The search for new ways to take our money

Banks used to take more than $36 billion a year from their customers. They just took it. They did this by reaching into those customers’ accounts and removing the money $30 at a time. This was called “overdraft protection,” and the banks pretended it was a service for those customers.

That practice has been reined in somewhat with new rules requiring banks to describe these “overdraft protection” charges more accurately and to convince their customers to allow them to take this money from them. As Eric Dash reports in The New York Times, that’s meant a loss of about $12 billion a year for the banks.

The flipside of that “loss” or “cost” for the banks, of course, has been a gain of about $12 billion a year for those banks’ customers. Well, not a gain, exactly, but the chance to keep a bit more of their own money in the bank accounts they set up for the purpose of keeping that money instead of watching those balances reduced $30 at a time by the banks reaching into them and taking out billions of dollars of money. When the balance in some customers’ bank account gets down to the last $15, at least now it doesn’t suddenly become -$15. Having only $15 in one’s bank account isn’t great, but it’s better than having -$15 — particularly when that -$15 will turn into -$45 tomorrow and -$75 the next day. (To the cumulative tune, again, of more than $36 billion a year.)

But as Dash reports, the banks are looking to recoup their “losses” by creating new excuses to reach into their customers’ accounts and take those customers’ money:

Banks can still earn a profit on most checking accounts. But they are under intense pressure to make up an estimated $12 billion a year of income that vanished with the passage of rules curbing lucrative overdraft charges and lowering debit card swipe fees. In addition, with lending at anemic levels and interest rates close to zero, banks are struggling to find attractive places to lend or invest all the deposits they hold. That poses another $8 billion drag.

Put another way, banks would need to recoup, on average, between $15 and $20 a month from each depositor just to earn what they did in the past, according to an analysis of the interest rate and regulatory changes on checking accounts by Oliver Wyman, a financial consulting firm.

For consumers, the result is a quiet creep of new charges and higher fees for everything from cash withdrawals at ATMs to wire payments, paper statements and in some cases, even the overdraft charges that lawmakers hoped to ratchet down. What is more, banks are raising minimum account balances and adding other new requirements so that it is harder for customers to qualify for fee waivers.

Even the much-maligned debit usage charges have effectively been bundled into higher monthly fees on checking accounts. Bank of America abandoned its $5 a month debit card usage fee in late October amid a firestorm of criticism. Yet, it more quietly raised the cost of its basic MyAccess checking account by more than $3 a month earlier this year. Monthly maintenance fees now run $12 a month, up from $8.95.

Open a basic checking account in Bank of America with $100 in January and without spending a dime you’ll have a negative balance before Thanksgiving — assuming that BofA doesn’t create other new fees in the intervening months to remove those funds from the account even faster.

Banks were able to transfer more than $36 billion a year from us to them through the larcenous “overdraft protection” racket in part by stroking our egos. We Americans love nothing more than being told we’re above average — that we’re exceptionally virtuous and responsible people who are better than our neighbors. By indulging that vanity, banks were able to suppress much of the outrage that might otherwise have accompanied the annual theft of $36 billion. They got us to pretend that this was just something that happened to irresponsible people who irresponsibly failed to maintain large balances in their checking accounts.

But this new generation of myriad fees and fee-hikes designed to recoup that same $36 billion a year can’t be as easily dismissed as being a useful expression of disapproval of the irresponsible, immoral, undeserving poor. These hit everyone indiscriminately, and even the most financially responsible and insufferably self-righteous won’t be able to pretend that these are excusable or justifiable or anything other than flimsy pretexts for the banks reaching into private accounts and withdrawing money simply because that money is there and they want it.

These new fees, then, may be the last straw for many previously complacent and compliant bank customers. The big banks’ new brazenness has finally pushed many of those customers too far, and the new conversation arising thanks to the “barbaric yawp” of Occupy Wall Street is making more and more of those customers aware that there are options.

Those options aren’t new. It’s the age-old American story: George Bailey vs. Old Man Potter. And it pleases me to see that struggle being framed in exactly those Capraesque terms:

YouTube Preview Image

That’s a video for the Move Your Money Project, which urges Americans to “Invest in Main Street, Not Wall Street” — to put their money to work for the good of Bedford Falls instead of Potterville.

That effort — spurred by the social-media driven promotion of Nov. 5 as “Bank Transfer Day” — has so far led more than 650,000 Americans to move their money into credit unions. More Americans opened credit union accounts last month than did so in all of 2010. That amounted to some $4.5 billion now available for housing and auto loans and investment in small businesses instead of being gambled on the securitized futures of securitized futures of securitized futures. That’s $4.5 billion of our money that won’t be siphoned away $30 or $12 or $8.95 at a time, but will instead be put to work creating real wealth in real communities.

