper, and authorized by the receiver (you). The originating bank, not the employer, is legally liable to your bank, and its liability is not limited to the amount of the entry. The originating bank has indemnified your bank, in case you sue it for contingent damages due to an improper entry.
posted by ogooglebar at 3:23 PM on September 9, 2013


That sounds like an astonishingly stupid idea on the part of an employers, since it seems like it would be easy to reverse with a lawsuit and would almost certainly be seriously illegal.

Yeah, in most US states this probably is illegal. There are pretty strict rules regarding what you're allowed to deduct from an employee's wages, and in many jurisdictions even employer "self-help" is prohibited when the employee destroys or damages equipment, etc. before leaving. The employer's remedy is to sue.

Not surprised to hear that employers do this, though, as employers are notorious for fucking up wage and hour and pay rules and regulations. Sales commissions are sort of a hotspot for this kind of nonsense for some reason.

It gets a little murky though in cases where there's been overpayment, which is what the employer would be arguing in a case like this, probably (that the bonus actually hadn't been earned yet).

In any event, it is not a best practice for an employer to try to take already paid wages back from an employee or withhold wages for any reason, no matter how righteous they perceive their position to be. At worst it's theft, at best it likely runs them afoul of wage withholding regulations.
posted by MoonOrb at 3:35 PM on September 9, 2013


But I would also point out that if you have a credit union account in British Columbia, your savings in Canadian funds are 100% insured, including GICs.

That's also true in other countries, and if my memory serves the U.S. FDIC (or whatever its name was) government insurance covers customers deposits up to a certain amount and was instituted in order to prevent people from making "run on banks", that is, to reassure people that no bank would ever be "out of cash" so that they needn't worry about, literally, running to banks to get their money before it's too late.

Of course, all of this is fine if one doesn't experience an RBS Bank Computer system failure event. Good luck suing the bank for the damage one may suffer from late payments.

Additionally, In some countries, or at very least in mine, the above said insured top limit has been lowered during the last few years, but perhaps more importantly I still have to find details on how long it takes for an insured account to be "covered" by the insurance refund. That is to say, suppose I got 10K in account and my banks gets wiped out - how long till I have all my 10K back? It's no small matter, especially when one is responsible for late payments.

Cash doesn't look so bad, or at least looks a lot better than a system that doesn't give me 101% assurance I will not be separated from what actually and horribly enough means being alive or dead on this planet, that is, having or not having access to credit and/or cash.
posted by elpapacito at 3:46 PM on September 9, 2013 [2 favorites]


That is to say, suppose I got 10K in account and my banks gets wiped out - how long till I have all my 10K back?

Per the FDIC: "It is the FDIC's goal to make deposit insurance payments within two business day of the failure of the insured institution."

Institutions are traditionally taken over Friday evening, right after the doors close, so this means Monday or Tuesday.
posted by ogooglebar at 3:54 PM on September 9, 2013


Also, see snopes:

"Claim: After a bank failure, insured deposits are paid back by the FDIC over a very long period of time.

FALSE"

As a matter of practice, the insuring agencies will bend over backwards to find another institution to take over the deposits in order to avoid paying out form the insurance funds.
posted by ogooglebar at 3:59 PM on September 9, 2013 [1 favorite]


Sorry if I appear to be nitpicking, but "It is the FDIC's goal to make deposit insurance payments...". What happens is this goal is not reached? Do I need to sue the Govt to get not only my money back, but the potential damages?
posted by elpapacito at 4:01 PM on September 9, 2013


Just to be clear, the CDIC insures some GICs (specifically those that have an original term of no longer than 5 years) and Canadian-denominated accounts only (plus some little bits of other stuff that are generally not relevant) and the total insured amount among all your bank accounts/GICs/etc is no more than $100,000.
posted by jeather at 4:01 PM on September 9, 2013 [1 favorite]


Sorry if I appear to be nitpicking, but "It is the FDIC's goal to make deposit insurance payments...". What happens is this goal is not reached?

FDIC, again: "Historically, the FDIC pays insured deposits within a few days after a bank closes, usually the next business day."

If worrying about this keeps you up at night, just keep your emergency fund (the three-to-six months' living expenses that we all have saved up, right?) at a separate financial institution. Worst case scenario, use your gas card for a few days, to get your meals at the mini-mart, a la Reality Bites.
posted by ogooglebar at 4:18 PM on September 9, 2013 [1 favorite]


You can get something like 50mm insured using a service like cdars.
posted by Ad hominem at 4:34 PM on September 9, 2013


You'd hope wrong. I've heard stories of, e.g., salesmen quitting, and their employer slurping back their recently-paid bonus via the direct deposit access.

The potential for my university to be able to do this is why I spent two hours each semester getting the paper check for my financial aid instead of getting it direct deposited.

I've also heard so many nightmare stories about utility companies and other creditors debiting an account after the service has been cancelled that I still send checks in the mail.
posted by reenum at 4:38 PM on September 9, 2013


They can never lose and be out the money they decided they're entitled to.

If you truly did not authorize the transaction, your financial institution has to bounce it for you eventually. Generally, though, most direct deposit agreements are going to include language that allows the employer to reverse erroneous deposits to your account.

ChexSystems which is [...] a top secret credit report

Not at all. It has to abide by the FCRA and provide you a copy of your report every year just as the big three credit reporting bureaus do.
posted by one more dead town's last parade at 4:45 PM on September 9, 2013 [2 favorites]


Just to be clear, the CDIC insures some GICs (specifically those that have an original term of no longer than 5 years) and Canadian-denominated accounts only (plus some little bits of other stuff that are generally not relevant) and the total insured amount among all your bank accounts/GICs/etc is no more than $100,000.

It's also $100,000 per set of joint account holders per financial institution, so if you and your spouse each have individual accounts and a joint account at three banks, that's $900,000. Which is plenty for most people.
posted by one more dead town's last parade at 4:47 PM on September 9, 2013


To solve this problem, why not set up a system to remediate borrowers who are low income, have some black marks on their banking history, and meet certain criteria?

You initially have the government guarantee people's deposits to banks like Chase or better yet, credit unions, and pay a portion of the bank's fees. The person has to not overdraw the account for a period of time, say five years. After this time, the person will have the right to have any and all outstanding negative reports on their banking history expunged. Failing that, we create penalties for banks using this history rather than other criteria to reject people's applications for bank accounts. If needed, we could have the government guarantee deposits as long as the person is below a certain percentage of the federal poverty line.
posted by reenum at 4:48 PM on September 9, 2013


The sales bonus story - IIRC, they did not, in fact, get away with this. But first, they drained the guy's bank account, causing him a lot of trouble. The point is, even if I have recourse, rent is due today, and someone just took my money.
posted by thelonius at 4:49 PM on September 9, 2013 [1 favorite]


> Institutions are traditionally taken over Friday evening, right after the doors close, so this means Monday or Tuesday.

covered in delightful detail by This American Life/Planet Money. Those FDIC folk are organized.
posted by morganw at 5:01 PM on September 9, 2013 [1 favorite]


Mobile phone banking?

Of course, there is the problem of getting the money into the phone, i.e. making payments to it.

You may have already used your phone as a bank if you've ever donated to a charity by text message (SMS) that draws on your phone balance.
posted by bad grammar at 5:03 PM on September 9, 2013 [1 favorite]


Am I the only one who is also reminded of the Sam Vimes Boot Theory of Economic Injustice?

They get you coming and going, not just with transaction fees. It's payday loans at usurious rates and "low price goods" where the company's employees are on welfare, etc.
posted by fifteen schnitzengruben is my limit at 5:04 PM on September 9, 2013 [1 favorite]


titus-g: They actually suggested the cash account as a way to build a credit record, and then come back and try again in 2 or 3 years...

