Debit Cards: Friend or Foe

I remember when debit cards first came out in the mid-1990s. Our bank mailed my husband and I each a card and we were on our way.

At first we thought it was great. Well, to be clear, it was my husband who thought it was great. You see I was in possession of the checkbook, so I already had access to the money in our checking account whenever I wanted it. But now, with his new debit card in hand, my husband now had immediate access to the funds in our joint-checking just like I did.  Perfect, right?!  Well, not so much.

Let me explain. Whenever I went shopping or wrote a check for cash, I immediately wrote the debit in the register and subtracted it from our balance.  You gotta remember back then there was no internet banking, so there was no way to know exactly what your balance was until your bank statement came in the mail at the end of your cycle—unless, of course, you kept meticulous records by tracking every debit. But here’s the thing, my husband, knowing perfectly well how these things worked saved each and every receipt whenever he used his debit card so he could give them to me to put in the register.  The problem was, he didn’t always hand them over in a timely fashion.  That led to a couple of overdraft charges from our bank and merchants alike—yikes! Don’t you hate double-dipping!  It didn’t take long for us to put a kibosh on the debit card thing.

Fast-forward a couple of decades and we both are back to having debit cards (and yes, I’m still writing my debits in the checking register) but internet banking has given us the ability to keep better tabs on money coming and going. But that’s not always the case for a lot of people.  I read an old New York Times article by Ron Lieber and Andrew Martin called “Overspending on Debit Cards Is a Boon for Banks” that talks about how lucrative debit cards are for banks.

You see banking institutions have their debit cards set up with a nifty feature they market as “overdraft protection”.  In an effort to save you, the consumer, from embarrassment by having a debit card rejected, let’s say, while you’re out on a dinner date, they will pay the debit (oftentimes ‘floating’ you money from your own savings account!) while charging you a fairly steep fee for the convenience.

The NYT article tells a story about a bank customer that was stunned when his bank charged him seven $34.00 fees to cover seven purchases he didn’t have cash in his account to cover. For example, they charged him $34.00 to cover his $4.11 Starbucks purchase, and didn’t notify him of the problem until after they covered these seven expenditures at $34.00 a pop.

The fees generated from the marketed overdraft protection have become an important source of income for the banking industry. In fact, according to that article, banks make more covering overdrafts than they do on penalty fees from credit cards.

“Banks will let you overspend on your debit card in a way that is much, much more expensive than almost any credit card,” said Eric Halperin, director of the Washington office of the Center for Responsible Lending.

There have even been claims of banking institutions manipulating the order in which they pay purchases, running larger purchases first so more fees are incurred.

Federal regulators have acknowledged problems since 2001, they have done little to curb the explosive growth of overdraft fees.

In 2017 alone, Americans paid $34 billion in overdraft fees.

The sad truth is that people need to qualify to get a credit card, but are handed a debit card when they open a checking account.  What we all need to understand is that the convenience of having a debit card comes with responsibility.

Please stay on top of your accounts. You’ve worked hard for your money, don’t let your bank ‘protect’ it with their overdraft fees.

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

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Go Ahead, Pile on the Debt! Have We Reached a “Tipping Point”?

Perhaps you have read the book by Malcolm Gladwell called The Tipping Point.  If you have not, it is worth a read.  There is a lot in it despite being a pretty short read.  In summary, Gladwell points out a number of phenomena that can be traced back to a single, often simple, cause which in turn caused a much larger, and often very drastic, change.  I am oversimplifying a bit, but watching world events, financial market behaviors, and ongoing trade wars and political conflicts, I wonder if we are about to reach a significant “Tipping Point” for the American economy and perhaps the world?

I know that is a broad suggestion, and one that is often associated with being a ‘Debbie Downer’ these days.  Yes, the economy continues to be robust.  Employment is at all-time highs.  New job creation continues apace with wages increasing.  Consumer sentiment is strong and the economy growing. 

Yet I can’t get the enormous amount of consumer debt off my mind.  It hangs like a storm cloud over an otherwise pretty rosy financial picture.  As we all know, though, roses have thorns and sometimes that light we see at the end of the tunnel turns out to be a freight train!

Once again, we find ourselves at record levels of consumer debt.  The New York Federal Reserve just published its report for the second quarter of 2019, and it continues to show that we still seem to have no end to our appetite for personal debt accumulation (read the press release here). 

No surprise, we set yet another record!