That’s a good start.

 

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  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Word :)

    For Canadians, the same situation applies. The “Big Four” banks (CIBC, TD, ScotiaBank and Bank of Montreal) love clipping you for various fees of various kinds which qualify for a pretty hefty minimum account balance threshold ($1000 or so). We have numerous credit unions across the nation, such as VanCity in the GVRD* area; if someone still wants the “bank” part of banking, they can go with President’s Choice Financial.

    Definitely, more Canadians need to think about maybe moving their cash away from the banks that have dominated our national landscape for a very long time. As noted in a report by the Parliament of Canada,

    Historically, the Canadian financial services sector has been viewed and
    regulated in terms of four distinct “pillars” – banks,
    trust companies, insurance companies and securities dealers.  Temporary
    industry-specific legislation for banking was first passed by Parliament
    in 1867, and was later replaced by the Bank Act in 1871.  Since
    then, the Bank Act has been regularly reviewed and revised.  The
    following selected chronology of federal legislative reforms in the financial
    services sector is limited to those that have affected the development of
    bancassurance in Canada.

    http://www.parl.gc.ca/Content/LOP/researchpublications/prb05105-e.htm

    Just as Glass-Steagall was slowly worn away and then finally completely replaced, the “Four Pillars” have basically become one or two pillars. Banks now sell not just basic banking packages, but car and house insurance. They’ve also become quasi securities dealers through their ability to market RRSP** and TFSA*** accounts to people.

    This lack of separation among the basic functions needed to ensure the financial health of Canadians can pose a problem. The “Big Four” now have become so big the government can’t let them fail. We, the Canadian taxpayers, without quite realizing it, have been put in a position where we may have to underwrite a losing bank for essentially unlimited amounts or risk financial catastrophe.

    Stephen Harper loves to crow about how our banking sector didn’t suffer the kind of damage the US or European banks did. That’s basically because our banks are big fishes in a little pond and they like it that way. They’re not going to be stupid enough to do anything to jeopardize that. The flip side, however, is that they hold a great deal of economic power and as far back as the 1990s, people have documented the problems small businesses have had getting credit (loans, lines of credit, that kind of thing) from banks, which, if writ large enough, points to the banks in Canada helping to slow economic growth for the protection of their own bottom lines.

    * Greater Vancouver Regional District – basically the most populous region of BC

    ** Registered Retirement Savings Plan. Essentially analogous to a 401(k).

    *** Tax-Free Savings Account. Not sure of the precise US analog.

  • truth is life

    The analogy to a TFSA in the US would probably be an IRA–an Individual Retirement Account. There are several types with tax advantages, like the Roth IRA (you pay taxes upfront, but not on withdrawal) and the more common tax-deferred IRA (you don’t pay taxes until withdrawal).

  • Anonymous

    I am in complete agreement with this post.

  • http://profiles.google.com/gottlieb.paul Paul Gottlieb

    Several years ago, Walmart attempted to get into the retail banking business, but they ran into a lot of resistance–mostly financed by the banking industry–and they eventually gave up. I say it’s time to try again! While Walmart is a bete noire to many liberals, there’s no doubt that they have shown an unmatched ability to deliver adequate products to consumers at a the lowest price. And I have no doubt that Walmart could come up with a low-fee, bare-bones checking account that would meet the needs of millions of working households, without the fee-gouging and cheating that the major banks rely on for their profits. Walmart already provides check cashing services at a fraction of what the established check cashing services charge, and I’m sure they could do the same for ordinary consumer banking. Let’s expose the big banks to genuine competition.

  • Lori

     Several years ago, Walmart attempted to get into the retail banking business, but they ran into a lot of resistance–mostly financed by the banking industry–and they eventually gave up.  

    I wish mainstream news outlets remembered this. The line coming from the big banks about the Move Your Money movement is that the DFHs are doing them a favor by getting unprofitable, small balance customers off the banks’ hands. That’s total BS. Low balance customers are a gold mine of fees for the banks and the banks want nothing more than to keep right on taking from them. 

    If big banks actually wanted rid of the dirty poor people and their tiny balances they wouldn’t have fought to keep Wal-Mart out of the banking business. It’s not like there was any danger of the 1% deciding to save money & live better with First Bank of Wal-Mart. When PR flacks for the big banks trot out these lies about how happy they are that customers are leaving them someone from a mainstream news outlet should ask about that. Daily Kos as been bringing it up, but everyone knows they’re just DFHs with computers and therefore don’t count. 

