Thursday, January 25, 2018

Why Banks Don't Want Your Business, Part II

Citibank doesn't really want your business if all you have in your account is $17.
By the way, why does SNL get away with these racist videos?   Is is OK for black performers to perpetuate black stereotypes still?

Bank of America is at it again - culling its customer base through the use of a new minimum monthly fee.  There are two uses for account fees, one is to drain dormant accounts, and the other is to chase away low-value customers.  I have written about both before.

Dormant accounts are a pain-in-the-ass for banks.   My friend at the Credit Union told me they had hundreds, if not thousands of such accounts, dating back decades.   People come and go and often leave behind accounts with small amounts of money - less than $100 in most cases - which the credit union has to maintain.   Back then, it meant sending out monthly statements by mail, which incurred printing and postage costs.  And of course, most statements were returned, "Addressee moved, no forwarding address on file" or some such notation.

The legal costs of closing such accounts could run into the thousands of dollars - each.   They would have to publish notices in the paper, and in some cases go to court.   And that in addition to all the time and effort on the part of the staff.

A small monthly fee - say $5 to $10 for accounts with a balance under a certain limit, would slowly drain those accounts dry and close them, automatically over time, and cost the bank little or nothing - and free up that money in the form of income.   Similar fees are assigned for "dormant accounts" and I have been charged them in the past when I let money sit in my account for too long without using it.   Usually, they reverse the fee once you explain that you aren't dead and haven't moved away.

But dormant accounts are small potatoes compared to marginal customers.   Free checking wasn't always free in this country, and in fact is a leftover artifact from the high-interest-rate late 1970's, when banks clamored for your deposits because the interest they earned was so lucrative - on the order of 10% or more.

At first, banks required a minimum deposit - $250 or more, for example.   But the competition heated up, and eventually, banks offered free checking - and sometimes free checks - if you opened an account and maintained any balance.

Well, that worked in an era of 10% interest.  But in the last decade, interest rates have been fractional, so banks make little money on deposits from customers.   And yet the costs of maintaining a checking account for a customer remain - particularly if the customer wants mailed printed statements and wants to use teller services - as so many older customers and poorer customers are inclined to do.

When we first moved to Georgia, I still went to the bank in person to deposit checks from clients, and it was interesting to me to see who was in the bank.   Most middle-class people had jobs that had direct deposit, so they were not in line.   And middle-class people used checks or credit cards, or if they needed cash (which increasingly they didn't) they used an ATM.   So the folks in line at the bank were mostly poor folks, depositing checks from low-wage jobs, and taking $20 out of their savings account.  The bank wasn't making money on these folks.

And eventually, my clients one by one went to electronic payment methods, and I had fewer and fewer checks to deposit.  And of course, today, we can deposit checks over the phone, so even the few checks we get require no trip to the bank.   The bank closed that branch about three years ago.  It was expensive real estate and there weren't that many customers at that branch, and the few they had were not doing large or profitable transactions.

Now of course, some folks are outraged by this.   The bank should provide free checking for everyone!   They are running a public service!   But they aren't.   They are running a business, and businesses have to show a profit, or they go bankrupt.  Whats more they have to not only show a profit, but a respectable profit - more money than you'd make in a savings account - or there is no point in running the business.   And over the last decade, Bank of America has made minimal profits until recently, as it dug its way out of the financial mistake of buying Countrywide Mortgage.

So, Bank of America - and other large banks - are chasing away the unprofitable customers and concentrating on the profitable ones.   If you ran the bank, you'd do the same thing.   Of course, this business strategy could backfire - today's unprofitable customer could become tomorrow's profitable one.   People grow up and make more money, and often bank brand loyalty is made early on and may last a lifetime.

Now, some of you might cry out, "Well, you don't know what it's like to be poor!  You've probably never bounced a check!" and that sort of talk pisses me off.   How do you know how I've lived?  As I have noted several times in this blog, from age 18 until nearly 28, I was pretty much a slacker - drinking beer and smoking pot and bouncing checks all over the place.   I was the kind of banking customer Bank of America - or indeed any bank - didn't want.

At that early age, I viewed a dollar in the bank as a dollar to be spent.  "Give me my $17 bitch!" is a refrain I might have actually said back then.   We used to do stupid things like go down to the local convenience store and buy beer, cashing a check in the process - for more money than we had in our account.   We'd go out and buy pot and have a good time and on Monday or Tuesday, I'd get a call from the bank.   At first, they were pleasant about it - offering to waive fees if I made a deposit.   But over time, they realized I was causing them more trouble than I was worth - even with the bounce fees.  I was not a good customer.