If it's any consolation, I had a cash account when I first moved to the UK (for the same reason, no credit history) and they offered me a current account after seven months and a credit card within the year. It won't take two to three years if you are paying in a decent amount each month. Check the monthly paying-in requirement for your bank's standard current account and make sure you are depositing at least that every month.

Otherwise - good lord the American banking system is weird. Here in the UK every account provider has to offer a basic cash account to everyone who meets the identity and proof of address criteria, by law. These accounts are ATM card only (no debit card) and no cheques or overdraft, but it's a bank account at least.

And everything is done here by electronic transfer - the notion that anyone can take your money if they have your bank account number is really, truly odd. My paycheque is paid into my account monthly (as it has been for more than 20 years, in two countries) and it is impossible for my employer, or anyone else, to withdraw money from my account without my permission.

If these things are possible, standard even, in the rest of the world, why is the US so backward in this regard?
posted by goo at 5:13 PM on September 9, 2013 [2 favorites]


Bring Back Postal Banking

You know this is a good thing for the poor because they are Cameron and company are phasing it out in the UK.
posted by srboisvert at 5:18 PM on September 9, 2013 [5 favorites]


I agree that SMS payment through cell phones is the best possible answer for people with access to them. This works in Africa, why not here? The issue is that the people controlling the capital have no incentive to move towards this model. It's unlikely that non-profits could even move forward with that model since the financial sector is so invested in the current system.
posted by syncope at 5:20 PM on September 9, 2013 [1 favorite]


when the FDIC takes over, they typically sell the deposits to another bank, and the result is that you bank with them in pretty short order.
posted by jpe at 5:28 PM on September 9, 2013


Well, because transactions don't clear in real time, so multiple draws can be made against the same funds, and the rationale is that if you write checks on funds you don't have, you'll make EFT purchases with money you don't have, and the bank will hold the bag on Monday morning when they post.

My basic debit account has no chequing facility, and nor can I EVER take out/purchase in excess of the available funds - on the occasion I miscalculate, I immediately receive a big fat, "transaction declined" (due to insufficient funds).

My credit card works similarly. Although it may take a day or two for whatever funds I've used to be actually taken from my account, whatever I've spent is essentially on hold - whilst it's still technically in my account, it is no longer available to use on my credit balance.

Are these types of accounts not possible to implement in America?
posted by Nibiru at 6:12 PM on September 9, 2013 [1 favorite]


On the real-time thing: there are absolutely still large banks in America that use batch processing of transactions and not real-time processing. So their real-time authorizations are based on a combination of some real-time data / predictions and the last batch-processed balance. In other words, they are not a 100% accurate up-to-the-second balance.

Of course such a thing is technologically possible, but it is not used at at least a couple major banks I know of. (My father has worked his entire life in the bank transaction-processing industry, which is a verrryyy slowwww moving technology industry).
posted by wildcrdj at 6:17 PM on September 9, 2013 [1 favorite]


My employer might use a protocol that in theory also allows them to withdraw cash from my account, but if they ever did that, I should hope the bank would flag the transaction and decline it.

My employer double-paid me once and a couple weeks later removed the extra payment from my account. I actually trust them on this sort of thing and was OK with it ethically, but I was pretty surprised to realize that was possible.

(I mean, certainly I shouldn't get to keep the money, and honestly it was much more convenient this way, and I don't think this particular employer would do it for nefarious reasons, but I too had no idea that DD authorization allowed them to pull money from my account)
posted by wildcrdj at 6:22 PM on September 9, 2013


What drives me nuts about this discussion on the whole is a libertarian/conservative outlook. Our government spends more money than any other on its citizens regardless of who is in office. Scandinavian countries seem to do well with their socialism, providing opportunity for growth and a country based on collaboration. The USA would do well to follow suit.
posted by madmartigan3454 at 6:25 PM on September 9, 2013


we spend more, but probably not per capita or as a % of gdp. we're just bigger.
posted by jpe at 6:51 PM on September 9, 2013


looks like we spend a little more than average per capita and a little less as % of GDP. go figure.

http://www.oecd-ilibrary.org/sites/9789264075061-en/03/01/index.html?itemId=/content/chapter/9789264061651-8-en
posted by jpe at 6:55 PM on September 9, 2013


Government spending per capita ≠ government spending on citizens. Our government spends a third or so of its budget on the machinery of war, plus we're paying interest on monies borrowed because we spent more money than we had because of all our wars.

