Wells Fargo and Their Anti-Consumer Overdraft Protection
I was reading the details of the new Wells Fargo Propel card. Nothing shocks me anymore as the card members agreements get more and more anti-consumer. Remember, when you make mistakes the banks and credit card companies make money. Thus, applying for a credit card is like walking in a field with land minds.
I came across an overdraft protection feature. This is where banks make all types of money. This feature by Wells Fargo is simply outrageous. You can link your credit card to your bank account. If you overdraft, the amount goes on your credit card. The interest rate for that overdraft debt is 26 to 28% - depending on credit worthiness. What a joke! If you are a good credit risk, you get charged only 26%.
It gets better. Let's say you overdraft $300.00. and it goes to your credit card. Now you have a credit balance of $300 plus lets say 28% interest. Well, you just pay it off the minute you find out....right? Probably not the way the rules are set up. You see, every minimum payment that you make gets applied to lower interest rate balances first. For example, lets say you have $10,000 on your card at 16% and the $300 at 28% due to the overdraft. You are making minimum payments of $250. That $250 goes to pay the $10,000 first. Meanwhile, the $300 is growing at 28% interest. Lets say you finally pay off the $10,000 in 5 years. Now, you are going tackle the $300....that is now $1,030!
Where is this damaging to the consumer? First, there is the consumer who can't make the minimum payment plus an extra payment. They will be stuck int his loan shark arrangement. Second, there is the consumer who doesn't understand how credit cards work... which I would suggest is the majority of consumers. Why in the world would a bank give a consumer a "convenience" as potentially damaging as this one?
The big banks persuade you to get overdraft protection. DON'T DO IT! The banks only win. Do it the old fashion way. Deal with a little humiliation at the counter when the card rejects your payment versus letting the banks win. Welcome to the loan shark business