Tuesday, May 19, 2020

Poverty Banks

Some banks, it seems, make more money from poor customers than they do from rich ones!

I received and e-mail the other night.  Once again - for the umpteenth time, Ameris Bank has "closed" our debit card due to lack of use.   They have their computers programmed to deactivate any debit card if it is not used in so many months (four? six?  I do not know).   Sadly, they don't send you a warning this is about to happen, so instead, you go to use the card and find out you can't, and the people you were going to pay think you are a deadbeat.   Some fun.

I mentioned this to a friend, and they complained of the same problem.  They were going to buy something at a garage sale on the weekend, only to be chagrined to find out their debit card wouldn't work.   Good thing it wasn't an emergency.  Suppose your car got towed?  You'd have to wait until Monday and the bank was open to get cash and then pay an extra day or two of impoundment fees.

Convenience banking?  Not!

I get it that they are trying to improve security in their system, but I am not sure why this particular feature enhances security.   If your debit card was stolen and you didn't notice it for six months, well, whoever stole the card had a chance to drain your account with a lot of online purchases.  This "security feature" seems as arbitrary as some of these "lock-down" restrictions - inconveniencing the hell out of everyone while providing a false sense of security.  I mean, outlawing fishing?  Makes about as much sense as deactivating debit cards twice a year, automatically.

Tellingly, other banks don't do this.  I have never had my Bank of America debit card locked out for lack of use.  Bank of America has pulled some other bonehead stunts in the name of "security" but only once.  They have no program in place to automatically lock-down your account if it is inactive for a month or two.

Of course, making things even harder, the branch here on the island is "closed for the duration" and there is no word on when it will open.   Driving 20 miles to the next available branch seems kind of dumb.

But, it got me to thinking - I had a small pile of money stashed in this account, and it wasn't earning any interest - like 0.1% or so.  Meanwhile, Capital One is paying close to 2%.  So I used this opportunity to re-think my banking strategies, and moved most of this cash to Capital One, where it will at least earn enough interest every month to buy a nice meal at a restaurant, if nothing else.

Will I close this Ameris account? Probably not, only because it is a good idea to have a backup account.  As I noted, Bank of America was subject to this "locking your account" nonsense on one occasion, so it is useful to have another account to use as a backup plan.

All that being said, it also made me think about the bank's strategy for attracting customers.  Bank of America offers all sorts of perks if I start or maintain an account with Merrill Edge - and not just free personalized deposit slips, either.   Enhanced interest on savings, enhanced rewards, and so on and so forth.  Bank of America paid me $500 in cash to get me to move funds there.  Capital One, in addition to paying real interest, paid me $200 to move a paltry $10,000 to their savings account.

Ameris, on the other hand, pays paltry amounts in savings interest, and there is no incentive, in terms of interest, rewards, or cash, to move funds to their bank.  And as a bonus, they kick you in the balls, but locking your debit card.  What's not to like?  I originally moved money there to pay for our camper, but even doing wire transfers there was awkward and time-consuming, and there were fees involved (whereas Bank of America offered free wire transfers as a promotion).

What's up with this bank?  It would be like a casino that panders to the old women in housecoats who want to play the penny-slots, but asking the big-money high-stakes "whales" to please use the back entrance.  It almost seems like they are discouraging large depositors in favor of the small ones.

And indeed, this may be the case.  As I noted in an earlier posting, it used to be that banks made money by taking deposits from the community and paying 3% interest, and then lending money to the community at 6% "bank interest" and profiting from the spread.  Today, they borrow money from the government and make their profits from late fees, account fees, and ATM fees.   It's a whole different world.  The bank is no longer a financial institution but a service industry, little more than a drive-up window at McDonald's.   "Here's your money, do you want fries with that?"

And indeed, when I go to Ameris bank, I see a line of people cashing paychecks or taking out small amounts of cash.  I see a lot of people using the ATM.  And they have a lot of physical branches, not only here on our island, but in the nearby towns and cities.  While the big banks are closing branches and consolidating others, smaller banks like Ameris are buying up other banks and expanding their brick-and-mortar presence.

Poverty Banks, is a term I have coined for this - banks that serve the lower-end of the financial spectrum, by appealing to the people who still pay in cash and want to "cash their paycheck" every week.   They don't make money from these folks by having them deposit large sums in a money-market account or roll-over their 401(k), but rather from bounce fees, account fees, and foreign ATM fees.  These types of banks keep the brick-and-mortar and "teller" model, even as the larger banks, such as BoA, Citi, and Capital One, go to teller-less and online models.