When you factor in also the inefficiencies caused by means-testing everything to death in a vain attempt to make sure every last welfare program dollar gets directed to the "deserving" poor and not the "moochers", yeah. We don't get near what we pay for.
posted by tivalasvegas at 7:05 PM on September 9, 2013 [1 favorite]


If you truly did not authorize the transaction, your financial institution has to bounce it for you eventually. Generally, though, most direct deposit agreements are going to include language that allows the employer to reverse erroneous deposits to your account.

The second part might as well be in bold. Any deposit agreement will have some language in there that they can reverse deposits, or even in the case of paypal and a lot of other similar services charge separate payments for fees/obligations/etc.

In reality if you try and do the first sentence of your post, you get caught up in the second sentence and the bank goes "lol good luck with that". It's basically impossible to reverse a withdrawal of that type from a company/service you've had ongoing activity with.

Not at all. It has to abide by the FCRA and provide you a copy of your report every year just as the big three credit reporting bureaus do.

I may have been a bit hyperbolic, but in practice for your average person it might as well be. It doesn't show up on most annual credit report sites, it's only used by banks, and the circumstances in which things end up on it and the process of removing them can be more than a bit byzantine.

Most people, in general, don't know that it exists. We can agree on that right?
posted by emptythought at 7:15 PM on September 9, 2013


Once again it seems like most people posting here have no idea what the lived experience of not being able to access what they think are simple services in first world countries is like. I haven't been able to get a bank account since 5th/3rd fucked me on overdrafts years ago because there's no way to really object to what they do and no statute of limitations of not being able to get a bank account.

For the most part, I'm a pretty solid middle class person with a professional job and I have to use those prepaid debit cards with no recourse. What the hell else am I supposed to do? I can't buy anything online because most retailers won't take prepaid debit cards since they're not linked to bank accounts. The regular economy you take for granted is off the table for me. This is all because I had an overdraft dispute with a bank years ago and didn't have the money to pay their extortion at the time.
posted by syncope at 7:20 PM on September 9, 2013 [7 favorites]


I am seriously inclined to see this gross injustice as an opportunity. As in, set up a debit card system for the have-nots that undercuts the predatory systems out there currently. Make money, and make a better world.

M-Pesa does this in Kenya - and there are similar companies all over the developing world.
posted by smoke at 7:49 PM on September 9, 2013


So a lot of people in this thread are asking for deposit accounts with debit access but no checks. There's a name for that. Prepaid cards. The thing that people are also somehow upset with.

Prepaid fees have come down an incredible amount and are often a reasonable device for the under- and unbanked. Yet it's easy for journalists to jump all over them, ignoring the single most expensive form of credit in the country - overdraft fees. And it's easy for the well-to-do to tsk at those predatory employers offering these products from the safety of their financial lives, serviced by low-cost mainstream financial instruments.
posted by allen.spaulding at 8:19 PM on September 9, 2013


Wait, you're seriously arguing that those are the same thing when there's tons of people above explaining exactly how they aren't? They're treated as second class citizens when it comes to the plastic currency market.

And you're tolled at the gate whenever you need to get something like say, a money order since you have no checks to pay your rent with, or cash for something that's cash only.

Not to mention all the grocery stores, gas stations, and other businesses in the poorer parts of town that charge card fees on top the normal prices.

