This Is the Monster Who Invented Overdraft Fees

The overdraft fee. A trap disguised as convenience, so nefarious that it feels like it was invented by Mephistopheles himself. “If only we could charge people with no money more money” feels like a joke told to uproarious, bloody-mouthed applause at a banker’s luncheon, not a genuine policy, but here we are. Not especially surprising, given that currency, something originally invented to make commerce easier, is now basically a way to use math to break a human’s spirit over the course of their lifetime. 

Am I saying we should return to the barter system, and swap cows for cars? Yes. But that’s beside the point.

Any discussion or criticism of overdraft fees always results in the same defenders bubbling up from the cracks like ichor: People who are frustrated that bank accounts are private information, because they want everyone to know how financially responsible and smart they are. “Maybe you should keep track of how much money is in your bank account, and you wouldn’t overdraft,” they offer smugly, like a straight-A student tsk-tsking at the kid who forgot his homework. 

Just because the banks give you a big shiny apple every year for being a good little money faucet doesn’t mean you have to slobber all over their ring, you traitors!

So, who, exactly, is this evil mastermind that invented the idea of offering cash-strapped folk the ability to go two to five dollars over their available balance for the low, low price of $35? Let’s also make it clear here, in case you were kicked by a horse and are still defending them as a valuable convenience: Banks offer overdraft fees because they make a shit ton of money off of them. In 2019, for instance, they made $11.68 billion from overdraft fees alone. Which is the kind of cash that inspired some banks to reorder transactions, deducting big purchases first, so that they might have a chance to hit multiple overdraft fees from some sap by rattling off five unaffordable coffees once they were at zero.

Their origin goes all the way back to 1728, and a Scottish merchant named William Hogg. He, together with the Royal Bank of Scotland, worked out the first ever overdraft fee, so that he could conduct business more effectively if he was waiting on a tardy payment. Hogg, though, is not our primary enemy, because he had no idea the hell he had wrought. Back then — and really until only recently in human history — overdraft fees weren’t as much of a problem. To become the money-gobbling hydra of modern times, there were more heads that needed to be added to this monster.

First was universal approval of overdraft fees for every customer. This is grade-A horse dookie, because the “universal approval” is an oxymoron. Banks, since Hogg, had offered this sort of coverage for reliable customers to save them the embarrassment of an occasional bounced check. The problem being, of course, that reliable customers don’t bounce enough checks to make it a revenue stream. Here is when the crown of hell is lowered onto a man’s head: William H. Strunk, who in 1994 came up with the modern overdraft system, “available” to every customer, and consisting of a per-transaction charge.

The final piece of this devil’s triad was the widespread use of debit cards. With people using debit cards for every manner of purchase, instead of larger bank debits and ATM withdrawals, suddenly banks were presented with a smorgasbord of tiny purchases to swat back with a new, double-digit fee attached. Luckily for us, their day in the sun seems to be ending, as the government is taking on overdraft fees directly. 

In the meantime, if you don’t want to have a surprise $37 coffee because a bill hit a couple days early, track down a bank that doesn’t offer you this wonderful “service.”