Banks, fees, and shenanigans of the like.
I apologize in advance because I’m going to go on a bit of a rant here mostly because I’ve spent the last nine hours listening to enraged folks vent about the Bank of America debit card fee announcement.
Many consumers have already heard the news, B of A will begin charging a $5 monthly service charge to customers using a debit card at the first of the year. Consumers nationwide vented in various audiences, obviously outraged over the announcement. I can understand the concern. The common theme seems to be this is just “another way” for banks to gouge the customer. As a homeowner running a household on an income less than 40k a year, I pinch every penny myself. But here’s the thing guys, this should not be a surprise. B of A is not the first to be making an announcement of this nature. Wells Fargo and JP Morgan Chase have been piloting similar new fee structures in certain markets over the last year. The fact that the American Consumer (and others across the globe) need to face is that, the financial industry that we knew is simply not the same anymore.
With the seizure and sale of America’s largest Thrift, Washington Mutual back in September 2008, a new era of the financial industry in the U.S. began. The failure of that bank, just days before the passing of the FRB’s TARP, set in motion a pattern that we have become used to, the seizure and absorption of some of our most recognized brands as well as some of our favorite community institutions. Be it that, the organizations may have made some choices that were less than wise in their business practices, the lending crisis isn’t all to be blamed on the banks and their income documentation free ARM’s. Some of that responsibility, as unpopular as it may seem, does lie in the hands of the consumer who knowingly overextended themselves by purchasing properties that they really couldn’t afford. That said, interest rates indexed on a high prime rate didn’t help either. Most culpable in the situation is the Fed, along with lack of regulation.
Enter the housing crisis.
Enter credit crisis.
Enter unemployment crisis.
Enter recession.
So here we sit a couple years later with interest rates hovering on the floor and folks bailing on high interest mortgages because if they simply go into foreclosure they can purchase a home at a lesser price and a better rate. Here bank, take my house. K thnx bai.
There’s a whole other group of people continuing to struggle to make those larger mortgage payments, honoring their obligated debt, now hardly able to put food on the table, working at a reduced wage, existing barley at a higher cost of living.
Good for them, I hope they make it.
Back to the debit card fee…
Credit cards and debit cards are a relatively new innovation inside the financial industry. The first ATM was installed in the early 1980’s and banks discovered that not only could they save money on expensive check processing fees with the little magnetized plastic bits of happy but also, due to undeveloped regulation profit on their swipe.
Enter the swipe fee.
The swipe fee is a fee that banks charge merchants to swipe a card and banks have been urging consumers to swipe, swipe, swipe for more than a decade. As mentioned before, the debit card was the greatest savings and money making advantage in the financial industry since about 1995. The previous average swipe fee profit per transaction, 44 cents. This swipe fee has had a rallying and dedicated group of protesters made up of mostly small business owners and consumers who debate that not only is it hard on the small business profit model, but that it also leads to increased costs for consumers due to business imposed discounts for cash purchases and other themes of that genre. And yes, that swipe fee was big business, especially for large banks. The Huffington Post reported today that “According to data from the Nilson Report, an industry publication, banks scored $16 billion in 2009 on debit card swipe fees, with half of the total flowing to just 10 banking behemoths.”
So “VICTORY!! For the Consumer! Swipe fee reform in June yay!” or so some thought. So in late June, the central bank reduced the cap on swipe fees to 21 cents, plus 0.05 percent of the transaction amount and 1 cent to cover the costs of protecting against fraud. All told, the Fed said it will allow banks to charge a maximum of 24 cents per transaction, on average. Keep in mind this is pinned on to the tale end of credit card reform, and new regulations limiting certain types of overdraft fees banks can charge. Oh and please, don’t forget the absorption of so many failed financial institutions into already teetering financial institutions (WaMu to JP Morgan Chase, Wachovia to Wells Fargo, Countrywide and Merrill Lynch to Bank of America…)
So now I ask, and where, my American Consumer friends, is the income to be generated? Hundreds of thousands of jobs have been lost in the financial industry of the past few years, fee income has been cut, so the next step on the budget is new fee generation.
$5 a month to use a debit card, outrageous! I’m cutting my card up right now!
WAIT!
Think about it, you could purchase checks and use them instead, leaving yourself more open to fraud (hello, your account number is right on those things!) at a crazy price of $20 a box for a mere 150 transactions. Your debit card is still your friend. Advantages like 0 fraud liability and increased personal security are definitely worth that five bucks a month! (No, I don’t work at B of A.)
Before you get more angry at me, let me compliment you:
Consumers! You! Are! Empowered!
There is a shinning light at the end of your financial tunnel of dooooom! It’s sitting quietly in your neighborhood and it’s been there for years. Your local Credit Union.
Oh banks hate them, and people love them.
A CU is a not for profit financial cooperative, and no you don’t have to be a union worker to join one. Even if you don’t fit into a niche credit union such as those for our Armed Forces, Firefighters and Teachers, you DO fit into the field of membership of your community credit union. Do some research and you’ll easily find one.
Why are they better? They are member owned, governed by volunteers, federally insured by the NCUA (an organization similar to that of the FDIC), customer service based, and investments in their communities. The Credit Union I belong to charges no membership fee and only requires a $1 deposit into a share savings account for membership. My checking account is free as long as I use it and it doesn’t sit inactive. I don’t HAVE to have direct deposit. I don’t HAVE to use my debit card so many times a month. I don’t HAVE to keep a minimum balance and I don’t have ANY service charges. My online banking and bill pay are free. My debit card is free and I don’t have to pay a fee to talk to a service rep. *happy dance*
That said, I’m closing my B of A account, but mostly because, since I joined my Credit Union over a year ago, I just don’t use it anymore. I thought I had to have a national account incase I was traveling but thanks the the Credit Union Co-Op network, I have over 25,000 surcharge free ATM’s I can use across the U.S. and Canada. A lot of those, even take deposits! I can even use the ATM at 711 for free, yeah part of the Co-Op network.
So now, I’m going to give you some additional reading:
This day my world changed, the collapse of WaMu. The Wall Street Journal.
About TARP. FRB
Swipe Fee Reform in June of 2011. The Huffington Post
The Credit Union Difference. CUNA
I feel so much better now, although I still have much to say on this topic. If you’ve made it this far, I DO appreciate your dedication to reading my rant and thank you for hearing out my humble opinion.
xoxo,
~Kapow