Being trapped as a second class citizen in the plastic economy, while also tolled when entering the cash one is just as shitty if not more than being trapped in the cash one.

It's easy to attack because it's rife with problems, not just because it's some easy strawman target for journalists. I could easily list off even more.

Not having a true account in your name with your money in it is a huge hinderance. The foot dragging behind just creating some sort of secured checking account for people in that position stinks of class warfare and "they did it to themselves" type bullshit thinking.
posted by emptythought at 9:42 PM on September 9, 2013 [3 favorites]


The big box store type store I work encourages "good" bad check writers.

Once a customer writes a bad check it goes to what we called soft collection for 3 weeks. If it is paid in the 3 week period (with a $25 return check fee on top of whatever their bank charged) we'd clear them to write another check in our stores.

I once had a customer come in, they tried to write a check, it flagged in our system and as the Lead Clerk I had to look it up in our system to see why it was flagged. The customer had 15 checks that had been sent to "soft collect" and had paid them all off within a week or two of them bouncing. It was not an uncommon experience for me to see customers with 6 or 8 bounced and paid off checks. Our unofficial policy was to always take checks from customers with that kind of history. It's good business.

If a business can make $375 basically free dollars (and write off the original bounced check as a loss) and god only knows how much the bank was making why in the world would they ever stop issuing "unlimited free check writing?"
posted by M Edward at 11:34 PM on September 9, 2013 [2 favorites]


they offered me a current account after seven months and a credit card within the year.

It was actually back in 2008 that I got that account, so I could give it a go, although the cash account's been fine, and safer in many ways; borrowing dulling the edge of husbandry and all that.

This can also be a problem for hotel and car-rental reservations, and restaurant meals, where the final transaction amount differs from the authorization amount.

That was similar to the problems with the payment system I developed: in most cases it wasn't possible to automatically calculate the shipping costs before the auth, so the final amount was always different. Add to that that the charges were often for thousands of pounds and there were (admittedly not common) cases where the first authorisation locked enough out of the account that the second was declined, or where the two together left the customer without any credit... Not good.
posted by titus-g at 2:44 AM on September 10, 2013


My employer might use a protocol that in theory also allows them to withdraw cash from my account, but if they ever did that, I should hope the bank would flag the transaction and decline it.

They most certainly would not. Reversals of erroneous direct deposits are permitted by the system, legal, and likely a critical feature of direct deposit in the first place. No employer is going to go through the effort of setting up a direct deposit system--printing a ton of checks is way easier--to benefit their employees without the guarantee that they can make corrections as needed. If an employer discovers that they've made an error on a physical check, they can probably void the check or put a stop-payment before it gets cashed in the first place. But if they can't withdraw errors in direct deposits, their only option is basically suing their employees, which is no way to be.

valkyryn, can you explain in more detail how and why bank accounts work like this?

Theoretically, yes. Practically. . . no, not practically. Read this and this and this and this and I could go on, but you get the point.

Simply put: the electronic banking network is not simple. It is fiendishly complex, in no small part due to federal regulation of said network. This is partly for consumer protection (don't want consumers getting shafted by bank errors or defrauded by scammers) and partly for law enforcement purposes (tax evasion, money laundering, etc.).

But even technically, it's a beast. We're talking about 40-odd million transactions a day in potentially hundreds of millions of accounts and billions of dollars in value. None of which can have an error, all of which have to leave a paper trail, and all of which need to be reversible.

Consumers think of checking accounts as basically just another line page in a ledger somewhere. It's how we keep track of our own money after all. The reality is almost infinitely more complicated.
posted by valkyryn at 5:23 AM on September 10, 2013 [3 favorites]


But if they can't withdraw errors in direct deposits, their only option is basically suing their employees, which is no way to be.

Or just withhold the overage from the next paycheck.

It's not impossible to have deposit-only accounts other than for reasons of policy. There are no technical barriers.
posted by one more dead town's last parade at 6:42 AM on September 10, 2013


Or just withhold the overage from the next paycheck.

