Student Scholarship Contest – Second Place

Debt-it cards

By Braden Katz, University Daily Kansan
bkatz@kansan.com

Last month, the debit receipt for my lunch at the Underground was identical to all the others in the stack next to the cash register. Although my purchase appeared to be normal, I had unknowingly participated in a complicated small loan for my lunch that day.

My checking account had been completely empty. Later, I found out that I had unintentionally agreed to a six-dollar loan with the equivalent of more than 7,000 percent interest for a sandwich. The bill  informed me that my five dollar lunch actually cost more than 40 dollars with the included $35 overdraft fee.

This experience taught me that even at the lowest level of everyday transactions, the dysfunctional nature of the market is apparent.
Less than 30 years ago, if there was no money in a person’s checking account, they might have left the Underground hungry but certainly not in debt. I had fallen victim to one of the many deceptive practices of major banks’ card industry.

With absolute control over the credit and debit business, banks have found hundreds of ways to trick consumers into outrageous fees and interest rates.
As a result millions of Americans are finding themselves helplessly sinking under debt that began with one missed payment or overdraft.

Although the Senate recently passed a bill to stop some deceptive credit card practices, debit card issues have remained untouched as legislators struggled with Republican opposition as well as the powerful bank lobby.
A debit card that draws money directly from a checking account seems like a simple concept. However, banks have set up an extremely profitable system designed for consumers to make mistakes.

Directly after a customer uses a debit card, the purchase goes through a computer system that charges the most expensive purchases first. This drains the checking account more quickly and allows banks to charge an overdraft fee for each individual small purchase.

Meanwhile, consumers are rarely warned that their checking accounts are empty as they rack up hundreds of dollars in over-draft fees.

With this in mind its logical for banks to create a system designed to lure people with small sums of money in their checking accounts because they are more apt to make mistakes.

Not surprisingly, the largest portion of credit and debit card profits comes from what the industry calls the “unbanked market.” This refers to the 40 million poorest Americans who would have earlier been denied to access to credit and debit cards. These people serve as a vulnerable target market that has created billions of dollars in profits for the banking industry.

Today, a person opening an eviction notice can simultaneously receive an already approved debit card in the mail. Not only are insolvent individuals approved for both debit and credit cards, it is also completely free to sign the contracts.

With 34 billion U.S. debit transactions in 2008, more and more consumers are turning to their debit cards after enduring billions in debt from credit cards’ hidden fees and interest rates.

Yet, regardless of consumers’ efforts to conduct safer purchases, major banks continue to successfully scrounge among the growing group of financially vulnerable Americans for profit.

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Braden Katz is a junior at the University of Kansas majoring in creative writing and political science.

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