Moreover, it's an inequality engine. Get money from those who can't pay their bills (poor - they are punished bad back-breaking late fees and penalties) to those who can (middle class and the rich who usually pay their cards off in full every month so never pay any interest, and get cashbacks and bonuses/airline miles/etc).
A lot of the American consumer finance infrastructure seems to be set up like a regressive tax on poor people who can’t avoid using the system.
If you don’t have money, banks will charge you $15 / month for a basic checking account, plus $50 overdraft fees if you make the slightest mistake in balancing the account (or if a company makes a fraudulent charge on your account — also dismayingly easy in the US system).
If you have any reasonable income they start waiving the fees, and beyond that they’ll shower you with offers for credit card rewards and other benefits effectively paid from the massive windfall the banks and other companies collect from the poor.
The market isn’t solving this, so there should be more regulation and very tight caps on these various fees. A bank account shouldn’t cost more than $2 / month. An overdraft shouldn’t be possible unless you opt in to a loan facility.
Why is the market like this? It's naturally harder to make money off poor people because they have less money. It's also not how retail banking works in Europe, they tend to make money off the rich here in ridiculous ways ("keep $400,000 frozen on your deposit for an almost zero interest rate and get a few useless perks like a red-carpet priority lane at the airport"). And i don't think it's regulation. Maybe European poor and American poor are different (can't do the math, don't care, have planning horizon too short)?
There are a lot of poor Americans. 22% say they have absolutely no emergency savings. That’s 57 million adults who get milked by banks at every turn.
In Europe, exorbitant fees paid by the poorest would end up getting paid by the welfare system. It would be more obvious that it’s a wealth transfer from the state to the banks and other corporations. So the government has a direct interest in enacting regulation that prevents this.
In America, the welfare system avoids transferring actual money to people as far as possible (because the system doesn’t trust poor people to handle money). Instead these transfers are made indirectly using systems like “food stamps” that you can use only to buy groceries. When the government is giving food stamps to someone, and simultaneously the same person is paying $100 in overdraft fees to a bank, it’s much less obvious who’s really paying the bank’s profit here, but it’s still the taxpayers.
It’s not even credit, you’ll get hit with fees for just having a bank account when poor.
Wells Fargo, one of the largest national banks, charges $15 / month for a checking account (last I checked) unless you keep a balance of over $1500.
And overdraft fees are hard to avoid because the American banking system is fundamentally flawed. Companies can make charges from your account if they know the number. (This is mentioned in the debt collection article too.) If you don’t have money, your account can suddenly go negative because some company somewhere decided to pull some money from you, and then the bank charges you $50 for the overdraft.
The system is so broken, it’s hard to believe from a European point of view. The USA only got European-style bank transfers this year! Until now, almost all money transfers were being bolted onto a system meant for handling paper checks.