You'd have to change the labor laws.

It's not impossible to have deposit-only accounts other than for reasons of policy. There are no technical barriers.

If by "no technical barriers" you mean "It is technically possible to write software that will do this," then yes. But if you mean "This would be trivial to implement," then you couldn't be more wrong. I don't even want to think about the number of man-hours it would take to get something like this going. Millions, at least.
posted by valkyryn at 7:06 AM on September 10, 2013 [2 favorites]


That's absurd. It would not take millions of man-hours to set up an account that automatically denied every single attempt to remove money from it that wasn't a transfer to another account with the same owner.
posted by one more dead town's last parade at 7:17 AM on September 10, 2013


That's absurd.

That, I grant you. But it is nonetheless true. Making any changes whatsoever to the ACH network--which is operated under the auspices of the Federal Reserve--is an enormous process. Might actually require a change to the regulations, which could easily take a few years of regulatory effort, plus countless hours implementing the requisite technical changes.

TL;DR: You don't seem to understand just how big and complicated the financial system actually is. I'm not sure there is a more complicated system.
posted by valkyryn at 7:22 AM on September 10, 2013


It's absurd, and quite simply untrue, that it would require millions of man-hours. If it did take millions, nearly all of them would be unnecessary.
posted by one more dead town's last parade at 7:26 AM on September 10, 2013


TL;DR: You don't seem to understand just how big and complicated the financial system actually is. I'm not sure there is a more complicated system.

I'm sure it's complex. Adapting existing systems to decline and not authorize transactions based on category or based on available balance, OTOH, is not.

Other countries have done it.
posted by ocschwar at 7:38 AM on September 10, 2013


If it did take millions, nearly all of them would be unnecessary.

Praise be! You've solved the problem of administrative and regulatory labor requirements! You must share the secret with the rest of the world!

/sarcasm

Other countries have done it.

Oh? Such as? And do they work with the Federal Reserve's ACH system?
posted by valkyryn at 8:49 AM on September 10, 2013


You don't seem to understand just how big and complicated the financial system actually is. I'm not sure there is a more complicated system.

Perhaps, since you do understand it (and everything else, one assumes), you might enlighten us, oh master?
posted by Sys Rq at 8:54 AM on September 10, 2013


Ah, right, it's magically different because America. Also, a thousand equals a million.
posted by one more dead town's last parade at 9:09 AM on September 10, 2013


I'm surprised that people are being so dismissive of the complexity of the situation. There are two core reasons for this.

1) When Andrew Johnson abolished the second bank of the US, we missed 100 years of central banking and the learning that came with that.
2) The chief federal regulator, the Federal Reserve, also is intertwined with much of the banking infrastructure, such as check relay and the ACH system. This means that they have a vested interested in the status quo that has prevented updating certain systems.

There are people doing good work on these issues from a number of different places - but it's not exactly something that outsiders can solve with a comment made based on a poorly written piece by a barely-literate journalist who can struggled to google "what is a poor person."
posted by allen.spaulding at 9:28 AM on September 10, 2013 [2 favorites]


And that's ignoring many of the additional complexities introduced by the duel system of Federal oversight of national banks with state oversight over state-charted banks. Split control over "safety and soundness" between the OCC, FRB, FDIC/NCUA & the former OTS, the OTS perhaps being the biggest trainwreck in recent history. Oh, and there's also significant consumer protection efforts that have been spread across orgs such as the FHFA, HUD, CFPB, etc. Oh yeah, and sometimes the FTC thinks it plays a role in this.

And this is just a tiny source of complexity, recently shaken up by Dodd Frank. Consumer finance regulations is serious business.
posted by allen.spaulding at 9:34 AM on September 10, 2013 [1 favorite]


Ah, right, it's magically different because America.

Not necessarily. But you never actually gave an example of someone doing things differently, so there's not much of an incentive to take you seriously.
posted by valkyryn at 9:37 AM on September 10, 2013


Perhaps, since you do understand it (and everything else, one assumes), you might enlighten us, oh master?

