Banks don’t like it when their imperial right to loot customers runs into interference, do they?
The Los Angeles Times reports that Bank of America intends to start charing customers $5 per month for any debit card use starting next year. The exceptions will be certain customers that the bank regards as sufficiently profitable otherwise so as not to be worth annoying, such as those with a $200,000+ mortgage or an account at Merrill Lynch with balances over $20,000.
Narrowly, of course, the argument is accurate. The Charlotte bank is trying to preserve margins by circumventing the intent of new legislation, which was intended to stop what amounted to bank price gouging for debit cards (you can drive a truck between the cost of providing the service and what banks charged). That’s why it’s such a shame our bank regulatory apparatus has been co-opted by the industry. A competent regulator would beat back a brazen effort like this to game new rules.
It’s hardly novel to say that the banking industry has become too large relative to the real economy and increasingly extractive in its posture. The industry needs to shrink, both in size in profits. Simon Johnson made that point emphatically in his article The Quiet Coup; we made similar arguments in ECONNED. The intent of the legislation was in fact that banks make less money on the debit card service; the BofA strategy to deal with it is tantamount to a stick in the eye.
In fact, it may turn out that Bank of America makes more money with its new fee scheme than its old one. The article notes:
Banks previously had charged merchants 44 cents on average every time they accepted a debit card for a purchase. Under new regulations that take effect Saturday, banks with more than $10 billion in assets will be able to charge merchants only 21 cents to 24 cents per transaction.
If you assume an average merchant charge of 22.5 cents, the bank does better if customers on average make fewer than 22 debit card charges per month. I have no idea what the norms are, but I guarantee Bank of America has done extensive modeling based on customer usage patterns. (Separately, I can’t understand why anyone would use a debit card; you lose the ability you have to dispute erroneous charges that you have with a credit card, plus if your wallet is stolen, someone can easily drain your account. I’ve insisted on getting an ATM card rather than a debit card, which is what my bank wanted to give me).
Consumers should brace themselves for a brave new world of lots of bank fees. Bank of America is no doubt hoping that it will be a price leader and the other major banks will copy its move. Now that banks can borrow at pretty close to zero, cheap sources of funding, like interest-free checking accounts and float aren’t as valuable as they once were. When I lived in Australia, it was pretty much impossible to have a relationship with a bank and pay less than $25 a month for it. The US banks are moving in that direction.
I nevertheless encourage Bank of America customers to take their revenge. Move your accounts to a small bank. Cancel your Bank of America credit cards. And be sure to let a bank customer services rep know exactly why you are done with them.
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I have one more big bank credit card to kill and then I will have moved everything to local credit unions.
Looks more like BOA needs revenue, but this is just as likely to backfire and drive people away from BOA.
Is this a death spiral?
Maybe I’m reading too much into this, but I took it as a signal that BoA WANTED to drive the people away – at least the little people. Small accounts are probably not profitable at a behemoth with the overheads of the TBTFs – they may well prefer those accounts to move on. Loading them with spurious fees and charges can help accomplish that goal.
Do you know if any of the other major banks are planning on a similar move? These small accounts will just get passed on to other major banks. There might be a cartel scheme going on.
Citibank just notified us that they are going to a similar schema…unless you maintain a $1500 average balance over the month.
I don’t understand why there is not a more organized, grass roots effort to break up the TBTF banks. Do people seriously believe the bought-and-paid-for pols are going to do it?
Here is a situation where you can actually have an impact – move your money!
Why isn’t there a Direct Deposit Day? Make the 4th of every month Direct Deposit Day. Encourage people who currently have their paycheck direct deposited into a TBTF bank to move it to a local bank/credit union. Set up a website to track the effort, with a “I made the move” testimonial sheet.
Absolute right move. I’ve been lazy, but now I have about 3 months to get everything moved over. This $5 charge for electronic access to one’s checking account is the push I needed.
“I can’t understand why anyone would use a debit card”
There are people who can’t get credit cards, but yeah I mostly agree.
As long as there’s no credit card company imprint on a debit card, I like ‘pay as you go.’
Right. When you pay with a debit card, it’s paid for. Also, even before the new regulations, the charges for the merchant were less than a credit card generally. Generally, though I try to avoid using either and pay cash whenever I can.