    (None of this should be read as me endorsing the idea of Wal-Mart getting into banking. I have serious doubts that would be a good thing overall.)

  • http://thatbeerguy.blogspot.com Chris Doggett

    I don’t share your optimism re:WalMart. Yes, they do check-cashing well, mostly because it largely overlaps with their existing cash-handling operations as a retail outlet. There’s some small increased cost in having more folks at Customer Service, some additional training, and some back-end costs, but WalMart already processes a huge volume of checks as a retailer, so setting up check cashing isn’t that much work.

    Actual banking services, something that resembled a checking account… that’s a very different animal from what they do now. It would have sizable front-end and back-end costs to set up, require it’s own floorspace and labor pool… I’m not saying they can’t do it, but it’s a very different business model and I don’t see WalMart being able to leverage any of their traditional advantages in that arena. CostCo sells tires, but I think they’d have trouble setting up an oil-change shop in the same space.

  • Apocalypse Review

    Irony of ironies:

    President’s Choice Financial is technically a division of CIBC. :P

  • http://mordicai.livejournal.com Mordicai

    I just faxed the paperwork completing my move to a credit union.  Seriously– these unbelievable crooks.  Crazy.

  • Anonymous

    My credit union does have some fees, but they are generally much better than Bank of America. I feel like a lot of the finance industry has become dependent on rent-seeking for their business model and is now going to panic a little.

  • Anonymous

    I like to shop at local stores and pay by cash or check.  I like to mail checks to pay bills.  My credit union seems to like it when I do that. (So does the postal service.) My credit union doesn’t charge me to get cash from its ATM.   When I travel, I use the credit card (from the credit union) and pay it off when I get home (mostly but since the rate credit unions can charge is capped at about half of what commercial banks charge it’s not too painful).  Credit union lends me money for cars at about 3%.  Why would any consumer want to use a commercial bank anyway?

  • Anonymous

    I’m going to have to defend “overdraft protection” here.

    Currently, a major corporation is 120 days past due in paying me around 3K.  It’s not like I can really shake them down for that – because they have lawyers and accountants and money and I have well … me.  It also isn’t like I have 3K just laying around – so I’ve been doing the bill juggle, and then when I get the call from the electric company (or whoever) telling me I have to pay them RIGHT NOW, I pay them out of overdraft protection.  Yes it’s expensive, yes it’s usurious – but as it turns out it’s exactly the same price has having your electricity turned back on, and you don’t get cold at night.  (It’s also quite a bit cheaper than a hot check charge.)

    Having done this dance with increasing frequency since 2008, I’ve got it figured out.  (It helps that I have a community bank, not some gigantic multinational bankmonster, and they told me how to do this.)  There is an order in which transactions come out, and if you’re careful you can game this order to minimize fees.  The guiding principle is that it doesn’t matter whether you’re $500 overdrawn or $5 overdrawn, it’s still the same fee.

    Now of course, “the try three times with three different NSF charges” routine that BofA does is a whole different monster – and tougher to defend – but not all overdraft protection plans are created equal – some of them are usable as emergency credit lines, and are not just rent-collecting scams.

    (Of course, the better solution would be for me to have as much leverage when someone is four fucking months past due to me as they would if I were that late to them.)

  • Lori

     We Americans love nothing more than being told we’re above average — that we’re exceptionally virtuous and responsible people who are better than our neighbors. By indulging that vanity, banks were able to suppress much of the outrage that might otherwise have accompanied the annual theft of $36 billion. They got us to pretend that this was just something that happened to irresponsible people who irresponsibly failed to maintain large balances in their checking accounts.  

    I’ve found that this vanity tends to last until the first time someone “bounces” a check or overdraws their account at an ATM because the bank cleared all outgoing transactions before clearing any incoming transactions. If that doesn’t do it, the vanity tends to die when the bank simply screws up and then when the customer complains, freezes the account for weeks while they sort things out. 

  • Anonymous

    We’ve reached the point where there’s just no way around it, the banks need to be put down. There’s too much corruption, too much systemic fraud, too much concentrated economic power, reform is just not an option any more, the entire financial system needs to be scrapped and replaced.

    To quote Joseph Stiglitz in one of the brilliant articles Fred posted earlier, “the bottom 80% of Americans were spending, every year, roughly 110% of their income. Even if the financial sector were fully repaired, and even if these profligate Americans hadn’t learned a lesson about the importance of saving, their consumption would be limited to 100% of their income. So anyone who talks about the consumer “coming back” – even after deleveraging – is living in a fantasy world.”

