Friday, May 29, 2009

USA Today: Banks Find Ways to Boost Fees

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We've discussed this in numerous posts (like shouting into the wind) - as we concentrate more and more power FROM "too big to fail" institutions INTO "even too bigger to fail" institutions, we remove competition and create near oligopolies. So as we "wipe off the sweat" that we "saved" the system, we can know that our taxdollars created monsters that will be raising fees every which way but loose. You'd scoff at that when you throw in my face how we have 8000+ lending institutions in America hence the country is FULL of competition. In retort I will say to you - please burn this table into your head.... Top 50 Bank Holding Companies

I only wish I had a before and after to show you how these have grown....
Just remember

Old: JP Morgan (JPM) is now New: JPMorgan + Bear Stearns + Washington Mutual (the largest S&L in America)
Old: Wells Fargo (WFC) is now New: Wells Fargo + Wachovia (previously the 4th largest institution)
Old: Bank of America (BAC) is now New: Bank of America + Countrywide + Merrill Lynch
Old: Citigroup (C) ... well that's just a mess

Even #5 on this list (I'm only looking at commercial US based banks) is PNC Financial (PNC) which bought up National City ... but what I want you to concentrate on is how many assets are now concentrated in your Super 4. I don't know how many assets are in the total US financial sphere but let me leave you with this, the 50th ranked institution has $15 billion in assets. So you can imagine what institution #500, or #2000 or #5000 has.

Top 4 (as of 3/31/09):
  1. Bank of America: $2.3 Trillion
  2. JPMorganChase: $2.1 Trillion
  3. Citigroup: $1.8 Trillion
  4. Wells Fargo: $1.3 Trillion
Then we have a couple of investment banks, 2 foreign banks than really the 5th largest US based commercial bank is PNC at $287 Billion. Just to show you the GULF between #4 and #5

So remember that as the government insists concentrating power into a few huge players is the "right thing" and "free market competition" - I am not going to bother with the math but let's be clear that something like $7.5 Trillion of assets is in the hands of 4 political donors... err financial institutions and the other 7996 commerical banks make up the other 5-8% of the commercial banking system.

So as Obama shuts down the door on egregious credit card fees let's see what's happening in bank fee land! Home of free and open competition, because surely your local credit union can compete with federally supported Bank of America. And if you are reading this blog you probably know the general financial literacy rate in this country - i.e. boom times for banks coming.

Via USA Today
  • For the past year, banks have raised credit card rates to levels that sparked consumer outcry, regulatory scrutiny and congressional action. A law President Obama signed last week aims to stop the most egregious practices.
  • But even as outrage was building over credit cards, banks seized upon another way to squeeze profits out of struggling consumers: higher checking account fees. These fees can add up to hundreds of dollars before consumers know there's a problem.
  • .....banks are extending some of their most profitable — and controversial — credit card practices to checking accounts. (boo yah! p.s. thanks for the bailout money folks) For example, banks are making it easier and more punitive for consumers to spend more than they have in their checking accounts, just as they allow consumers to spend past their card limits and charge them a steep fee for doing so. Some analysts believe that new credit card restrictions will only accelerate fee increases on bank accounts.
  • In June, Bank of America (BAC) will raise its monthly fee on certain checking accounts and impose a fee on accounts that remain overdrawn. SunTrust (STI), meanwhile, is starting to charge customers a higher fee when they overdraw multiple times. Wachovia, now a part of Wells Fargo (WFC), has made it more expensive for some customers to transfer funds to cover overdrafts. And Citigroup (C) has raised foreign-transaction fees on debit cards.
  • "It's a double whammy," says Michael Moebs, founder of Moebs Services, an economic research firm in Lake Bluff, Ill. "The American consumer as a taxpayer was asked to put up $700 billion (for bank bailouts), and now they're getting another whammy from banks increasing fees." (enough of the whining Mr Moebs! Oligarchs want this, oligarchs deserve this - they are hard working folk who got us into this mess, and their political campaign contributions are what keeps this country ticking. Where would we be without their contributions to society. Do you realize how many less politicians would move on to excellent multi million jobs in the financial lobbyist sector post "graduation" from Congress?)
  • Banks are raising account fees because of a "mix of market power and opportunism," says Simon Johnson, a former chief economist for the International Monetary Fund who teaches at MIT's Sloan School of Management. "They are supposed to act in the interest of shareholders, so they're gouging consumers." (well I can't tell Simon to be quiet because I like Simon - but try to keep your comments on your blog and not in USA Today)
[May 7, 2009: Simon Johnson Comments on Stress Test]
[Apr 21, 2009: Simon Johnson on Yahoo Tech Ticker]

I know I've asked you to sit down a lot today, but please bear with me. You HAVE to sit down when you read this as you realize we've sacrificed all of Americans savers to push rates down to 0-0.25% so that the banks can "borrow cheap, lend expensive" and make tons of money to combat disaster on their balance sheets
  • Banks may also be raising some account fees to compensate for higher borrowing costs (did he say this with a straight face? If so, that's why he gets the big bucks. Higher than almost zero I presume Mr Talbott?) and to keep prices in line with other financial institutions, says Scott Talbott of the Financial Services Roundtable, which represents the nation's largest banks. (folks I can't make this stuff up)
Let me go to a more shall we say, unbiased source
  • "These fees are like germs. They have a tendency to spread," says Gail Hillebrand, senior attorney at Consumers Union, which publishes Consumer Reports. The fees are "all based on the same bad business model," she says, in which consumers are promised one price and then later are loaded up with back-end fees.
Sort of like a snake oil salesmen (no offense to the snake oil selling readers) but with political cover?