I have to use a debit card to pay for the things i need, for my small business, (High voltage Electrolytic capacitors, Transformers, etc.,). I buy them from online vendors. Some of them are in Britian, Russia and Germany(I avoid Taiwan and China). BofA has alwys been crooked, This is jus the latest. I would never use Bof A. Also i have never used a debit card without having to input a PIN.In fact, the questio “debit or credit’ is always asked. If i say credit then they simply swipe the card, purchases under 10 dollars dont even require a signature anymore, most places. Ive never worried that someone would be able to use my card as a debit card. Credit card is another matter.Of course, im not rich. Many of you here have a much different experience than a Prol like me. I probably wouldnt be allowed in the door in places many of you flash your cards.
“Extraction” really is the word.
Old-line bankers like Volcker and Robert Wilmers have been disgusted with the industry for a long time.
Curious how one can go from a “respectable establishment conservative” to reviled GOP moderate — or even seeming lefty — in a couple of decades.
Yves,
Nice article. I have bemoaned the “extractive” nature of the banking industry for some time, though never quite as succinctly as that. Perfect phrase.
Anyway, there are plenty of banks who would be happy to serve those millions of BofA (or Chase or Wells, who have talked of the same) customers who for some reason still bank at a TBTF. I cannot see how a patriotic red-blooded American could bank at a “systemically important” institution.
Keep it up!
Much like when I see people getting their fuel from any BP gas stations!! We have very short memories.
“Anyway, there are plenty of banks who would be happy to serve those millions of BofA (or Chase or Wells, who have talked of the same) customers…”
FYI: There are plenty of credit unions, too. (And they’re awesome.)
This is one of those times where you wish you did something (e.g. bank at BoA) just so you could boycott.
(Separately, I can’t understand why anyone would use a debit card; you lose the ability you have to dispute erroneous charges that you have with a credit card, plus if your wallet is stolen, someone can easily drain your account. I’ve insisted on getting an ATM card rather than a debit card, which is what my bank wanted to give me
Uh…up here in the Great White North the terms “debit card” and “ATM card” are interchangeable. It can be used either for point of sale payment or withdrawing cash from an ATM.
Can someone enlighten me on the difference in the US?
An ATM card means you have to input a PIN for any transaction to go through. If you drop your card or lose your wallet, the odds that someone can do anything bad with your ATM card is really really low.
With a debit card, you swipe and sign on a screen. But the signature part is a sham, there is no verification. One guy for fun tried signing with smiley faces, “Mickey Mouse” and other obviously bogus variants, they still went through. So someone who gets your debit card can go on a spending spree and not get caught (a fright wig and funny glasses might be advised to mislead security cameras). He can keep going until your account is out of funds.
Here in Germany the debit card/ATM with personal id number is the virtually universal means of making purchases and getting cash. There are limits on how much cash can be drawn, and if a transaction takes place incorrectly card holders have a legal right to reverse it.
The notion of separating debits from ATM, and then making the debit card PIN-free is so wacko – better, so extractive!!! – it could only be devised by US banks.
Also thanks to the functionality of the debit card, the credit card in Germany is little more than an accessory and hardly a necessity. The banks moan and groan about how they can’t make enough money from their credit cards and they are full of sh#t. They look across the pond and see their buddies gouging and pillaging and wonder why they can’t get some of that.
What saved German consumers from the fate of Americans is IMO well-organized German labor unions and an electoral system that has allowed them to consistently counter the influence of capital in legislating policy.
Yves, your terminology doesn’t match what I experience here. I have a debit card. Often when I go to buy something I get asked, “debit or credit?” If I say debit, then I have to enter my PIN. If I say credit I get to make scrawly marks with the electronic pen. My debit card is also an ATM card used with my PIN to get cash from a cash machine. So our terminology differs. I don’t have any credit cards where I must make payments and they have the ability to get me into debt or charge random fees.
But I do see your point about the ability to use my card in credit (signature) mode. Maybe I should look into the option of getting that “feature” turned off.
My sister owns a retail business and will not accept debit cards without the input of a PIN. The reason for implementing this policy was because a debit card purchase with the PIN is less expensive to the merchant than without the PIN.
