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State official proposes withdrawing state money from banks that don't offer free checking
By adamg on Fri, 03/02/2012 - 8:18am
The Boston Business Journal reports that Secretary of State Bill Galvin will ask for legislation requiring state agencies to withdraw all their money from banks that continue to try to find new ways to charge residents for access to their own money, such, as oh, Bank of America.
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The state should use only local Massachusetts-based banks
Regardless of the fee issue, why should Massachusetts deposit money in banks based outside the state? Put it in local banks that will reinvest it locally.
Why shouldn't the banks charge
They provide a service and they should be paid for it. There's no right to "free checking". It came about because banks were making money in other ways....charging business for debit card transactions for one. The government has since limited the banks abilities to charge these fees, so they need to make that money back someone. Banks are businesses with investors who want to bank to maximize profits. It's not a government agency providing services for residents out of the goodness of their hearts.
They can charge...
... but it's gone from pricing for services to price-gouging.
I was well (as in 2-5K) above the minimum for free checking at BoA for 12 years when they started charging me a fee. Their "rationale"? I didn't have direct deposit.
Hint, jackasses, there's no such thing as direct deposit for caregivers. Or independent contractors. Or business owners. Or any of a number of other earners who don't get paid electronically.
I moved my accounts to a local savings bank last summer, which _is_ making money. My husband (who does have direct deposit) moved his in the fall.
BoA (and all banks) make money by loaning out and charging interest, and charging fees for transactions. They retain customers by making those charges seem reasonable and fair. They lose customers by raising those rates beyond what we're willing to pay. Free market at work.
BoA and others want to pay bigger dividends to shareholders even though they're losing money. So they're going to gouge small -- and not-so-small -- account holders.
Smaller banks and credit unions aren't trying to maximize dividends, so they only have to make a profit. Not an extreme margin.
Time to move your money, folks.
It's my money
The bank gets the use of my money, free. I don't expect interest payments (such as I do from my savings account), but I do expect to be able to get at my money without paying the bank for the pleasure. This is a pretty simple to understand relationship. At BoA I was willing to pay an annual fee for a debit card which allowed me to earn airline miles; there was an extra service involved. When BoA decided to change the nature of that relationship (I pay them for simple access to my own money, while they continue to have use of that money for free), I took my business elsewhere.
Paying for a checking account isn't paying for services; it's paying dividends for the shareholders, and bonuses for the executives.
So... you think Bank of
So... you think Bank of America customers should just roll over and take it then? Many BoA customers are only BoA customers through mergers. It's shocking the number of new fees and increase in existing fees that I've seen over the past few decades. Switching banks is not a simple transaction, otherwise we'd do it.
What it really boils down to is that you would bizarrely choose to give away more of your paycheck, while some of us will rightly fight to keep our hard earned money.
True story
I was a customer in a little bank in Maryland called Equitable. Equitable was bought up by Maryland National Bank...just before NationsBank bought them. So, suddenly I found myself swallowed up into NationsBank (which became BoA). This then made me a BoA credit card customer just after the NationsBank/BankAmerica merger that created BoA. I didn't like the changes they started making and closed that account to open a FleetCard account here in Boston...just in time for them to buy Fleet and turn me back into a BoA customer.
Basically, everywhere I have put my money or held my credit, Bank of America has bought it...even when I tried to get away from them because of it.
The only respite I've found recently was to move my checking account to BU's credit union...which just merged into Metro Credit Union. I'm pragmatically waiting for the day Bank of America takes over their accounts...
I feel your pain
In Virginia, I banked with the tragically-named Perpetual Savings Bank, which wasn't - they got bought out by Sovran, which got bought by NationsBank, which became BoA.
Then I moved to Boston and banked with Fleet, which became BoA.
Meanwhile, I did my investing with Merrill Lynch, which got bought by BoA.
changing banks
I have to disagree...changing banks is actually a pretty simple procedure. I've done it many times. Basically, you withdraw everything from your account(s) except for what you need to pay outstanding checks, and a little extra so you can get cash before your new ATM card arrives. When those checks clear, you can go and officially close the account. And when you open your new account, there's no law that says your checks have to start at #101--you can order them to start at #7000 if you want to.
Tipping point reached
Yep, and it's also a free market. Customers can go to whichever bank they think gives them the fairest deal for the customer lending the bank their money. What's that? There are only so many banks because they all merged into a very few big ones now? And all of them have gotten the same idea to charge their customers for new fees because if there are only 4 banks and they all do it then the customer is constrained to accept the fees? But what about this little bank over here that didn't get swallowed up yet? He is smaller, has less people demanding insane "new" profits, and has found a new innovative way to make money without requiring fees be charged on the customer. Well then, how do we make the state take advantage of such a situation existing instead of giving tax revenue to the bank for no reason if it doesn't have to? Ah...we write a law that says the state must take advantage. Ta-da.
Capitalism is good...in moderation. It's not enough in this day and age to be successful any more...you have to always be more successful than you were yesterday. But that leaves you vulnerable to someone more nimble than you to be successful in ways you can no longer afford to do. That's the part of reality in your complaint that you don't account for. Why shouldn't the state, as a customer of the free market in banking, look to take advantage of the more nimble offering rather than simply stay where it already is simply due to apathy and sloth? This is especially true if where the state has its money now has become so successful that it
cannibalisticallycapitalistically sees its customers and not its practices or innovation as the only way to drive further success.Capitalism
doesn't breed efficiency. Competition breeds efficiency.
You don't know how many times some mouth-breather will claim otherwise. Capitalism is also not oligarchy or monopolies. As much as the GOP doesn't want to hear it, breaking up industries that become too big to fail or are too concentrated is the job of a healthy capitalist democracy.
