It’s no secret that I am carrying a fair amount of debt, between the student loans, the part of my medical bills that my insurance didn’t pay, and leftover credit card debt from college. I used to pay these bills directly from my checking account. In fact, I used to have automatic payments set up. But then I ran afoul of the Byzantine bureaucracy that is Bank of America and it wound up costing me hundreds of dollars in overdraft fees. So now, I don’t automate any payments and I use a sandbox checking account specifically for paying my debts.
Once upon a time, there was a young man who was irresponsible with credit. He quickly ran up the limit on his MBNA Who’s Who Among American High School Students MasterCard. Eventually, he canceled the card and made arrangements to pay off the balance based on his limited income. This story may have had a happily ever after, but then Bank of America came in and bought MBNA. Two things happened quickly after that. BoA decided not to honor the payment plan. Bad enough, but then came the biggie: because the account was canceled, there was no way to change the automatic payments being debited from our young hero’s bank account! Even as they sent the account to collections, as the continued to take $50 each month from the account.
As I’m sure you realize, this account was of me. When I was out of work, I managed to get forbearances and deferments on most of my bills, but sometime between the 11th and 13th of each month, Bank of America would take their pound of flesh and my bank account would dip ever further south, until it reached zero and beyond. There was never that much in my account back then, so this happened in would have to do three stop payments, which would cost $90. And of course, I didn’t have that, because I was negative and the bank was already taking $34 per day in overdraft fees. When I went to close the account, I was warned that if I did so without bringing the account back to zero, it could affect my ability to open another checking account anywhere ever again.
Even worse, I was told that if a transaction was charged to the account after it closed, it could reopen the account!
Finally, I borrowed $800 from a friend to bring the account to zero. I also sent a certified letter to the bank and Bank of America stating that these charges were no longer authorized and the checking account was being closed so no funds would be available any longer. I explicitly stated that any further charges would be considered fraudulent and legal action would be taken against them. I don’t know if I had any actual ground if it came from that, but apparently it did the trick.
After that experience, I decided two things. I would never again automate a payment. And I would pay my debts from a separate account at a separate bank from the rest of my money.
After I got a job again and could start making payments, I opened a new checking account at a different bank from the joint account I now had from my wife. Each month, only as much money as is needed to pay my debt payments is deposited into the account.
This way, if a problem develops, I can cut and run without it affecting the rest of my life.
What do you do to protect yourself from shady banking practices?
- Guidelines for When to Put Your Money in Checking vs. Savings (ally.com)
- Hate Your Bank? It Could Be Your Fault (sooverdebt.com)
- The Real Deal of Overdraft Debt (hsfanga.wordpress.com)