Thursday, April 22, 2004
Giant banks feasting on little people
Fee, fie, foe, fum...
Commentary: Giant banks feasting on little people
By Chris Pummer CBS MarketWatch
April 22, 2004
SAN FRANCISCO (CBS.MW) -- In a California Senate hearing room, officials of Wells Fargo and Bank of America did their utmost to explain why their banksare picking the pockets of the poor.
The issue: How come two leading U.S. banks charge workers $5 to cash payrollchecks drawn on their employers' accounts at the banks, when doing soviolates a nearly 100-year-old state labor law.
BofA and Wells this week arefacing class-action suits from employees and employers over the practice."They're basically requiring people to pay them to get paid," said Democratic state Sen. Dean Florez, who convened the special hearing last month on the banks' fees. "They've hit the lowest of the low. This is justmorally bankrupt."The dubious fee is the latest glaring example of how banks, brokerages andother financial-service firms are nickel-and-diming Americans of modestmeans in their relentless rush to boost "fee-based income."
As Consumer Reports notes in its latest issue, fee income is a major profitcenter for the financial-services industry, as borne out by severalfirst-quarter earnings reports. Banks once generated profits by lending outdepositors' money. Now, they make them on huge markups on "services"provided to depositors.
Americans paid an estimated $216 billion in such fees last year. The larcenyis that many fees, as Consumer Reports notes, "are no-see-ums embedded infine print or collected so seamlessly that consumers don't realize they'vepaid them until long after the fact." That is, if they ever do."
Wells Fargo holds itself up as a leader of the community," said Donna Chaffee, co-owner of 60-employee Ability Answering Service in Bakersfield,Calif., the lead plaintiff in a class-action suit set to be filed againstthe bank, following a similar suit against BofA filed Wednesday. "Butthey're not. They're a thief in the night."The ways in which the money handlers are extracting add-on charges forelectronic transfers that cost a pittance have become remarkable:
* Overdraft charges now run as much $35 per "insufficient funds" checkpresented, even though it costs banks less than $1 to process a check thatthey don't honor, according to Consumer Reports' findings.
* Many credit-card issuers have cut the grace period for payment from31 to as little as 20 days -- without deducting for the mailing period onstatements. That's a calculated move to boost late-payment fees. Some alsohold payments not returned in preprinted envelopes for five-days, claimingthat extends processing time, further triggering late fees.
* Some stock-brokerage firms such as E-Trade charge $5 to $10 to cutcustomers a check for proceeds of a stock sale or an exercise of stockoptions. The account holders have no choice but to pay -- the money is heldhostage otherwise.
* Some banks charge fees of $5 to $10 if a savings account paying awhopping 0.25 percent or so in annual interest falls below a certainminimum. Forget that they're lending out deposits on 6 percent mortgages or19 percent credit cards. The privileged fewI got hit with such a charge from Wells Fargo when the savings account Imaintained for overdraft protection fell below the requisite $300 level.
When I complained the bank was charging me for a savings account, I discovered I'm actually an individual of high standing who can escape such afleecing.A bank manager said that because I had more than $25,000 in assets or debtswith the bank (in my case, it's unfortunately a deeply tapped home equityline of credit), I qualified for a "Portfolio Management Account" thatwaives all sorts of extraneous fees.
And therein lies the injustice -- Americans of greater means don't have tosuccumb to the banks' chicanery. Banks don't want your business any more ifyou're not a fat cat. And so they stick it to those who aren't by slammingthem with fees for what once was simply the cost of doing business.
Under the charters that banks receive from the federal and stategovernments, they're obligated to serve the public in a nondiscriminatoryfashion. Trouble is, states that find the major banks' bias based on incomelevels objectionable will likely find any law curbing the practice slappeddown by federal appeals courts that rule national banking laws preempt statestatutes.
The banks' obsession with fees would be forgivable if they charged apass-along cost or a slight markup to small-account holders. Instead, theyextract windfall profits from middle-class Americans -- further evidence ofwhy the rich get richer and the rest of us struggle.Some banks have rigged their processing software to maximize fees againstoverdrawn customers. Presented with one $225 check and five $20 checks on anaccount containing $200, the banks will first "honor" the $225 check andcharge an overdraft fee -- and then not cover the five others. That way,they're $25 in the hole but reap six overdraft charges, when they could havepaid the five smaller checks out of the account, declined the $225 check forinsufficient funds, and reaped just one overdraft charge.That's not something your friendly neighborhood banker of old would havedone.