It's mostly in Title 12 and to a lesser extent Title 31 of the Code of Federal Regulations.

I don't even pretend to understand what's going on in there, but I know enough to know that it's a monster. If you can parse that and come back with the conclusion that it's a piece of piss, well, more power to you. But I'll call you a liar. I mean, really?
posted by valkyryn at 9:45 AM on September 10, 2013


Not necessarily. But you never actually gave an example of someone doing things differently, so there's not much of an incentive to take you seriously.

Pretty much all of Europe, Germany in particular. And that actual example is certainly more persuasive than "because of reasons." Whether or not you personally want to take me seriously has no bearing on whether what I'm saying is correct.
posted by one more dead town's last parade at 9:51 AM on September 10, 2013


Whether or not you personally want to take me seriously has no bearing on whether what I'm saying is correct.

Perhaps not, but the CFR does. Sit down with that and come back and tell me that this is simple and I really will laugh at you.
posted by valkyryn at 10:37 AM on September 10, 2013


I'm surprised that people are being so dismissive of the complexity of the situation.

What I'm observing is a few people saying something like "Hey, why can't we just tweak the system to allow for X?" and the response they're getting comes across like "Because doing that is too hard and trust me because I know a lot about this," and receiving that kind of response can make you feel pretty shitty sometimes, because you have no real reason to trust the person who's giving it. So I don't see so much people being dismissive of the complexity as pushing back against what they might perceive as not being given a very satisfactory in a tone that might be kind of insulting.
posted by MoonOrb at 10:41 AM on September 10, 2013 [4 favorites]


While i agree with that, i think it's reached a level of snark on both sides that does a complete disservice to basically any possible discussion.

It's probably harder to change than some people realize, yes. I also wouldn't at all be surprised to learn that there are in fact technical hurdles and legacy systems still in use all over the place that would totally freak out at serious changes to the if>then kind of processes at various points in said system.

It's probably different in other countries because the groundwork was laid differently and the entire system was built up from being primitive computerized stuff in the early 80s(or even mid-late 70s) and onwards with that in mind.

It would probably be similarly hard to change there because of the incumbent system.

I see nothing super "OMGWHAT" here. I also feel like the people who think that this wouldn't take a ridiculous amount of man hours to fix just haven't messed around with old systems, or worse old systems that process financial data. I've spent months replacing POS stuff at a business. And that's one shop. There's this crap and so many other layers of byzantine requirements you have to meet. You can't even pretend to say a lot of stuff wouldn't have to be replaced. That doesn't mean it shouldn't change, just that it would take lots of time and money spread across many places.(And inb4 "LOL BANKS YEA SO HURTING FOR MONEY SO SAD"). This isn't some unrealistic because reasons thing, although some people decided to frame it that way.

really that "because i said so" crap is super tiresome though.
posted by emptythought at 10:47 AM on September 10, 2013 [1 favorite]


Oh, I don't doubt that it is hard to change, but if first I were told "Trust me, it's hard to change" and then asked "Okay, but why?" and being told "read the CFR and get back to me," I wouldn't take it very well.

I lived in a modern, first world country where you paid people via SMS, and it was easy and great, and not a drama. That country also had obnoxious fees on its bank accounts, though, so I don't know if on balance I prefer it to what we have in the US, but I have wondered ever since I came back why the hell we can't do simple stuff like that here in the US, too.
posted by MoonOrb at 10:52 AM on September 10, 2013


valkyrin, the point you are repeatedly missing is that the complexity of the existing system is there in order to manage properly the handoff of legal responsibility that transactions that go wrong, because of the risk of transactions adding up to a bad Monday Surprise.