    As wealth got concentrated in the financial industry rather than actual wages, our entire economy became unsustainable. The only way to fix our economy is to dismantle the financialization of America and engage in massive wealth redistribution in order to raise wages in terms of real wealth while drastically lowering and eliminating consumer debt.

    Which, of course, in our bought political system will never, ever happen.

  • MaryKaye

    I don’t think we want Wal-Mart in this business.  Their modus operandi is to cut prices to the bone until they are the only game in town, then raise them.  That’s pretty much what BoA and its allies are already doing, and adding another shark to the pool doesn’t seem likely to help.

    I am in the process of switching to a credit union–it’s not possible for me to do it suddenly.  One of the  things about BoA is that they are very bad at closing accounts.  Be warned, if you are attempting this feat:  they may “close” the account and then continue to debit or credit things to it.  For example, they might credit $0.10 of interest to your “closed” account–and then hit you with fees for being under minimum balance.  You need to check in with them on a *very regular basis* to make sure that the account is gone.  I know this from repeated bitter experience–not from leaving them, but just from closing two accounts due to check theft.  They got it wrong both times, even though I was a continuing customer (i.e. they weren’t punishing me for leaving or anything).

  • Apocalypse Review

    There was a guy here (Hawker?) who had a BofA account and closed it out, kept all the paperwork. Then BofA sent a collection agency after him and he ran ’em off by threatening to sue and stating that he had all the documentation to prove they were going after him for a nonfunctional bank account that had been properly closed out.

  • Anonymous

    Similarly, I had a co-worker who, a year and a half after closing out her BofA account after she discovered that the debit/credit card number had been stolen and she/BofA had been defrauded of many thousands of dollars, opened her door one day to find three police officers on her front step with a warrant for her arrest, at the request of BofA. It turned out that despite her having closed the account, canceled the card, and reiterated said closure and cancellation both verbally and in writing multiple times, BofA had gone on to approve another $20,000 in charges by the number thief using the worthless card # for the now nonexistent account, and when the local merchants who’d been fleeced with BofA’s assistance got together and started making pissy noises at BofA, BofA turned around and swore out a warrant against my co-worker.

    Who fortunately had saved, in triplicate, records of all the phone calls, emails and letters between her, BofA, and the police dept. in the city she’d been living in at the time, and was able to hand the nice officers a lovely 3-ring binder full of the entire idiotic history of it all (her dad has 30 years’ experience as a bank and credit union COO/CFO and she got plenty of very specific advice in the matter). They glanced through it, mumbled, “Well, shit, sorry ma’am,” and trundled off with the binder, and she hasn’t heard boo about it since.

    But, still. Closed account, fraud report with the police, and BofA (1) kept approving the charges for another 18 months, and (2) sicced the cops on her to cover their own asses. Vile pack of weaselfuckers.

  • Hawker40

    Recommendation to self: keep three copies of such things in binders: originals to keep if I need more copies, one to give to thieving bankers/mortgage holders, one to give to police officers.
    Oh, and make new copies as needed so as to always have three on hand, just in case the copy handed to the nice police man/not so nice loan officer should… disappear… under questionable circumstances.

  • Anonymous

    Heh. Though, honestly, I’ve been listening to these stories for a while (an acquaintance of mine actually drafted the original language in all those dreary consumer-protection pamphlets of tiny print info the credit card companies are required by law to put in your statements), and, my hand to God, most of the worst stories–and damn near all the stories about a bank siccing law enforcement on someone for no reason (there was that guy in Portland a while back who got arrested for Depositing A Check While Black, maybe at Chase? but he’s the only one I can think of)–are about BofA. The others are your usual run-of-the-mill Masters and Anointed/Annoying Ones and Monsters of the Week, but BofA is apparently The First.

  • http://blog.trenchcoatsoft.com Ross

    Keep in mind though that due to their size, any story about banking is statistically more likely than not to involve them. BofA is probably only a bit more evil-per-capita than any of the other banks, but their size magnifies the scope of their evil.

  • http://twitter.com/FearlessSon FearlessSon

    The others are your usual run-of-the-mill Masters and Anointed/Annoying Ones and Monsters of the Week, but BofA is apparently The First.

    I love the way you integrate Buffy references into your comment.  Have an extra internet.  

  • Anonymous

    Vile pack of weaselfuckers.

    I award you three internets.

  • Anonymous

    Thank you so much, FS, but in scrupulous honesty I’ll have to pass the internets on to my husband–he coined it a few years ago. I think in response to the Swift Boaters, or maybe the decision to name a DC airport after Ronald Reagan, though it could also possibly have been someone knocking over his last cup of coffee or dissing the Brill Building bubblegum pop music machine. He’s very excitable.