Is this what deregulators envisioned?
Banks argue that their fee structure is a result of 1980s deregulation --the very deregulation they fought for to enter nonbanking activities such asmutual funds and insurance.Deregulation made the lending business far more competitive and cut intoloan margins, which turned banks' profit sights onto depositors. The shift,already well under way in the 1990s, became more pronounced in the newmillennium as interest rates hit 50-year lows and loan margins got squeezedeven tighter.
A BofA spokesman noted that account-holders have reaped incredible benefitsin the last 20 years with the availability of ATMs, debit cards and onlinebill-paying -- and said suggesting that banks are profiteering from thoseservices is "an oversimplification."Yet each of those "enhanced services" has been a far greater benefit tobanks than to consumers:
* ATMs may afford us far greater access to our money than in the dayswhen banks stayed open only from 9-to-3 Monday through Friday, but they'vevastly reduced the need for tellers and paper processors, and reap billionsin fees for the steep markups on "outsider" usage.
* Visa reported this week that its total debit-card transactionsexceeded credit-card transactions in 2003. Debit cards have been a godsendto banks in eliminating the cost of processing and storing checks that mighthave been used instead of the cards. Banks also reap percentage fees frommerchants just as they receive on credit cards. And they minimizenonpayments on credit cards, since the money is immediately taken from thecardholder's checking account.
* Online bill-payment, running about $5.95 a month, similarly reducesthe cost of processing and storing paper checks, but account holders mustpay for this cutting-edge "privilege." In short, the technology that banks masterfully employed to slash theircosts have also been the means for boosting fee-income on "improved"services.
One journalist's question on fairness
The California hearings were kicked off by a series of columns by David Lazarus of the San Francisco Chronicle. Lazarus noted how the fees chargedto workers cashing paychecks violated a 1911 state law prohibiting employers"or their agents" from extracting a premium in the process.
Florez, whose Central Valley farming district is a temporary home to many migrant field workers, took up the issue. Migrant workers are especiallyhard hit by the fees, which at $250 a year based on their weekly paychecksconsume a week's worth of income.The banks argued that workers could escape such fees if they and theiremployers opened direct-deposit accounts with the bank. But migrant workersdon't know what bank will have branches in their next destination, be itpicking apples in Washington or field crops in Mississippi. They can't put apermanent address on their checks. And checks with their last temporaryaddress wouldn't likely be honored in the next state they migrate to.
The banks' solution was offensive to some small-business account holders,who are also getting raked. Namely, they must pay a fee for every deposit they make -- an unconscionable charge in its own right.
Add to that selective application of the fees. San Francisco Treasurer Susan Leal threatened to pull the city's payroll account from BofA upondiscovering it imposed paycheck-cashing fees on the city's 27,000 workers,prompting BofA to waive the fee to keep a major client. In testifying why they charge the fees, the banks said that no-accounts(that's actually what they're called) crowd teller lines and cause delaysfor bona fide customers. God forbid the Great Unwashed should enter their branches.
They also made no bones that their aim was to pressure these payroll recipients and their employers into opening direct-deposit accounts -- whichof course would yield greater fees for the banks from the small-businessemployers and their "free-checking" account employees. It's nothing short oflegalized extortion.
As controller of the Karis House, a nonprofit that runs several Californiagroup homes for delinquent boys, Jim King said he stepped up as leadplaintiff in the employer class action against BofA because the bank chargedone of his employees $5 to cash a $13 expense check drawn on the company'saccount."That's just extortion, using leverage to get our employees to open anaccount," King said. "Some of our employees have to work an hour just tocash a check."In this day and age, it doesn't just take money to make money; it now takes money to preserve what little money you have."
Banks learned that the fee you didn't know you had to pay when you comparison-shopped never entered into your purchase decision," said DouglassFreeman, CEO of NetBank, who formerly worked for both Wells Fargo and BofA." In the mouse type, they hide a lot of disclosures."Forgive me, but isn't highway robbery still illegal in this country?
