How the Financial Crisis Continues to Hit the Poor the Hardest

Here’s one of the most disturbing points made in the Financial Times piece on banks being poised to earn $38.5 billion in overdraft fees this year: Poorest customers are getting hit the hardest by the charges.

The FT reported over the weekend that banks are using higher fees on overdrafts and credit cards to boost their profits in the midst of the financial crisis. The overdraft fees are nearly double the charges reported in 2000. And, not surprisingly, much of the new revenue is coming from customers already hit hard by the crisis, according to the FT.

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores.

And yes, those would be the same customers who bailed out the major banks now fingering them as the source of overdraft fee revenue.

The finding is likely to increase public hostility towards the financial sector, which has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after being bailed out by taxpayers.

The FT report comes on the heels of a New York Times piece we wrote about on Friday, which detailed how employers increasingly are using credit scores for background checks on potential hires. Workers behind on their bills or who have faced foreclosures are the most likely to fare poorly. The more dire their financial situations are, the harder it will be for them to get jobs, which traps them in a cycle of debt they can’t get out of.

Both pieces are a reminder of who really bears the burden in this crisis. It’s not cheap populism to point out the huge bonuses some of these banks are paying out, some $18.4 billion in all, even as they charge customers a fee of $35 for overdrawing their accounts by as little as $6.

These days, when your income is limited and you are struggling to pay a mortgage, you don’t get bailed out by the government like the big banks did when they got in trouble. You just pay more for things, and the bar gets set higher if you try to move up the job ladder.