  • Lori

      I think in response to the Swift Boaters, or maybe the decision to name a DC airport after Ronald Reagan, though it could also possibly have been someone knocking over his last cup of coffee or dissing the Brill Building bubblegum pop music machine. He’s very excitable. 

     

    All very worthy inspirations. 

    (Many moons ago I was one of the lurkers on Buffistas and the zmayhems are high on the list of folks I’ve missed since I stopped hanging out there.)

  • Anonymous

    Awww, I feel so loved!

    Also, we’ve now instituted a yearly Delurking Safe Space – unfortunately it just closed, but we have a special October-only open thread just for lurkers to pop in and say hi, with no further obligation to engage or enmesh. But it’s lovely to meet them, even briefly.

    The other zmayhem says he always thinks of every community’s lurkers as the angels in Wings of Desire, standing in the shadows watching the posters bumble around in their daily lives and interactions, every now and then sending quiet good thoughts or prayers or anonymous donations or comforting backchannel emails–unseen benevolences, no less real and no less important for being invisible.

  • Lori

    And that’s why I’ve missed the zmayhems. 

    I may have to renew my lurker card over there. 

  • Anonymous

    or maybe the decision to name a DC airport after Ronald Reagan

    Beyond the fact that I oppose the practice of naming airports after poeple (especially cities with just one major airport),* I opposed the naming of DCA after Reagan. Washingon National already bore the name of a United States president — the founder of our nation who is revered by pretty much all Americans regardless of political affiliation. 

    If it were necessary to name an airport after our 40th president, Burbank — situated between Hollywood and Santa Barbara, near the Ronald Reagan Freeway, and proximate to the Reagan Library — would have been a much more appropriate choice. 

    * I abhor the names of Atlanta Hartsfield International Airport, Lambert St. Louis International Airport, and Norman Y. Mineta San Jose International Airport.  I can understand cities with two airports (New York, Chicago, Washington, Houston) having distinguishing airport names.  But why not make it the location of the airport (e.g. Chicago-Des Plaines and Chicago-Cicero)?

  • http://redwoodr.tumblr.com Redwood Rhiadra

    Grover Norquist is the guy behind the “naming shit after Reagan” movement (the “Reagan Legacy Project”), and he doesn’t care how appropriate the location is – his goal is having a park/freeway/airport named after Reagan in *every county in the entire nation*. Along with Reagan on the ten dollar bill and Reagan on Mt. Rushmore.

  • http://twitter.com/FearlessSon FearlessSon

    Grover Norquist is the guy behind the “naming shit after Reagan” movement (the “Reagan Legacy Project”), and he doesn’t care how appropriate the location is – his goal is having a park/freeway/airport named after Reagan in *every county in the entire nation*. Along with Reagan on the ten dollar bill and Reagan on Mt. Rushmore.

    My only question is… why?  I mean, I get the he respects the guy, a lot of people do, and I would not deny him some memorials.  Like him or not, he did have a significant effect on how we run the country.  But this scale of enshrining seems like cult-of-personality style overkill.  

    Waitaminute, was Norquist the guy who was also behind those no-tax pledges politicians are signing?  Because if so, does he not remember that Reagan actually raised taxes out of necessity even if he was not fond of them?  And that making politicians pledge to never raise taxes strips them of the flexibility sometimes needed to do their jobs?  

  • http://redwoodr.tumblr.com Redwood Rhiadra

    But this scale of enshrining seems like cult-of-personality style overkill.

    Cult-of-personality is *exactly* the point. They’ve been deifying Reagan since 1988. And like any good cult, they ignore the parts of their deity they’d rather not exist, like raising taxes.

    And that making politicians pledge to never raise taxes strips them of the flexibility sometimes needed to do their jobs?

    Yes, it’s the same Grover Norquist behind the no-tax pledges. What makes you think he wants politicians to do their jobs? One of Norquist’s most famous quotes is “I simply want to reduce [government] to the size where I can drag it into the bathroom and drown it in the bathtub.” The no-tax pledges are one part of that strategy.

  • http://twitter.com/FearlessSon FearlessSon

    Yes, it’s the same Grover Norquist behind the no-tax pledges. What makes you think he wants politicians to do their jobs? One of Norquist’s most famous quotes is “I simply want to reduce [government] to the size where I can drag it into the bathroom and drown it in the bathtub.” The no-tax pledges are one part of that strategy.

