Bankruptcy Blog: May 20, 2005

The National Consumer Law Center is featuring a report on bounce protection scams. (Known in the bizarro-speak of the credit industry as “sound financial strategies.”)

I wrote about these earlier, but apparently it’s even worse than I thought. Some highlights: ATMs include the overdraft line of credit on-screen as part of the available funds. ATM users aren’t notified that they’re withdrawing more than they have until the bill arrives later. Annualized interest rates on the cash lent to cover bounced checks and withdrawals can reach 1520%. That is not a typo. And thanks to a loophole in the federal Truth in Lending law, banks never have to reveal the actual interest rates Customers automatically get “protection” whether they want it or not, and must specifically request to be taken out. Consultants hyped bounce protection to banks as a way to compete with payday lenders — barely legal loan sharks that prey on our cash-strapped troops (among others).

A highly recommended read. If you like horror stories.

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