Credit, Personal Finance 

Shady Practices of Financial Institutions

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One of the beauties of writing a personal finance blog is that you get exposed to a whole lot of other personal finance blogs – you want to keep abreast of what your ‘colleagues’ are talking about. The wealth of information out there is staggering because you get essentially full reports of what other people are doing and seeing. Lately I’ve read a bunch of individual accounts of ridiculously counter-intuitive and downright devious tactics used by various financial entities (banks, credit cards, etc) that I think should be thrown out into the open and exposed for what they are: legalized fraud.

When you login to your banking account and see the following:
Available Balance: $2840.45

What do you think? I think: “I have two thousand, eight hundred and forty bucks and forty-five cents.” Well, Michael at Its Your Money wrote about how his friend’s bank showed his account balance plus his overdraft protection as his “available balance.” Michael titled his article perfectly – Trapped Into Overdraft – because that’s exactly what happens. Even if it happens to only 5% of customers, that’s still a lot of overdraft protection fees they’re collecting and I think that’s utter bullshit. Granted, you should know your balance, but, if you’re like one of Mike’s commenters and are expecting a deposit to clear… it’s hard to know what’s overdraft and what’s really yours.

Well how about this shadiness:

So, say you had a $1,000 bill in Month 1 and you pay off $800 if it, leaving $200. In Month 2, you don’t buy anything. Month 3 rolls around, and you expect to pay interest on… $200, right? Wrong. Due to the beauty of two-cycle billing, you are charged interest on the average, which would be $600. In essence, your grace period for everything went poof! Very sneaky.

That’s two-cycle billing, something JP at MyMoneyBlog learned about Discover when he looked into the downsides of the Discover Card 0% Balance Transfer offer. Two-cycle billing never works in your favor. Not only that but since two-cycle billing is both non-intuitive and not considered standard practice… it requires you to read all the fine print no one ever reads. It’s like if someone snuck in “You will send Microsoft your first born child” into the Terms & Conditions of installing Windows, no one ever reads that crap.

Then there’s always the ever popular “cash this check and automatically enroll into credit protection program XYZ.” You can read about one of those here, but you can also learn how people get stuff out of it like here and here. Personally, I’ve cashed the check, cancelled the program two weeks later, and was $15 richer. But for every one person who does that, there are those who don’t know any better and find themselves paying the fees every month and not even noticing.

Does your financial institution do something that borderline or straight-up shady that obviously works in their favor? Let us all know so none of us get suckered in.

Update: Courtesy of Karen, her experience with Capital One’s less than honest practices… (the same thing happened to Wenchypoo)

{ 4 comments, please add your thoughts now! }

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4 Responses to “Shady Practices of Financial Institutions”

  1. Monty Loree says:

    I find that the banks in Canada are pretty straight forward. There are only 6 major banks here so they are pretty highly regulated. The problem with only having 6 banks is that they are extremely powerful and leave little control or negotiating room for the consumer.

    Financial Maturity Blog

  2. Karen says:

    Check out my blog (or Wenchypoo’s) for the scam Capital One pulled earlier this year…

  3. Joshua K says:

    Ok, I’ve got some shady practices to report too.

    LVNV Funding/Sherman Acquisition keeps swapping names on my credit report. I write them and ask for debt validation, and then it comes off my credit report for a bit, then goes back on with a different name.

    CapitalOne who I have 3 credit cards through worked with another creditor, offering me a credit card for the debt that I owe.

  4. KELLY S. says:

    sherman acquisition is involved in class action lawsuit originating in Pittsburgh PA. They are very shady. They go by LVNV funding also and they are “re-aging” debts. They rarely respond to request for validation.

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