    The issue I have with Norquist’s no-new-taxes pledge is not that he is for low taxes (after all no one wants to consistently pay high taxes) but that it is inflexible about allowing taxation to be adjusted.  There are times when a government should lower taxes to help spur private sector growth, and there are other times when a government should raise taxes to meet certain pressing needs.  If a politician pledges never to raise taxes, then they would be too afraid to lower taxes during a good period to do so since they would be unable to raise them again during a period where the budget needs to be met.  

    Addressing his quote more directly, I would rather have a government that can function reasonably if imperfectly than no government at all, run by politicians who can be held responsible for the actions they take in office instead of being straightjacketed by pledges made in haste to a limited base.  

  • Anonymous

    Norquist can advocate for whatever he wants.  But nobody forced Congress to pass the legislation — and nobody forced President Clinton to sign it into law.

  • Lori

    I lived in DC for 3 years and never heard a local refer to it as Reagan. You flew in or out of National or Dulles. People went along with Dulles because it never had any other name.  

  • P J Evans

     Burbank Airport is now officially named for Bob Hope, which is better than Yet Another Public Facility named for Ronny. (He already has a freeway and several buildings in California named for him. No one uses the names if it can be avoided.)

  • Anonymous

    Yeah, I thought about that.  But National was renamed in 1998 — five years before the renaming of the Burbank-Glendale-Pasadena Airport.  If it was necessary to honor Bob Hope with an aviation facility, the Palm Springs Airport would have been just as appropriate.

  • Kris

    It’s a pity you can’t have bill collectors call them at all hours like they try to do with people who owe them money.

  • Jay in Oregon

    Kris:
    One couple went one better; they foreclosed on the local branch of Bank of America. The Daily Show had a fantastic segment about that story:

    http://www.thedailyshow.com/watch/mon-august-8-2011/the-forecloser

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino
  • Matri

    That was awesome!

  • Jenny Islander

    I moved my money years ago when I tapped my rainy-day account at my bank and could only fill it back up a small amount at a time.  The penalties for having a small savings account amounted to more than the interest!  Credit unions all the time, all the way.  If we could move our mortgage to the credit union from Nation Bank of Nobody Knows Which Number We’re Supposed to Call, we would.

  • Lori

     If we could move our mortgage to the credit union from Nation Bank of Nobody Knows Which Number We’re Supposed to Call, we would.  

    FWIW, from what I’ve heard both from news reports and from a couple people I know personally, credit unions seem pretty open to working with people who want to move their mortgage now. It obviously depends on being employed and not under water, but I have one friend who was able to move her mortgage last week after having been unable to do so a year ago. 

  • Anonymous

    I feel that with the the very phrase “overdraft protection,” banks revealed what they were all about. “Hey, buddy, nice checking account you got there…”

  • http://thatbeerguy.blogspot.com Chris Doggett

    I’ve tried three times to write a decent comment, but every time I try, it winds up being too long, because as usual the answer is “it’s more complicated than that”.

    The short answer: banks look for new ways to take our money because the business model for banks has fundamentally changed from where it was 30 years ago.

    Banks used to be risk-averse,[1] conservative institutions that made very little money on a per-dollar basis lending, and made their profit by making lots of large-dollar-loans[2] that were intended to be repaid on a fairly short schedule.[3] Services like checking accounts were loss-leaders for banks, used to get customer deposits and to establish a relationship in order to sell lending services.

    The modern banking model is different, both in nature and complexity. Checking accounts no longer lead to other types of lending activity; customers will borrow from the lender with the best rates and/or terms, not the lender who has their checking account. There is simply no longer a strong correlation between “I have an account with bank X” and “I want to/will be able to do business with bank X”.

    Loans have been commodified; when you take out a car loan from bank X, bank X will turn around and sell that debt to investor Y as a investment. (for you finance junkies, what’s the Net Present Value of a $20,000, 7 year annuity at 3%?) Because the bank can sell debt, they’re able to recoup that loaned money faster and independently of the borrower, which means the bank really no longer cares if you ever fully repay the principle, as long as you are always make some payment every month.

    The models for lending have shifted significantly away from the “low-default, low profit” model. Instead of carefully vetting borrowers and having a low (1-3%) default rate, the new model says higher default rates can be mitigated by charging more interest, and collecting more fees. There’s a double-dip with commodified debt; by charging more interest and fees, the total debt amount is inflated, which increases the amount it can be sold for.

    The net result is that banks aren’t really “lenders” anymore. They’re middlemen, selling loans on one side, and selling investments (commodified debt) on the other. Banks are more casino than institution, gambling on risky debts to get bigger returns. The problem with gambling is that sometimes, you lose. So part of the new banking model is finding stable sources of income that aren’t subject to the same risks. ATM fees, teller fees, minimum balance fees, annual account fees… they’re all part of the same overall idea. The bank’s big income is fundamentally risky, and they need something less risky to keep in business.

