Today, I saw two very different reactions to moves made by two different banks. One bank was once considered "too big to fail." The other is a tiny blip in the banking world.
How they reacted to upcoming regulatory changes says everything about their corporate culture.
Bank of America made the incredibly stupid decision to start charging debit card users five dollars a month.
On the same day, a local bank in Richmond Kentucky decided to close a small branch.
In my new book, Wealth Without Wall Street: A Main Street Guide to Making Money I encourage people to use debit cards and not use credit cards at all. My primary reason for a no credit card philosophy is to keep people from going into debt and encourage using a debit card.
Bank of America went a different direction. They want to gouge customers, especially small customers, who can't afford $60 in fees a year, in an attempt to make an estimated $3 billion in profits.
Just three years ago, the Congress of the United States authorized nearly $100 billion in bailout money to Bank of America. They took some of that taxpayer money to buy Merrill Lynch.
Instead of saying "thank you" Bank of America chose to tell the taxpayers ______ you.
I got the word today that a local bank is closing the branch near to my office. Like a lot of financial institutions, profits have to be down and they are tightening their belts where they can.
What they did not do is try to stick it to their loyal customers. I don't see them charging five dollars a month for debit cards.
I have a chapter in Wealth Without Wall Street about a cause Arianna Huffington started -- 'move your money' from a "too big to fail" bank to a local bank.
I did a long time ago. I won't be paying debit card fees to some Wall Street bank.
Moebs Services research shows that overdraft fees in 2009 averaged $35 for large banks compared to $25 for small banks. A similar gap existed with bounced check fees and stop-payment orders.
Personal service is another point in favor of small banks. According to J.D. Power and Associates (and quoted on the moveyourmoneyproject.org website), "small banks have consistently rated higher in overall customer satisfaction than their Wall Street counterparts and that gap has only widened in the last few years."
Supporting small business is another benefit that 'move your money' touts. According to FDIC data, 57 percent of bank assets are with the 20 largest banks, but only 28 percent of small-business lending comes from that top 20. Small banks (defined as under $1 billion in assets) provide 34 percent of the loans, and mid-size banks (assets between $1 billion and $10 billion) provide 20 percent of the loans.
Although data shows that moving money from a Wall Street bank has benefits for the consumer and for Main Street, a primary motivation for the 'move your money' movement is to decrease the power of Wall Street banks and their role in the financial markets.
It took $700 billion in taxpayer money to bail out Wall Street banks in 2008. Most of the losses for Wall Street came from casino-like trading in a financial instrument called derivatives. Few of the losses came from loans, deposits, or services traditionally done by banks.
It was more profitable for big banks to act as gamblers rather than as deposit and lending institutions. The quest for profits, documented in books such as The Big Short: Inside the Doomsday Machine by Michael Lewis and Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves by Andrew Ross Sorkin, set Wall Street up for a huge crash.
Wall Street banks have not learned much from their 2008 near-death experience. According to a report issued by the U.S. comptroller of the currency, in the fourth quarter of 2010, four of the biggest Wall Street banks held 95 percent of the derivatives for the entire banking industry.
In other words, JP Morgan Chase, Citigroup, Bank of America, and Goldman Sachs have 95 percent of the exposure to losses in the derivatives market. The other 6,349 banks in the United States have 5 percent.
It's stunning to see Wall Street banks go back into a derivatives market after being burned so badly. It's like watching someone jump out of a sixth-floor window, survive the fall, and go up to the eighth floor and try it again.
Bank of America's move on debit cards was the classic sign of a bank that doesn't "get it." It's the classic jump out of the eighth floor window. Totally clueless as to how people on Main Street would react.
The debit card debacle makes it easy to show that if you have money at Bank of America, you should be moving it.
Like today.