I’m not sure if this is still the case with the new regulation of merchant fees that banks can charge.
Yves, not exactly. Many debit cards are hybrids, they can be used as either credit or debit. If you are signing at the end of the transaction, then it was a credit transaction. If you use a PIN, then it is a debit transaction.
The consumer sees the transaction hit their account like a debit in either situation, but the interchange fee is different for the merchant.
This is why many retailers, especially grocery stores configure their payment pads to bring up PIN prompt when you select debit/credit as form of payment, they would prefer you use PIN rather than sign.
I’m speaking of the pure debit cards, which is what my bank offered me.
This is just so dumb and begging to be gamed.
When I was a college student in the 70s I stumbled on a great ‘free checking’ deal. If I didn’t write a check or make a withdrawal in any given month my account was free. Otherwise it cost me $3 bucks or something which even then wasn’t a big deal. But when I thought I closed the thing out when I dropped out of college and joined the Navy it turned out I actually left a $2.83 balance. Which left me in a quandary, should I find some way of actually transrerring 17 cents and so zeroing out my balance because that was my one transaction for the month. Or just let the bank mail me a statement every month for my four year enlistment and maintain that pristine $2.83 balance. Well I let Wells Fargo pay the printing costs and postage and when I returned to that same school in 1981 had the proud privilege of “Customer since 1974” right there on my card. Basically buying four years of quasi-credit for six cents a month worth of foregone equity.
$5 a month ain’t shit. On the other hand as I understand the program it is easy enough to dodge it. For example it seems it doesn’t get triggered at ATM withdrawals. Which suggests the old fashioned concept of buying coffee and cheeseburgers with cash (it is not like even simple savings is paying interest worth worrying about the float of taking $300 bucks up front). Or you could buy Store Cards for the places you shop most and then refill them with that once a month cash withdrawal as cash back from your paycheck deposit.
Or there are a thousand other possibilities to minimize people’s ability to charge you for using your own money. And banks risk driving the middle class into the same non-banking system the working class often inhabits, cut maybe with some savvy about ways to get around check cashing fees.
I wrote a post at Angry Bear (where Yves has stuff cross-post sometimes) to the effect of getting off the grid. That is the financial grid. Can you as an individual vanish yourself from the world financial network? Well these days you can just by going to your local supermarket. For five dollars at most you can take $500 of cash money and convert it to a pre-paid MasterCard, Visa or American Express Card. And then use it anywhere for most anything under whatever pseudonym or signature you choose. Or load four or five or whatever cards with the maximum amounts allowed and take them through customs, are they really going to check every card in your wallet to see which are credit and which are pre-paid Visa Cards?
But you don’t have to be a currency smuggler to take advantage of this. At every withdrawal take the maximum amount possilbe at the same flat fee and then convert it to store cards or pre-paid minutes or pre-paid ‘credit’ cards. Poof for most purposes you just vanish off the reality grid.
And something tells me I am not telling international criminals something they don’t know.
Agreed that currency works very well, of course they run adds saying it slows things down but that is just tough. But if you think about it the banks are trying to get rid of customers on which they don’t make much money in total. Note that BofA has accounts beyond Merrill Lynch that will not get charged the fee with minimum Balances of 20k and 50k. So the big banks basically want to run off the customers that do not make them any money, and keep the ones (with higher minimum balances) that do. This makes eminent sense, its best always as a business to know what customers to ditch because they don’t make you any money. Given that the small customers are loss makers for the banks I suspect that they are glad to run them off to smaller banks. (it was all the fees that folks who did overdrafts and the like that allowed the banks to make money on the low balance folks)
Bank America is clearly hurting for cash, so now they’re playing the odds that more customers will suck it up and pay the $5 per month than close their account. Frankly I applaud Bank America’s move, as a fee like this is an obvious and in your face cost, unlike many of fees/costs that banks hide or obfuscate(how many people intend to pay over-draft?). This move could actually benefit consumers as they seek out better alternatives, using credit cards but paying off the debt immediately, switch to banks that don’t charge fees or simply pay cash.