That's all well and good, but if you take a banking system, and set up accounts in it that use modern technology to decline and refrain from authorizing all transactions that could lead to a Monday Surprise, then these issues are moot. The algorithms for doing this were designed and tested literally decades ago.
posted by ocschwar at 10:53 AM on September 10, 2013


oschwar, maybe some of the disconnect here is that while the technical aspects of the problem might be simple, actually effecting change in a well-entrenched system is extremely difficult. It would require the administration to be motivated to take action, and then the rulemaking process would start, someone would write the rules, which takes forever, and then there would be a public comment period, and then there would be fight over which regulations would actually be implemented, and there would be people concerned about security, which would delay the process even further, and the whole thing is kind of in the "too hard" basket. Not necessarily because the technology would be tough to implement, but because so few people see this as a pressing need to change, and even making a relatively simple change like you're suggesting would create an administrative morass that no one wants to venture into, because, hey, the system is working from the perspective of the banks and people with money.

(I'm not saying we shouldn't make changes to improve the system; I think we should. But I understand why we're stuck in the status quo and why fixing it is more than just a matter of implementing some already existing technology).
posted by MoonOrb at 11:03 AM on September 10, 2013


The European giro systems arose from Postal Banking systems, which the US has never had a direct equivalent to. During the same period that the UK was enacting Postal Banking and laying the groundwork for the giro payment model, the US actually abolished its central bank (and single national currency) in favor of a patchwork of state banks. (There was also a Civil War in the same period which was something of a distraction, although you could argue that a Postal Banking system in the north would have helped raise war capital more effectively than state banks did.)

So the US entered the 20th century with a banking model that was very, very different from the UK or most of Continental Europe. Even after the state banks were reigned in and the Federal Reserve System was put in place, rather than having a small number of private banks catering to the wealthy, with most small depositors using Postal Banking (as was the case in the UK during the latter 19th and early 20th century), you instead had a plethora of small banks performing S&L or checking functions.

It's not immediately clear where the opportunity for implementing giro would have been. Perhaps as part of the Federal Reserve Act, but since it was essentially put together by a consortium of private bankers, it's hard to imagine them rocking the boat away from the established bank-cheque model.

The best opportunity for something like that today probably revolves around some revamping of ACH, which is fairly close to giro, at least using some transaction types you can achieve a "push" model rather than the "pull" of traditional cheques/drafts. My understanding is that ACH right now is still batch-oriented, so there might be an opportunity in the near future to redo it on a real-time basis that would allow something functionally similar to electronic-giro systems. I'd expect overwhelming opposition from credit card and ATM-debit network operators if it ever became a viable competitor, though.
posted by Kadin2048 at 11:04 AM on September 10, 2013 [1 favorite]


I still can't believe people get paid in pre-paid cards.

I just learned that, as the CFPB points out, it is illegal for an employer to require their employees to receive wages on a payroll card. I'm disappointed that the NYT failed to uncover this fact and include it in their article.
posted by ogooglebar at 2:54 PM on September 20, 2013




Cool, but let me know when there's a story posted that's like "Feds fine $BIGFASTFOODCOMPANY number with lots of zeroes for violating the law on this".

Talk is cheap.
posted by emptythought at 8:46 PM on October 2, 2013


Cool, but let me know when there's a story posted that's like "Feds fine $BIGFASTFOODCOMPANY number with lots of zeroes for violating the law on this".

It'll never happen, because all the $BIGFASTFOODCOMPANIES are franchised. It's not McDonald's forcing debit payroll cards on workers, it's Bob Smith d/b/a McDonald's Of The Eastern Side Of Newark Not Counting That One By The Towers.
posted by Etrigan at 5:57 AM on October 3, 2013


Consumer Financial Protection Bureau (CFPB) Director Richard Cordray promises to be "proactive about identifying violations, stopping them before they grow into systemic problems, maximizing remediation to consumers and deterring future violations."
posted by ogooglebar at 12:07 PM on October 4, 2013


« Older Now available in 3D!   |   Survived by his dog, Spot. Newer »


This thread has been archived and is closed to new comments