Some highlights of this quarter’s report are:

  • The headline from the Fed is “Total Household Debt Climbs for 20th Straight Quarter…”
  • Household debt now stands at a whopping $13.86 trillion.
  • This is a $192 billion increase from the first quarter.
  • The report points out that “Balances have been steadily rising for five years and in aggregate are now $1.2 trillion higher, in nominal terms, than the previous peak (2008Q3) of $12.68 trillion. Overall household debt is now 24.3% above the 2013Q2 trough.”
  • Mortgage related debt stood at $9.4 trillion, a $162 billion increase.
  • Non-housing debt increased by $37 billion in the second quarter
    • New auto loans totaled $155 billion, a $17 billion increase   
    • Credit card balances totaled $868 billion, a $20 billion increase
    • Some good news was that there was an offsetting $8 billion decline in student loan debt.
  • Credit card balances in the 90+ day delinquency range rose to 5.2% from 5.0%.

Unfortunately, an increasingly important part of this debt is from so called ‘shadow banking’ institutions and should cause concern as well.  Consumers that may otherwise not qualify for credit from traditional sources often turn to these institutions to finance their purchases.  That does not help stabilize the debt picture, however.   

Granted, as long as employment stays strong and wages continue to rise consumers can continue to finance their debts.  

Most recently, however, the bond market began to flash warning signals of a potential recession.  Of course, that can force companies to tighten their belts, cause static or negative job and wage growth, which in turn can cause significant financial turmoil.  With little savings, or other financial cushions, to protect consumers during hard times (which surely will come) the “Tipping Point” represented by personal debt will continue to shadow us for a long time.

What can you do now to protect your business?  First, as we have previously suggested, make sure to review your credit policies and stay on top of your receivables.  Make sure that your customer records are as complete and accurate as possible. Finally, make sure to turn your delinquents over as soon as possible for prompt and efficient collections action.  We are here to help.  Let the professionals at A. Alliance show you how. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 14 years.

Terrorism by Technology: “What Hath God Wrought?”

“What Hath God Wrought?”  That message was sent to Samuel F.B. Morse in 1844 by his assistant using his “Morse” code, and thus inaugurating the new, state of the art, Baltimore to Washington telegraph system. I wonder if he is spinning about in his grave realizing the understatement that message represents today?

What strikes me is how even then how quickly people began to find ways to ‘hack’ this new system.  That is what we would call it today I would think.

When taking a longer view, I can’t think of an example where a development in the storage or transmission of information has not been just as quickly followed by new methods to intercept it, steal it, profit from it, or acquire it for other uses which it was not intended. 

The advent of more sophisticated technology has simply accelerated not only the flow of data but the sophistication of those bent on intercepting it.

My friend and colleague Lisa Brammer wrote a blog for us a few weeks ago regarding her personal experience with the Equifax data hack.  To me it is staggering that more than half the population of the United States had their personal information stolen and it took weeks before the theft was reported.  Her experience underlines how ill prepared so many companies are to not only deal with a breach but then to take appropriate responsibility for the consequences.

Truly, though, it is not what God wrought but what we have indeed wrought upon ourselves.

A case in point in my own experience tells a similar tale.  Just last week I received an email from the manufacturer of our home router telling me that a critical security update for the router firmware was available.  The message conveyed a great sense of urgency to download the firmware update.

Now, I am fully aware that one of the oldest tricks hackers use is fake email disguised to look like it is from a trusted provider.  In my head I know better, but I reacted emotionally and blindly followed the instructions to log into my router to get the update.   Instead I got nothing.  The page said I was not even connected to the internet, but of course I was.

I set it aside for a bit, but then it hit me I may have been directed to a fake site which then captured the login information for my router.  I checked the e mail again, its links, and then the manufacturers website and ultimately found it was legit.

Even then, when I did get it to download, it did not install correctly.  It promptly locked up my router, disconnected the internet and caused general panic. 

What were they thinking in communicating such an important update in this way?  What to do now? 

I took a chance and rebooted the router and—voila!—it magically worked.  The firmware was installed and all was good, heart palpitations aside.  I suspect I will find another vendor when I need to replace this router.  Why they used this method to communicate such important information is beyond me. 

So, what is the point here?

First, the fact is that despite our best attempts to thwart this insidious menace, theft will be always be with us regardless of advances in security and new technologies.  New threats, new methods of attack, will come at us all every day. 

Second, to protect ourselves we need to be ever vigilant, both in our personal and professional dealings with internet and data security.

Finally, know that we are humans too. We have personally felt the pain of data breaches as much as the next person.  We know our valued clients have placed their trust in us.  We endeavor to stay one step ahead of the next threat and employ the latest, state of the art technology to keep our data safe. We are proud to say that we have yet to experience a successful breach, even though, like just about every company, we frequently come under attack.  Knowing how critical data security is to our own lives, we apply that tenacity to ensuring our clients are protected as well. 

A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners.  Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years.