It’s expensive to be poor, part 2: banking

“It’s expensive to be poor” refers to the various ways in which the poor pay more for their daily needs than the middle class — whether it’s the Terry Pratchett “boots theory” (a poor man spending cumulatively more on, in this instance, boots, because he can only afford the cheap ones which fall apart rather than buying a durable pair lasting longer), or being unable to buy their groceries in bulk because they have to cart things home on the bus, or paying higher car insurance rates as a result of their crime-ridden neighborhoods and poor credit ratings.

Are the checking account fees, waived for specified daily balance minimums or direct deposit arrangements, another instance of this “cost of being poor”?  This made the news last week when Bank of America cancelled its no-fee checking product that was offered experimentally based on an online-only banking requirement.

As the Tribune reported, accounts with less than $1,500, or without a direct deposit of $250 a month will be charged $12 per month.  The article cited a woman protesting the move, though her particular circumstances aren’t that sympathetic — she has two checking accounts, and only one direct-deposited paycheck, so she’ll need to close the B of A account but will hardly be bank-less.  There is, as there always is these days, a Change.org petition on which people have written their “reasons for signing” but it’s hard to tell how often people are really impacted — some say they are on a “fixed income” (e.g., disability or Social Security benefits which would presumably count as “direct deposit”), or complain more generally about unfairness.

The Atlantic provided further context:

So why are banks making it harder for Americans to keep an account? Over the past few years, overdraft practices—when banks charge customers for overdrawing their checking accounts instead of denying the transaction—have come under scrutiny. The fees on such policies can start at $35 at major banks, and many banks have relied on transaction reordering, which sorts checking account withdrawals from highest to lowest in order to increase the likelihood of one or more overdrafts on a low balance account. This so-called “overdraft protection” costs Americans around $14 billion a year, according to the Center for Responsible Lending.

These policies have disproportionately hurt low-income Americans who are more likely to overdraft (and wind up closing accounts because of constant overdrafts); they have also brought in a lot of revenue. The shift away from harsh overdraft penalties will undoubtedly help some consumers avoid onerous charges, but the fees generated by those overdraft policies were a big part of the free checking-account model. Thus, as banks lose that revenue stream, it’s become more likely that customers have to pay for their accounts.

However, if one looks in the comments on these articles, and reads past the readers outraged that the villainous Banksters are taking their money and charging them, when it’s the bank that profits (just how much do you think the bank can earn off the couple hundred dollars that you say you have in your account?), then there are multiple recommendations to use credit unions instead.  Now, to be sure, it seems hit-or-miss as to whether one is eligible for a credit union — I certainly banked fee-free at the credit union when I was in college and grad school* but there are no bricks-and-mortar credit unions nearby that I can access — but smaller, local banks offer the same sorts of no-fee products, not always, to be sure, but in many cases, at least.  Around me, I could bank at the Ben Franklin Bank, and pay no fee for a non-interest-earning account, or I could choose the Village Bank & Trust, or Parkway Bank.  In the city, there’s the Community Bank of Lawndale, at which, incidentally, there’s an additional account available for those individuals who would otherwise be rejected due to too many bounced checks, the “Bounce Back Checking” which does add a monthly fee of $4.99 with or $6.99 without direct deposit.  (I had first read about individuals who are simply not accepted by banks when they seek out checking accounts in The Unbanking of America.)  There are also online banks with free checking — e.g., Ally Bank or USAA (and I believe banking is open to everyone, not just people connected with military service) — and online banking is far more feasible in a world of smart-phone deposits and transfers.

(* Incidental comment:  I say I had free checking but I’m not entirely certain.  There may have been a couple dollars’ fee per month because I vaguely remember an alternate account type that offered a fixed number of checks per month.)

So looking at this, I’m asking myself, why are people moaning over the banking fees at Big Banks if there are plenty of other options available?  And how often do people bank at Big Banks, and pay these fees, rather than go elsewhere?  I have some guesses:  perhaps there is no small bank with a branch near enough?  Perhaps, even with the widespread availability of smartphones, the poor lack confidence in online banking?  Is it a matter of trust — that is, even with FDIC guarantees, do the poor not trust small banks to be financially stable?  Is there an element of seeking out the validation of a name-brand bank?  Are the apps or websites of the small banks not snazzy enough?

And, yes, we bank at a Big Bank, though for many years we didn’t, but our small bank got bought out by a medium-sized bank and we decided to make the move only recently.  But we have no issue with the direct deposit requirement.

And, quite honestly, I’m not sure how much money a bank whose customers are generally living paycheck-to-paycheck can make without fees — especially if customers who lack direct deposit (because they’re either paid in cash under the table or are freelancers/self-employed) use bank services for depositing their earnings as well as for paying their bills.

And that’s as far as I go.  Readers, what do you think?

Image:  https://commons.wikimedia.org/wiki/File%3AThe_Co-operative_Bank_-_Ealing_(9415463884).jpg; By The Co-operative (The Co-operative Bank – Ealing) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons