Reuters' Felix Salmon wrote a harrowing story about a $200 debt he owes Citibank, and how the bank is forcing him into debt slavery for every nickel and dime of interest on that loan.
It isn't that Salmon one day really needed $200 from Citibank. What happened was that on March 11th, 2013, he made a flurry of transactions (paying off credit cards etc.), and briefly overdrew his account by $112.56.
Instead of taking that money from his savings account, Citi rounded up to the nearest hundred and force fed Salmon a loan.
The bank never told him about this loan, instead burying it in his statement. Then, when Salmon tried to pay off the loan in full, Citi insisted that he could only make minimum payments at an interest rate of 13.25%.
This is a yuppie overdraft: rather than charge me $35 a pop for overdrawing my account, Citibank just rounds any negative balance up to the nearest $100, and transfers that sum over from something wonderfully called a “Checking Plus” account. Which is what they call an overdraft line of credit. Naturally, when my paycheck arrived four days later, it went into my checking account, which is separate from my Checking Plus account . As a result, ever since then, I’ve had a steadily positive balance in my checking account which has been larger than the amount I owe on its overdraft facility. And ever since then, Citi has been quietly paying off the loan at a rate of $12 or so a month, in the hope that I would never notice it. After all, any sentient being, upon seeing this situation, would of course pay the entire loan off immediately.
This, Salmon points out, is how banks are able to offer us all "free checking." Nice right?
Business Insider reached out to Citigroup for comment, but have yet to hear anything. We'll keep you posted.