03 Sep A TACO TALE: “THE $36.99 TACO”

One of my pet peeves is paying fees or charges to banks or credit card companies. It’s a pet peeve because in my opinion they really aren’t fees or charges they are loans. Banks and credit card companies have a very powerful lobby in Washington that permits them to charge loan rates that the local loan shark would consider criminal. Nevertheless we’re not going to change the way that these companies take from the poor so we must make sure that we are aware of their practices and make sure we don’t fall victim. I consider it a badge of honor to avoid these unnecessary loans disguised as fees and charges. You should too.

I review my bank and credit card statement every month and when they try to sneak something by me like the annual fee that credit card companies charge, I call to get it waived and if they won’t waive it I stop using the credit card. This tale was inspired by a recent event. It seems my son incurred a fee from Bank of America because he didn’t manage his debit card correctly. They of course call it a fee but it’s really a loan and you should think of it as such. Don’t get swayed by the lexicon that the banker or credit card company uses. It’s a loan. The highest interest loan you will ever pay so avoid them.

My son attended college in Arizona. My daughter  currently attends college in Arizona. We’ve been visiting the area for 20 years, we love it and my brother has lived out there for more than 10 years. It seems that on one of my son’s cross-country trips he committed a serious no-no in the world of Sera finance; he lost track of his checking account balance and his debit card was tied to his checking account. He was traveling with cash, a credit card as well as a debit card. The credit card was only for emergencies, the debit was the primary source for spending and the cash was secondary and for incidentals. What happened? He exceeded his balance by $97 dollars and was charged $210 in bank fees. The bank, Bank of America, had charged him $35 per overdraft on the 6 overdrafts that had transpired. One of the $35 charges was for a $1.99 that he spent on a taco, thus the $36.99 taco subtitle. When he arrived in Arizona he had a negative balance of $307. This is a significant amount of money for most people. I especially find this bank practice despicable because it affects those that can least afford it or are the most inexperienced.

Because my son is trained to count his pennies and reads his mail and his statements he was able to quickly recognize the problem and was able to negotiate the bank fees down to a very reasonable level. They weren’t completely waived but the branch manager was a reasonable person. It helped that my son said he would pay the $97 and take his business elsewhere if he didn’t receive some accommodation.

Let’s look at why this is a loan and not a fee. The bank lent my son $97 for approximately one week. In return they were going to get their $97 dollars back and receive fees of $210. If we call these fees what they; a short-term loan he was paying interest at rates that exceed 10,000% per year. Let me say with certainty. If you consistently let these types of fees infiltrate your life, you don’t fit the profile of someone that is going to be wealthy.

What should you do? Accept that large financial institutions are in the business of feeing people especially those that can least afford it. You need to take steps. Here is what I recommend. For active and often used credit cards, have your bank automatically send the minimum payment to your credit card company so that you never incur a late fee. Every month when you get your balance, pay it in full, and as always use cash as often as possible. For debit cards, set yourself up to receive text messages or e-mails that informs you when your balance dips below a certain level. In addition set up an overdraft protection to avoid periods where even if you know your balance is getting low you won’t have to pay in excess of 10,000% interest. Lastly, keep a minimum amount of money in your savings account for emergency cash transfers.

Let me close by saying that I am not picking on Bank of America. In my dealings with people and clients I have painfully learned that they are not alone. It is up to you to keep your life in order. Don’t be a victim. If you consistently pay $36.99 for a taco you will never be wealthy.

Carlos Sera

Carlos Sera Founder of Sera Capital Management, LLC Co-Founder of Chicago Wealth Management, Inc. Registered Investment Advisor Speaker on Financial/Investment Planning Fluent in Spanish – First Generation Cuban/American Author of Financial Tales Blog Education Johns Hopkins University – BA – Natural Science – 1980 University of Rochester – MBA – Finance and Applied Economics – Honors – 1982 Find me on:  LinkedIn | Twitter

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