    TL;DR version: “Banks” aren’t in the same business now that they were in 30 years ago. They don’t make money the same way, they don’t act the same way, and they’re not interested in the same things anymore. The only thing your banking experience has in common with your parent’s banking experience is that the pens are still on chains.

    [1] One old joke (that makes no sense to anyone under 30) was that “in order to get a loan from the bank, the first thing you needed to do was prove you didn’t need it”. Do banks even bother to ask about “assets” on loans anymore?

    [2] Another old joke was that if you were a small business, it was easier to get a loan for $500,000 than it was for $500.

    [3] Once upon a time, all mortgages were for 20 years, all car loans were for 5 years, and the minimum monthly payment on credit cards was around 17% of the principle. Yes folks, once upon a time, credit card debt was on a short-term repayment schedule!

  • Anonymous

    Do banks even bother to ask about “assets” on loans anymore?

    Yes, they do, and the thing about needing to prove you don’t need it is on its head.  If you actually have the money to pay the loan back, you’re a “prepayment risk” now, and it’s *harder* to get a loan.

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    Back in the late 1990s a buddy of mine down in the US got rather… creative… with his income level statements. Amazingly enough he scored a $50k limit Amex Platinum. (and they didn’t bother to verify his statements, pretty obviously)

    I shudder to think of what trouble that kind of CC could engender.

  • http://profiles.google.com/marc.k.mielke Marc Mielke

    If your credit rating is shit anyway….none! I got a car loan and lost my job, simply walked away. A week after they repossessed my car, they called and asked if I could make a payment and take the car off their hands!

    I’d watch out for garnishee laws, that’s about it. Where I am, it’s tax dodgers and deadbeat dads only. If you never have any hope of having a decent CR, I’d max the thing out and walk away. 

  • http://apocalypsereview.wordpress.com/ Invisible Neutrino

    True; a related issue though would be the scope of credit card fraud possible on such a CC. (O_O)

  • http://stealingcommas.blogspot.com/ chris the cynic

    I don’t have a BoA account but based on my family members that do*, getting things wrong seems to be their preferred mode of doing business.  Especially since they always seem to get things wrong in a way that allows them to charge a fee.  Or several.

    *I’ve been trying to convince them to switch for ages not out of any moral concerns but just because BoA seems like a massively unsafe place to keep your money.  Like I say above, getting things wrong in ways that cost you money seems to be what they do.

  • Lori

     BoA seems like a massively unsafe place to keep your money.  

    You are not wrong. Your family members should listen to you. 

  • P J Evans

    BofA has been Getting It Rong for decades. There was an incident, back around 1970, where they closed an number of accounts because they ‘couldn’t find’ the owners. At least one of those account owners was a well-known professional athlete in San Francisco, where BofA then had its headquarters.

  • Consumer Unit 5012

    Shameful confession time:  I’m leaving my money where it is for now soley because the nearest bank office is easy to walk to.

  • Anonymous

    Hey, that’s an important thing.  And I do miss having a bank branch three blocks from my home.  However, I was able to find a credit union with a branch that’s still in walking distance (by my standards, anyway) and which has a branch right next to the grocery store I use.  It’s not quite as convenient, but it was close enough.  If there hadn’t been any semi-conveniently located credit unions, I don’t know that I would have switched.

  • http://redwoodr.tumblr.com Redwood Rhiadra

    I’m in the same boat – there’s a credit union and a B of A on this side of the freeway, but I don’t qualify for the credit union (I checked). And since I don’t drive, I *have* to stick with the bank that’s within walking distance.

  • Lori

     I’m in the same boat – there’s a credit union and a B of A on this side of the freeway, but I don’t qualify for the credit union (I checked). And since I don’t drive, I *have* to stick with the bank that’s within walking distance.  

    zmayhem has a good point. Being a member of any credit union in the same network should allow you to use the ATM at the CU nearest to you with no fees (making deposits and as well as getting cash). Everything else can be done online. I did it all the time when I was in DC and it was such a non-issue that I totally forgot that I my CU didn’t have branches in the city so I was using another CU’s ATM the whole time. 

    ETA: My guess, based on my experience with my CU, is that if you go into the CU near you and explain that you’re not eligible to join them but would like to know if there’s another CU you are eligible for that would allow you to use their ATM they’d be willing & able to help you find one.