Let's take 1 example and trust me folks, a lot of people are their own worst enemy - this I realize.
  • Chelsea Reyes, 25, got hit with almost $600 in fees for 17 overdrafts — five on small-dollar-amount transactions ranging from $2.67 to $7.09 — during three days in May. Reyes says she had sufficient funds in her Wells Fargo accounts. However, she mistakenly transferred money into savings, causing her to overdraw her checking account.
  • But the overdraft fees cleaned out the savings she and her husband, J.C. Reyes, had been building up. Although the bank later refunded $227.50 in fees, Reyes says she was forced to borrow $500 from Wells Fargo's Direct Deposit Advance service to pay back the rest.
Well that took care of the savings I suppose.
  • "If I didn't do the advance, I don't know how I'd buy formula for our son," says Reyes of Novato, Calif.
Priorities, priorities - we have oligarchs to feed. Your child comes 2nd; this is America.
  • Reyes acknowledges making a mistake but says she doesn't understand why the bank would let her repeatedly overdraw her account without immediately notifying her.
Must of missed the 4 font print.
  • If consumers overspend by $20 — the median amount of a debit card overdraft — and get charged $27, their effective annual percentage rate would be 3,520%, assuming they paid the money back in two weeks, a 2008 report by the Federal Deposit Insurance Corp. found.
Sounds like a good business.

Here is the kicker....
  • The FDIC study found that overdraft fees represented 74% of banks' service charges on deposit accounts.
So effectively, Americans being Americans is 3/4th of the income on depost accounts. Nice!

In "real terms" we can all understand now that we've become numb to billions and trillions?
  • Overall, the fees are likely to cost consumers $39 billion this year.
Wow, that would cover 1 bailout to Citigroup!

Here comes the white horse! Our trusty regulator who missed almost everything the past decade.
  • The Federal Reserve is weighing whether to crack down on automatic overdraft protection. But advocates say a Fed rule — expected later this year — won't tackle the worse abuses.
  • The agency's proposed rule, for instance, doesn't cap overdraft fees, require banks to disclose the overdraft interest rate or prevent them from "manipulating" the order of checks and debits to maximize overdraft fees, says Jean Ann Fox of the Consumer Federation of America.
Ok maybe not.

Well I guess we'll have to wait for Obama.

But this raises a bigger question - and probably one we need to wrestle with as a society in ALL parts... is it really all just about shareholder profits?
  • The question the government needs to answer in weighing reform, says Peter Tufano, a senior associate dean at Harvard Business School, is "if fees help banks improve their financial health but weaken consumers' financial health, is this a net good or bad for the economy?"
  • Tufano says banks should be able to come up with business models that deliver sustainable profits without hurting consumers.
But really why should they bother? This model is working like a charm and with regulators by your side... it's another win / win / win in Reverse Robin Hood society.

Let's look at some specific cool new "competitive" fees
  • In June, Bank of America will increase its monthly account-maintenance fee on its MyAccess checking to $8.95 from $5.95. The bank will also begin charging a one-time fee of $35 if consumers' accounts remain overdrawn for five business days. And it has increased the number of times customers can get hit with overdraft fees per day to 10 this year, from five last year.
  • Wachovia is doubling — to $10 — the fee to transfer money to checking to cover insufficient funds on some accounts. The bank will also start charging that fee to a credit card, (now that's rich) rather than taking it from a linked bank account, meaning consumers could pay interest on that amount.
  • Some new bank fees are strikingly similar to those that have already taken hold on credit cards. For instance, SunTrust began charging in May a higher fee on its basic checking if customers overdraw multiple times — similar to what banks have done with late fees on credit cards. The bank also raised its overdraft fee on other bank accounts. SunTrust says its changes are "consumer friendly."
So let me end it with one last note - as you chuckle at the $39 billion as child's play and say Mark... this is only checking account fees; that's how capitalism works you ninny! The banks are a virtuous bunch otherwise and you sir, are an alarmist (not to mention a socialist and you should move to a communist country ....like Canada.... if you don't like it), I'll offer you this: "just you wait kiddo!"
  • Overdraft fees aren't the only ones rising. ATM fees, monthly service fees and balance requirements for interest checking accounts all hit highs in 2008, before adjusting for inflation, according to Bankrate.com, a bank comparison site. Even after inflation adjustments, ATM fees are at record levels.
  • In 2009, consumers should expect more of the same. Says Greg McBride, senior analyst at Bankrate.com, "A lot of these fees will continue to march higher as long as the sun rises in the East."
I just knew as I was typing entry after entry over the past year that concentrating power into fewer and fewer hands was the blueprint for prosperity! Just ask Venezuela!

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