Commentary: Giant banks feasting on little people
By Chris Pummer CBS MarketWatch
April 22, 2004
SAN FRANCISCO (CBS.MW) -- In a California Senate hearing room, officials of Wells Fargo and Bank of America did their utmost to explain why their banksare picking the pockets of the poor.
The issue: How come two leading U.S. banks charge workers $5 to cash payrollchecks drawn on their employers' accounts at the banks, when doing soviolates a nearly 100-year-old state labor law.
BofA and Wells this week arefacing class-action suits from employees and employers over the practice."They're basically requiring people to pay them to get paid," said Democratic state Sen. Dean Florez, who convened the special hearing last month on the banks' fees. "They've hit the lowest of the low. This is justmorally bankrupt."The dubious fee is the latest glaring example of how banks, brokerages andother financial-service firms are nickel-and-diming Americans of modestmeans in their relentless rush to boost "fee-based income."
As Consumer Reports notes in its latest issue, fee income is a major profitcenter for the financial-services industry, as borne out by severalfirst-quarter earnings reports. Banks once generated profits by lending outdepositors' money. Now, they make them on huge markups on "services"provided to depositors.
Americans paid an estimated $216 billion in such fees last year. The larcenyis that many fees, as Consumer Reports notes, "are no-see-ums embedded infine print or collected so seamlessly that consumers don't realize they'vepaid them until long after the fact." That is, if they ever do."
Wells Fargo holds itself up as a leader of the community," said Donna Chaffee, co-owner of 60-employee Ability Answering Service in Bakersfield,Calif., the lead plaintiff in a class-action suit set to be filed againstthe bank, following a similar suit against BofA filed Wednesday. "Butthey're not. They're a thief in the night."The ways in which the money handlers are extracting add-on charges forelectronic transfers that cost a pittance have become remarkable:
* Overdraft charges now run as much $35 per "insufficient funds" checkpresented, even though it costs banks less than $1 to process a check thatthey don't honor, according to Consumer Reports' findings.
* Many credit-card issuers have cut the grace period for payment from31 to as little as 20 days -- without deducting for the mailing period onstatements. That's a calculated move to boost late-payment fees. Some alsohold payments not returned in preprinted envelopes for five-days, claimingthat extends processing time, further triggering late fees.
* Some stock-brokerage firms such as E-Trade charge $5 to $10 to cutcustomers a check for proceeds of a stock sale or an exercise of stockoptions. The account holders have no choice but to pay -- the money is heldhostage otherwise.
* Some banks charge fees of $5 to $10 if a savings account paying awhopping 0.25 percent or so in annual interest falls below a certainminimum. Forget that they're lending out deposits on 6 percent mortgages or19 percent credit cards. The privileged fewI got hit with such a charge from Wells Fargo when the savings account Imaintained for overdraft protection fell below the requisite $300 level.
When I complained the bank was charging me for a savings account, I discovered I'm actually an individual of high standing who can escape such afleecing.A bank manager said that because I had more than $25,000 in assets or debtswith the bank (in my case, it's unfortunately a deeply tapped home equityline of credit), I qualified for a "Portfolio Management Account" thatwaives all sorts of extraneous fees.
And therein lies the injustice -- Americans of greater means don't have tosuccumb to the banks' chicanery. Banks don't want your business any more ifyou're not a fat cat. And so they stick it to those who aren't by slammingthem with fees for what once was simply the cost of doing business.
Under the charters that banks receive from the federal and stategovernments, they're obligated to serve the public in a nondiscriminatoryfashion. Trouble is, states that find the major banks' bias based on incomelevels objectionable will likely find any law curbing the practice slappeddown by federal appeals courts that rule national banking laws preempt statestatutes.
The banks' obsession with fees would be forgivable if they charged apass-along cost or a slight markup to small-account holders. Instead, theyextract windfall profits from middle-class Americans -- further evidence ofwhy the rich get richer and the rest of us struggle.Some banks have rigged their processing software to maximize fees againstoverdrawn customers. Presented with one $225 check and five $20 checks on anaccount containing $200, the banks will first "honor" the $225 check andcharge an overdraft fee -- and then not cover the five others. That way,they're $25 in the hole but reap six overdraft charges, when they could havepaid the five smaller checks out of the account, declined the $225 check forinsufficient funds, and reaped just one overdraft charge.That's not something your friendly neighborhood banker of old would havedone.