They are much more likely to be betting that people don’t look at their statements, and won’t notice $5 missing.
as for the rest of your theory about how and why BoA operates, i would invite you to read “Crash of the Titans” by Greg Farrell
So the U.S. is becoming….like….gasp Great Britain and Italy, where bank charges have always been extortionate. I remember my wife’s experience converting US$ Traveler’s Checks to Euros at a bank in Genoa. The bank charged a 10% fee. Since European airlines now charge E60 for checking a second bag, the logic is clear: the airlines are actually banks.
Bank of America has news for you…You are pre-approved to be skimmed for debit card use.
Banks don’t like it when their imperial right to loot customers runs into interference, do they? Yves Smith
“Imperial right” is correct. The banks are only able to loot because of government privileges such as a lender of last resort, the Fed, legal tender laws for private debts, and laws and taxes that enforce their private money monopoly.
The government should have NOTHING to do with banks other than to punish them for fraud and insolvency.
I’m shocked!
Blasting BofA simply because the markets have trashed their stock value, everyone with a clue about the frauds committed in the mortgage sector lining up to sue them, and Attorney’s General not dropping to their knees fast enough to service the bank(s).
Don’t you all realize that bankers need to be praised for without them America would cease to exist? You should be happy to hand them your chump change so that they can get bigger bonuses and maintain their purchasing power of America’s politicians.
Sarcasm off.
since their is no charge to withdraw cash from the atm i suggest a natonwide response
every boa branch
every atm
drain them to cash
everyone go withdraw cash every day/time you can
drain the atms
make the enemy devote staff time to replenishing the cash in the machines 2x or 3x a day
and keep doing it
day by day
week by week
month by month
Ironic how the banner ad for B of A at the top of this site talks about 1%, 2%, 3% cash back, depending on the type of purchase. One hand taketh away, and the other giveth back–not just as much. Marketing B.S. which will probably work on the average consumer who believes B of A is really giving them more money than it is extracting. Con artists till their death.
Yes, especially since part of the way they pay for that is higher merchant fees–the retailer is paying your rewards, not the bank.
Those keyword adds annoy me (they just used to be Google ads, they come up when my ad service hasn’t sold enough higher CPM campaigns) but I resign myself to them, and figure the effect is subversive (BofA is dumb enough to waste its money on a site that attacks it).
i know two reasons to use debit cards for purchases.
1. you can withdraw cash at the same time without ATM fees.
2. at least at credit unions, there are high interest rate accounts that require a certain number of debit card purchases a month. my credit union gives me 2.2% if i make 12 debit card purchases and use direct deposit.
one of the problems with dodd-frank was it combined a safety and soundess bill with a consumer protection bill and did neither well because there were no limits on what could or couldn’t be placed in the bill. the durbin amendment is one of the worst parts of it that had no business in the bill in my view. this is a fight between 2 business lobbies, retailers vs electronic payments, rather than anything that helps the consumer or makes banks operate more safely. using this bill to pay off favored business constituencies was wrong and will help to discredit the whole regulation as banks, accurately unfortunately, blame this amendment for raising fees on consumers.
The big banks are dead meat. It takes over a week to transfer money btween accounts in the same branch. They are issuing warning letters (such as if you use an onine vendor, heavens, it must be suspicious because their fellow weasels won’t find work) and fees inconsistently and cluelessly all over again. Their average staff is at least twenty IQ points lower than they have any right to be. Don’t blame them entirely, they have been bludgeoned endlessly by regulators, they are clueless. They scurry about with mindless business trying to stay alive while pretending to work. Universal banking should only have been allowed if they started from scratch, not by merger. These guys are clueless as to how to integrate these things, because they have so many wierd pieces which will never fit together.
Yves, isn’t this a bizarrely risky move by BofA? I ask because the political fallout has the potential (even if small) to diminish BofA’s deposit base. I do not know too much about money and banking but doesn’t this move negatively affect the bank’s capital?
I agree entirely with your premise that BofA is in serious trouble (and I hope it dies in its present form). So it appears that BofA really needs money and is willing to take relatively large risks to make it. Which means BofA’s TBTF status is crucial. This is moral hazard moving from the theoretical right to main street. Would a troubled bank that was not TBTF take this risk? Who knows?
Your thoughts?
Or would a bank that was not TBTF be in a more viable position, and consequently not have to take this risk?