Don McNay, CLU, ChFC, MSFS, CSSC is the bestsellling author of the book Wealth Without Wall Street: A Main Street Guide to Making Money
McNay, who lives in Richmond Kentucky, an award-winning financial columnist and Huffington Post Contributor. You can learn more about him at www.donmcnay.com
He is the Chairman of the Board for the McNay Group (www.mcnay.com) which provides structured settlement consulting for injury victims, lottery winners, and the families of special needs children.
McNay founded Kentucky Guardianship Administrators LLC, which assists attorneys in as conservators and setting up guardianship's. It is nationally recognized as an administrator of Qualified Settlement (468b) funds.
Follow Don McNay on Twitter: www.twitter.com/Donmcnay
Rep. Brad Miller: Against More Bailouts? Watch the Backdoor.
BofA Plans $5 Monthly Fee for Some Debit-Cards - Bloomberg
Durbin Slams Bailed-Out Bank Of America Over New Debit Card Fee
Bank of America blames new $5 debit fee on Durbin measure - The ...
More bad news for bank customers: Debit card fees - Yahoo! Finance
where they do business, it also seems rather obvious that BOA isn't charging everyone...just those who choose to continue to bank there.
Bank of America bought Merrill Lynch and Countrywide at what they thought were fire-sale prices and it turned out that they brought some baggage with them. Oops. Bad business decision.
Now, we're supposed to absolve Merrill Lynch and Countrywide of their culpability in some business decisions that helped to tank the economy, while allowing Bank of America to continue some of those same bad business practices and at the same time we're supposed to be grateful to Bank of America for buying these two companies.
Oh, and many of the senior executives in Merrill Lynch and Countrywide are now senior executives at Bank of America.
Good deed? Really?
In fact, I noticed B of A is experiencing some server delays today. That's probably indicative of others who may be overloading their website right now with the same intent of pulling out their accounts.
@shama144 -- What do you think I've been doing the past couple of years to get to this point in the first place?
I've already contacted many other mortgage companies -- small and large -- over the past couple of years. They've all looked at my numbers and told me honestly that for the amount remaining they couldn't take me (not worth a profit for them as a carrier, or for me either), but that I was being smart for what I'm presently doing.
FACT: Dodd-Frank took an axe to a major revenue stream for banks- Interchange Fees. If the Federal Government told Coca-Cola that they can only charge $0.50 for a 2 liter bottle of soda, do you think they would just say "oh ok, thank you!" and lose all of that money? No! The result is a charge passed on to the consumer, otherwise debit cards are a losing proposition, and despite what you've been told banking is a business and a business exists to MAKE MONEY.
Common sense, try it out some time.
As an alternate example, if Starbucks decides that I can still buy my coffee for the same price but have to pay $5 additional for a cup - I'll go elsewhere. Starbucks soon will go out of business as people stop using their services. Businesses remain viable by keeping their consumers satisfied and desiring to return for more. THAT'S common sense. BofA is acting suicidally. The market will react, they'll lose money as people bail out and then BofA will expect the 'little people' to once again bail THEM out so they dont crash. How about not cutting your own throat to support a greedy corporations drive for bigger profits?
FACT: The growing use of electronic banking is rendering branch locations virtually obsolete. Most banking customers, especially younger ones (who are representing more and more market share) have no need to go into a bank branch. Paychecks are direct deposited, money can be transferred, withdrawn, and deposited at an ATM. It is EXTREMELY costly to maintain a network of physical branches, especially how many BofA has. As less and less people use them, the less sense it makes to keep them open.
FACT: Your tiny little checking account with $200 in it is not profitable to the bank. In fact, the combined use of your debit card, account, and checks actually cost the bank money unless you maintain a certain balance to offset it. You may not be aware, but banks have loads of cash on hand right now. They are not making money off of it because demand for lending is down. The last thing they need is more cash since they are struggling to find places to put it to use. Despite your idea that "they make money off of my money", it doesn't always work that way.
Rather than being a raving lunatic, it helps to view things like this from a different perspective.