  • Anonymous

    @Chris Doggett

    Its absolutely 100% true that banks aren’t in the same business that they were 30 years ago.  They used to be a useful, productive member of society. They’ve since discovered that they can make more money by being amoral, thieving money-suckers who occasionally destroy the world economy but still manage to profit from doing so.  And that’s just not acceptable.  As I see it, there are 2 options for how things can go: Either banks can go back to their older, less-profitable business in which they were useful, or they can be destroyed because they’re simply too destructive to be allowed to exist.  I’d really prefer the former option, but its the banks’ choice.

  • http://pulse.yahoo.com/_CGQFSRJBMFOTG2GKDP3GGC5S6U Cor

    I would move to a credit union, but my tiny, regional bank has all the same superpowers.  It also pays interest of 3% on my always free checking account.  I’m going to open up a savings account next year, and the current rate is 2%.  Their service is quick and fantastic.

    Last statement said I got over $86 in interest for the YTD.  I am so happy about this, I just want to share my joy. :)

  • P J Evans

     Regional/local banks are good alternatives, too.

  • http://twitter.com/FearlessSon FearlessSon

    I suspect that small-government conservatives tend to believe the same thing about taxation, believing that the government looks for ways to take lots of little bites out of their pocketbooks to line their own coffers.  

    This is not an unreasonable concern in a government that does a lot of private sector contracting like ours; there will always be a risk of pork barrels to get wealth redistributed to particular private holders.  But I wish that more of them would realize that government is not the only thing which can chip away at their private wealth, and that some kinds of regulations are needed to allow them to keep it.  

    I am guessing that political wedging is used to help keep them from making such a connection.  

  • Anonymous

    I am so lucky because I have been using a credit union from the very beginning.  My mom opened up a joint checking account for me when I was 12 and I transferred it over to just me when I turned 18.  I’ve been with the same place ever since.  I remember when I was 18 or 19 in college and my friends complained about checking account fees and I was just baffled because I had never heard of such a thing.  I also get free checks forever (there is probably a limit to how often), and my credit union reimburses ATM fees that other places charge.  I have free overdraft protection; it my checking account is too low they will take it from my savings.  I even get a free FICO score update every month.  I might be able to get a higher interest rate somewhere else, but I would rather just stick with a place that I trust that has never given me any problems.

  • http://twitter.com/FearlessSon FearlessSon

    I am so lucky because I have been using a credit union from the very beginning.  My mom opened up a joint checking account for me when I was 12 and I transferred it over to just me when I turned 18.  I’ve been with the same place ever since.

    My circumstances almost exactly.  Everything I have heard since then only served to reassure me that it was the right move, and make me grateful for it.  

  • Anonymous

    Jay and IN, that is possibly the second-greatest news segment in all of television history (Murrow on McCarthy is unbeatable, but damn this comes close).

    And Lori, you should definitely come back and hover again.

    It was a Buffista who brought me to the old Slacktivist many years ago, with a link to this post.

    Also, Redwood and others looking for credit unions, definitely keep looking — some of them have more generous membership rules than others. I moved last year from Wells Fargo to a local CU that’s open to anyone who lives or works in San Francisco, or anyone who’s related to a member of the CU, and which offers electronic deposits, ATM deposits through a few other local CUs, and guaranteed free access to any ATM on the planet (any fees refunded to your account within 48 hours), all of which considerably ease the issue of not having a lot of local branches. It’s definitely been well worth the effort it took to track this one down and switch everything over.

  • http://redwoodr.tumblr.com Redwood Rhiadra

    and there are other times when a government should raise taxes to meet certain pressing needs.

    The point here is that you and I understand that the government has legitimate functions which it needs to spend money on. It’s an axiom of Norquist’s ideology that there *are* no legitimate government functions – everything should be handled by the so-called “free market”.

  • http://twitter.com/FearlessSon FearlessSon

    The point here is that you and I understand that the government has legitimate functions which it needs to spend money on. It’s an axiom of Norquist’s ideology that there *are* no legitimate government functions – everything should be handled by the so-called “free market”.

    Of course, assuming that there is no government, there are no laws and rights.  And there is a pretty big market “demand” to see Norquist punched in the face several times over… 

  • Wisefather

    You might like this.  I called my credit card’s customer service line to do some negotiating.  Having a bit of leverage, I thought it presented a great opportunity to mess with them a little and make a few points about the unfairness of the credit card lending system.  I made video of the call and posted it on my blog and Youtube.  It is quite funny even if you are pro-megabank.  Since it’s a protest at home, I called it my kitchen counterstrike against Bank of America.  http://www.ragingwisdom.com/?p=508 


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