Looks to me like another opening for credit unions.
I moved to a credit union the past 12 months (including mortgage) and so far it’s simpler, cheaper, easier, and therefore more sane.
Shouldn’t this be called a Buffett Tax?
The sense of entitlement these guys have to continue looting still amazes me.
I learned sometime ago that the world doesn’t owe me a living. I have to go out and find a living. But these guys feel the world not only owes them a living, but a consistent bloating profit margin as well!
This is why Obama should have broken these banks backs when he had the chance. We will long be paying for his weakness and his genuflecting before the financial masters of the world.
Whether it was Tim Geithner’s fault or not — Obama ultimately presided over a very banker friendly administration. The government policy was bailouts coupled with delicate hand holding through the worst of the financial crisis, but now the banks are unleashed and free to pillage and steal from their customers.
I wonder how many BAC customers will be aware of this fee. Some people may not even notice if they don’t pay that much attention to their accounts. If I was a BAC customer I’d be closing my account and moving to any bank that isn’t charging a fee.
I’m fine with banks charging for debit fees. My biggest fear is that vendors are going to start charging fees to customers for using their cards (be they credit or debit). For whatever reason there are forces in the universe intent on making everyone carry around bags of wampum to make purchases.
This is going to lead to interesting consumer marketing campaigns by retailers and banks in the near term, and possibly real differences in consumer behavior. Retailers might pass savings they get from Durbin to consumers in some form. Possibly in a campaign effort to get consumers paying by debit/cash, as credit fees are not capped and will continue to be a burden for small merchants in particular. I am not quite sure how it will play out, but looks like BOA might have made a mistake by going first among the banks. Perhaps they need the money, but they are going to lose deposits. Maybe they figure they’re only going to lose low value deposits. They could be wrong about that. Some of the cheapest people in the world are the wealthy.
Yves, it was so good to hear I’m not the only female who rejected the debit card foisted upon her. Like you, I’ve never felt any loss in being rid of it, only relief. There’s an ATM everywhere and a credit card inbetween. Not to mention good old-fashioned cash for the mundane stuff. There is zippo loss in buying power.
Yet another anecdote. Not long ago I tried to pay for coffee with a dollar bill that the vendor rejected, saying it was counterfeit. She pointed out that the dollar looked different from other dollars – the bill said US Treasury and not Federal Reserve. After consulting with a manager at a nearby bank branch and searching online, I learned my reject dollar was NOT counterfeit, it was a real US Treasury issue dollar from back in the early 1950s and perfectly good, maybe even better, maybe now worth a few dollars as opposed to one dollar.
How quickly the culture forgets. Hey, MON, there’s many a way to purchase something. And debit truly is paying for nothing.
additionally, no one should be holding brokerage accounts at Merrill Lynch.
You can do better at the low end with Vanguard/Fidelity/Schwab/Etrade, etc and you can do better at the higher end with Northern Trust, US Bank, etc.
We need an app for this: let’s turn our own computers into bank transactors. We merely keep a proper balance at the bank of our choice. Like on-line bill paying only we do the transaction so we do not pay an extra fee.
My son’s mortgage was purchased by BoA (servicing rights I presume). I was visiting last week when he received a form letter stating that in the future if he were to make a partial payment his money will be returned to him and nothing credited to account. Another way to extort forclosure fees I suspect.
As usual this is an excellent article.
But here’s another way of looking at it: maybe the banks don’t want your deposits because they ALREADY HAVE YOUR MONEY.
If the banks can get all the cash they want at near-zero interest from the Federal government, why on earth would they want the overhead of dealing with you?
And consider also: you may THINK that you have some money in your bank account, but maybe not. The banks have saddled you with enormous debts at the federal, state and local level. If you have $10,000 in a savings account, but de facto owe the banks $50,000 as your share of sovereign debt, well, that’s not really your money any more is it? You can try moving it to a credit union but the big banks are still going to get it, sooner or later, even it if is indirectly via higher taxes and lower services.
First Hawaiian Bank, the biggest in Hawaii and a subsidiary of the Bank of the West which is also a subsidiary of BNP Paribas, sent the following new fee schedules for certain customers. It is absurd when you combine each fee. Just to keep an account, you may be charged easily $30-$50 a month!