Even as I got older, I kept very little money in the bank - which irked the bank.   When the teller pulls up your account and sees nothing in it, they feel validated if they are rude to you.   On the other hand, if your account balance is in the five figures or more, well, they know that if you complain to their manager, there will be hell to pay.  I had an account at Riggs Bank in Washington, DC, and they treated me like a criminal every time I went in there.   Of course, the joke is on them - turns out they were actual criminals, laundering money for Pinochet and the 9/11 hijackers.   They are no longer in business.

Bank of America has taken a shit on me from time to time, most notably freezing my account while I was out of the country because of some computer spitting out a "background check" to determine what I did for a living and what my citizenship was.   It took only a phone call to clear it up, but making that phone call was tough, particularly since the division of the bank that froze the account mailed me a letter and I was Lake Louise at the time.   After several days of frustration, I was finally able to get someone on the phone who gave me the direct number for their "account security" department or some such nonsense.

So yea, even if you have money in the bank, they still shit on you.  Welcome to the club.

As a customer of the bank, you have to make an informed decision as to whether the bank is right for your needs or not.   If I was being charged a monthly service fee, I would close my accounts with BoA, and in the past, they have tried to do just that.   The first time, they wanted a $5 a month fee for checking, but a helpful telephone agent told me that if I deposited $25 a month into savings, the fee was waived - even if I took the money right out again!  It was a simple matter to set this up for automatic deduction, and indeed, even today, my account is debited $25 every month to go into savings (I'm not taking any chances!).

They they wanted a $7.50 fee for using the teller - but again helpfully told me on the phone that if I agreed not to use the teller, they would waive this fee for an "electronic" account using the ATM only for deposits and withdrawals.   Since the ATM was easier to use and faster than the teller, I agreed.  The only fly in the ointment was when the guy managing my condo deposited the rent check into my account at the teller - triggering that fee on two occasions (since then, he has switched to electronic deposit as well).

I still run into old people who tell me they like to get paper statements in the mail and "look at them" once a month to "balance their account".   I think this is very dangerous for a number of reasons.   First of all, if something does go awry with your account, it could be thirty days before you notice the problem.   With credit card theft, this could mean dozens of charges to your card.   Since we have online banking - even over your phone - you can check your balance daily and reconcile it with your own accounting (I use Quickbooks).   I do this daily and it was the first step in getting my financial house in order - to treat my personal accounts like I did my business accounts, by logging and monitoring every expense.

The second thing, of course, is that your mail can be intercepted or stolen, so you might not get a statement - but a thief would.   That alone isn't enough to have your identity stolen, but it might be an additional piece of information they need to do so.   It just isn't worth it.

The other thing to consider is that with Check-21, any check you write is just writing down a request for an electronic transfer.   You could just as easily put down your bank routing and account numbers and the amount on a post-it note and use that to transfer money.   Someone enters the data and then debits your account.   It is scary how little information is needed to drain your account - but again, another reason to check your balance daily.

And that right there is the key to having a happy, healthy relationship with your bank.   When I was poor, I was poor because I did poor things - like smoke pot and bounce checks.  Every month, I was $20 poorer because of a bounced-check charge - if not more.   And not only that, I wasted money on stupid things and didn't keep track of my finances.

"But Bob!  Poor people can't help it!   They are not financially literate!"  And there is a grain of truth to that - it is poor behavior that often makes us poor, or at least keeps us poor, or at least makes us poorer than we should be.   The man living on minimum wage who isn't bouncing checks and biting on raw financial deals is doing far better than his friend at the same job who is constantly going to check-cashing stores and getting payday loans.   The poor don't have a lot of money to begin with, but what little they have is quickly frittered away on raw financial deals.

If you are just starting out or struggling, and Bank of America has sent you this notice of a $12 fee, I would move my business elsewhere - to a Credit Union, for example.   But Credit Unions are not going to tolerate bounced checks, either.   So maybe this is a good time to get your financial house in order.   If you are bouncing checks or overdrawing your account on a regular basis, consider the cost of this and how much money that would equate in savings.   If you are paying ATM fees or monthly banking fees (or pre-paid debit card fees, etc.) think about how much this would add up over time in your savings account - hundreds of dollars a year.

Sadly, most poor folks don't think about this, which is why Wal-Mart and others make so much money off the unbanked - through prepaid debit card fees and the like.

For now, I am sticking with Bank of America as I don't have to pay a monthly fee, they have branches and ATMs all over the place (although branches are closing more and more) - other than the State of Vermont (no doubt, Comrade Sanders is to blame for that! - they probably charged him a bounce fee once).  They also offer decent interest rates, a rewards card, and free trades online.   But that sort of thing only happens once you have money and the snowball effect kicks in.

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