One reason our cards were deactivated was that we simply don't use cash anymore.   When traveling, we used to carry a thousand or two "for emergencies" in a safe in our camper.   But increasingly, we are coming back from months-long RV trips with most of the money still in the safe.   Everyone takes credit cards today, even the Dollar Tree, and if it came down to it, you could use a debit card (provided they don't deactivate it!) or even a check.  The need for paper money is all but gone, except perhaps for garage sales, drug deals, and sex workers (and even some of those take credit cards!).

We kept this account as it was handy to use the ATM at the bank on the island to get cash, without paying foreign ATM fees.   But increasingly, we simply are not using cash anymore for anything, and it just sits in our wallets or in the safe.   Maybe that is one reason these ultra-thin wallets are so popular these days - all you really need is a driver's license and a credit card to carry around - and maybe less than $20 in cash.  But even than, you could live without the cash, in most cases.

And change?   I used to have to roll up pennies, nickels, dimes, and quarters, at least once every few months, as they accumulated in my change drawer.   Either that, or I would have to be proactive about keeping change handy and being "that guy" holding up the line with an exact change payment. 

I'm not the only one.  Come to think of it, I can't remember the last time I heard someone dumping the contents of a "change jar" into one of those "Coinstar" machines.  In fact, it seems upon reflection, that those machines are disappearing slowly.  But they became extant only because change was viewed as a pain-in-the-ass, and paying 5% of the proceeds just to get rid of it, seemed like a good bargain to many.   I would not invest in Coinstar today - who has change?

Like so much else in our world, it seems things reach a "tipping point" and then "suddenly" it seems the world has changed (no pun intended).   I am not sure when this happened, but it took this latest incident with this bank (one of a string of many) for me to realize that I was just not using cash anymore and that I never had to check my pockets for change anymore, when putting my clothes in the wash.   Credit card receipts, maybe, but I suppose those will be the next to go.

Perhaps I am an outlier.  It seems there is still money to be made in poverty banking.  We have a string of such banks here in Brunswick, including the "Bank of the Ozarks" for some reason.  They buying up ailing small banking chains, or open up in old bank buildings left abandoned by some other bank who threw in the towel.  Tellingly, many are located in poor neighborhoods, near the check-cashing stores and rent-to-own bling rim shops.

You can tell about any kind of deal from a mile away - just driving by - by how it is presented.  Heavy advertising?   Location in a poor part of town?   These are just two indices that tip you off the deal being offered is a poverty deal.

Like I said, they closed the local branch "for the duration" and I wonder whether they will ever reopen it.  The nice lady who ran the branch retired, and I haven't visited the branch since, to get acquainted with the new manager.  It may turn out that they decide not to reopen this branch, ever.  We'll just have to wait and see.

But that is another aspect of small banks that they claim is a selling point, but often really isn't.   The idea of the "good old days" when you went down to the bank and talked to the manager - who went to the same church as you did - are pretty much long gone, and maybe that is a good thing.  Since I have moved many times in my life, I am not a "local" and don't always fit in to these good-old-boy networks.  Sometimes it is better to be treated as one of the never-ending long-line of anonymous customers than to be greeted personally.   Besides, there is little advantage anymore to "knowing" the people at the bank - the rules and lending practices are all set by computers - leaving little wiggle-room for a bank manager to waive a bounce fee or whatever.  Whether you get a loan or not is determined by your credit score, not the firmness of your handshake.

Not only that, but suppose you "get to know" your local banker and they don't like you?  They are just as likely to sabotage your accounts as to help you.  And such things can be very subtle, too - to the point where you might think you are imagining things.

The computer and app are sometimes a better deal - they are agnostic, anonymous, and absolute.  Old home-town banking might have been a good thing in the days of Mayberry, RFD, but today, I'll take better service and higher interest rates, anytime.   Sadly, by cancelling my debit card (for the sixth time now) and by paying fractional interest rates, I am not getting either from my local "hometown" bank.

Hey, I tried, I really did, to support my "local" bank.  But they seem to want to do everything in their power to thwart my efforts to patronize them.  It's like going to a restaurant where they spit in the food, right in front of you, at the table, and say, "enjoy your meal!"