From October 1:
-Special Handling Charge(overdraft charge per check, in person withdrawal, certain electronic funds transfers such as ACH, online transfers, or recurring debit card transaction), for each item paid or returned….$29.50
(Does this mean cash withdrawal in person at a local branch cost you $29.50 each time?)
-Special Handling Charge(overdraft,debit card,ATM) for each item paid or returned……….$26.50
-Image/Item Enclosure Fee, per month…..$2.50
-Priority Banking Plan 2 ………$16.00
-Priority Banking Plan 3 ………$21.00
From November 1:
-Returned deposited Check, each……$6.00
-Inactive Account Fee, (each month!)……$10.00
-Incoming Wire Transfer Fee……$12.00 (Priority 2/3 exempt)
-Replacement Card Fee for ATM,Check Card, Debit Card..$20.00
-Paper + eStatement Fee per month….$5.00
If these fees are not rip off, what is!!!
I just can’t imagine this is allowed in a majority of the civilized countries. Their consumer protection agencies will have to be zapped before anything like this can happen.
I guess seniors who want to keep paper trails will be worst affect. Just to receive monthly statement with returned checks copies, you have to pay $7.50 each month? My common sense tells me something is awfully wrong.
mw:
the same thing is happening to a bank i am familiar with. the fees for replacement cards are going up, and the types of incidents that are considered ‘replacement fee worthy’ are broadening.
there is also now what i can only call ‘subprime checking accounts’… when people are ‘naughty’ they get assigned a special type of accounts that has huge monthly fees. you have to pay money just to keep your money there. those fees are increasing, and im guessing the bank has broadened the type of incidents that drop people into the ‘naughty’ category. my guess is not random, its an educated guess. wink.
it all makes sense if you read The Big Short, page 19. the old school “Free Checking” account was a plan to hit people with overdraft fees, re-arranging the order of incoming charges so that the largest checks were processed first, resulting in tons of little tiny checks creating overdraft fees. this hit poor people the most, and bank managers understood this.
my theory about these new ‘subprime checking accounts’ is that now, since the banks have abandoned the overdraft fee scheme (because apparently it made them look bad and/or criminal) they are ‘making up for it’ with this new high-fee-scale model. it just so happens to hit the same people that the old overdraft-scam hit, i.e. the poorest.
but you know. i do have sympathy for the bank managers. they have a lot of prostitutes to pay, and a lot of drugs to buy.
and i do apologize for being obtuse.
the industry term for the subprime checking account is “second chance checking”.
however, some PR people have gotten clever and called it “opportunity checking”.
you can google both phrases to learn more about how the scam works.
of course i must also point out, the “widen the naughty club criteria” is not the only necessary strategy to get more profit from the scheme.
you can also simply keep people on the naughty list for a longer period of time.
its like tuning an engine to get the most out of each cylinder — you have to have the timing right, the mixture right, the valves seated… every little adjustment you make can draw maybe 1-2% more out of each spurt of gasoline. add them all up, and eventually you are looking at like a 5-10% performance boost.
apply the same theory to bank management. take 1-2% from people in 10 different ways. wow, 10% performance boost! aka “the performance boost of a thousand cuts”.
it will make a bank manage feel like he is 32 again, and still has hair.
Remember, banks preferred debit cards over credit for many reasons:
1) lower risk, as funds approved off of depository account, so no credit extension risk.
2) higher fees from overdrafts and per transaction fees (as opposed to ATM/Debit fees).
3) increased customer base (those who couldn’t qualify for credit cards)
They milked this cow from early/mid nineties (where I saw rise of debit at a merchant processor), then got partially smacked by the Wal-Mart settlement which dropped their debit card fees by about 20% (but not down 75% to the level that ATM card fees were actually at).
Now that more rules are tightening the fees to closer to cost, they want to make that up other ways…instead of innovating, they are squeezing, because they became too used to that cash flow, which was a big chunk of their bank side profit structure.
I was informed that there will be a $4.00 fee per month for debit card use(Regions Bank) and A $10 per month fee if you do not have a direct deposit of a minimum of $1000.00 per month. It is not just Bank of America….It’s all banks scamming the middle class Public.