Is this what deregulators envisioned?
Banks argue that their fee structure is a result of 1980s deregulation --the very deregulation they fought for to enter nonbanking activities such asmutual funds and insurance.Deregulation made the lending business far more competitive and cut intoloan margins, which turned banks' profit sights onto depositors. The shift,already well under way in the 1990s, became more pronounced in the newmillennium as interest rates hit 50-year lows and loan margins got squeezedeven tighter.
A BofA spokesman noted that account-holders have reaped incredible benefitsin the last 20 years with the availability of ATMs, debit cards and onlinebill-paying -- and said suggesting that banks are profiteering from thoseservices is "an oversimplification."Yet each of those "enhanced services" has been a far greater benefit tobanks than to consumers:
* ATMs may afford us far greater access to our money than in the dayswhen banks stayed open only from 9-to-3 Monday through Friday, but they'vevastly reduced the need for tellers and paper processors, and reap billionsin fees for the steep markups on "outsider" usage.
* Visa reported this week that its total debit-card transactionsexceeded credit-card transactions in 2003. Debit cards have been a godsendto banks in eliminating the cost of processing and storing checks that mighthave been used instead of the cards. Banks also reap percentage fees frommerchants just as they receive on credit cards. And they minimizenonpayments on credit cards, since the money is immediately taken from thecardholder's checking account.
* Online bill-payment, running about $5.95 a month, similarly reducesthe cost of processing and storing paper checks, but account holders mustpay for this cutting-edge "privilege." In short, the technology that banks masterfully employed to slash theircosts have also been the means for boosting fee-income on "improved"services.
One journalist's question on fairness
The California hearings were kicked off by a series of columns by David Lazarus of the San Francisco Chronicle. Lazarus noted how the fees chargedto workers cashing paychecks violated a 1911 state law prohibiting employers"or their agents" from extracting a premium in the process.
Florez, whose Central Valley farming district is a temporary home to many migrant field workers, took up the issue. Migrant workers are especiallyhard hit by the fees, which at $250 a year based on their weekly paychecksconsume a week's worth of income.The banks argued that workers could escape such fees if they and theiremployers opened direct-deposit accounts with the bank. But migrant workersdon't know what bank will have branches in their next destination, be itpicking apples in Washington or field crops in Mississippi. They can't put apermanent address on their checks. And checks with their last temporaryaddress wouldn't likely be honored in the next state they migrate to.
The banks' solution was offensive to some small-business account holders,who are also getting raked. Namely, they must pay a fee for every deposit they make -- an unconscionable charge in its own right.
Add to that selective application of the fees. San Francisco Treasurer Susan Leal threatened to pull the city's payroll account from BofA upondiscovering it imposed paycheck-cashing fees on the city's 27,000 workers,prompting BofA to waive the fee to keep a major client. In testifying why they charge the fees, the banks said that no-accounts(that's actually what they're called) crowd teller lines and cause delaysfor bona fide customers. God forbid the Great Unwashed should enter their branches.
They also made no bones that their aim was to pressure these payroll recipients and their employers into opening direct-deposit accounts -- whichof course would yield greater fees for the banks from the small-businessemployers and their "free-checking" account employees. It's nothing short oflegalized extortion.
As controller of the Karis House, a nonprofit that runs several Californiagroup homes for delinquent boys, Jim King said he stepped up as leadplaintiff in the employer class action against BofA because the bank chargedone of his employees $5 to cash a $13 expense check drawn on the company'saccount."That's just extortion, using leverage to get our employees to open anaccount," King said. "Some of our employees have to work an hour just tocash a check."In this day and age, it doesn't just take money to make money; it now takes money to preserve what little money you have."
Banks learned that the fee you didn't know you had to pay when you comparison-shopped never entered into your purchase decision," said DouglassFreeman, CEO of NetBank, who formerly worked for both Wells Fargo and BofA." In the mouse type, they hide a lot of disclosures."Forgive me, but isn't highway robbery still illegal in this country?
# posted by Senator Dean Florez @ 7:24 AM 