Capitalism is like a fire. A unattended fire tends to burn bright, before it burns itself out.
Slippery Slope
While not direct control, when the state uses its access to our collective money to start controlling pricing in the private sector we have started down the toboggan trail that leads to the rabbit hole. (granted, the feds have already given the toboggan a shove)
People can decide for themselves what's a good or bad price for a product or service and there are plenty of options. I'm generally a big Galvin fan - but this is one he and the state should stay out of. They should act simply as a good steward for our money, accounting for and investing it properly and earning the most interest they can for the risk involved in that particular investment.
As for charging for access to your cash - they've been doing this for years - just not as blatantly. Galvin should be a fan of this pricing system - it's far more transparent than netting it out of the interest the bank offers you.
Seriously, "free" services - that's the ultimate in naive. It's like the people who tell you their 401k is "free" and can't explain why the company that manages your 401k owns huge buildings all over town and pays people hundreds of thousands of dollars to convince your company to use them instead of Joe Schmo or eBaby or whatever.
How do credit unions do it?
I have free checking - but my credit union gets to play with my money while they hang on to it. So it is free in that I don't pay a fee for it, but not free in that they pay me no interest on it.
You can be a real drama king sometimes. Seriously comical to imply that keeping local money local is evil. Has it occurred to you that putting that money in local banks or banks that don't charge extreme fees and push low income people into using check cashing services that demand high fees might save taxpayers money, too? Probably not. Are you aware that many of the state accounts with the huge commercial banks are the result of mergers and of bureaucrats not bothering to shop around? That these accounts may be costing the state much more than they should be? The usury doesn't stop with the small guy!
Do you own a bunch check cashing places in low income neighborhoods or something, Stevil?
Private v. Public
Credit unions are privately/member owned. While they have to at least break even to survive, they don't have to make a profit. They are in biz to serve their members/depositors. BoA (and I'm not a fan and don't do biz with them) is a publicly traded commercial bank. It's a different business altogether. They have an obligation to their shareholders to maximize the return on shareholders' investment (and obviously failed miserably a couple years ago). If they don't,the shareholders move on to someone who will, as many did and this is reflected in their share price which contributes to their ongoing woes.
People don't realize how much it actually costs to service these small accounts - BoA probably loses hundreds of millions of dollars a year on them - they've absorbed it as a cost of business but are no longer willing to do so - these fees aren't intended to make them money - they are intended to make you go elsewhere!
That's exactly my point - if you want low cost, local service - the credit union is fine and I would think most people would be well served by using a credit union. That's fine for small accounts. But like it or not, the big commercial banks offer products and services that the little guys (even Citizens in some cases) can't come close to offering. Keeping local money local isn't evil - it's just not practical when you are talking hundreds of millions or even billions of dollars (the City of Boston alone manages about a billion dollars in reserves).
I know Swirly, anyone who espouses smaller, more efficient government and free markets is a windbag, especially if they happen to know more about something than you do. Coming from the Goddess of Wind I take your frustration with me as a compliment.
Actually Swirly - you'd probably be surprised if you found out what I do and how I do it - in a nutshell I offer financial services that try to protect the little guy. Shocked?
Has the State even "Shopped Around"?
I doubt it.
I'm betting that they are paying too much to the large banks because accounts that were once in local institutions were taken over by large nationals, and nobody bothered to do the math.
My institution moved its accounts out of BoA for that very reason - they weren't competitive with local banks. I don't think we lost a damn thing in services, either.
I find it amazing that you wouldn't want the state to at least question both the cost to the state in services like food stamps and heating aid when poor people lose 10% of their pay to moneychangers, and the cost to the state of having money in banks that are known for excessive fees. Don't you think the state should at least be doing the math on the costs of keeping money in such places in both directions?
Now I agree with you
Of course they should be shopping this around, but that's not Galvin's motivation here (and I would hope the treasurer and the auditor are keeping some reasonable level of tabs on this).
Even I'd be a bit surprised if we were that inefficient. For all our flaws, Mass is one of the best in the country at managing state money (we are blessed with a lot of really talented people who've made boatloads in the private sector and are willing to take huge paycuts to work for the state).
There's always room for review and improvement - but I'm not as convinced inertia is the problem some think it is. Hope I'm wrong - there are much better places to spend our money than on bank fees.
There are significant costs to changing banks on this scale
My guess is that the cost to switch banks (changing payment systems, distributing new checks and cards, etc.) for the state would far exceed any savings they may get in lower fees, etc. for many years in the future.
OTOH, it's time to stop the hemorrhage...
... and stop putting good money after bad.
More importantly, putting money into a place where the money isn't being turned around and spent in the local economy (but paid out in dividends out-of-state) is both hurting Massachusetts' economy, and wasting the benefits paid out and the fees paid to the banks.
I'm not sure there's a direct cost (since you have to issue cards periodically every time they expire or a new person is hired, etc.), but there will be a bottleneck of transition stuff that will have indirect costs in processing delays, for sure.
And BoA had to issue new cards/checks/accountbooks when it bought Fleet. Fleet had to issue new cards/checks/accountbooks when it bought BankBoston. BankBoston had to issue new cards/checks/accountbooks when BayBank and Bank of Boston merged. This isn't a new problem for anyone involved.
Politicians doing math?
I don't see it happening. Why on earth would they want to make a smart choice based on true, numerical data?
Thats what the treasurers office does.
Invests public money for all sorts of reasons. Lottery, retirements, etc.
Whether they always make the right choices is another question but yes, they do "shop around" for different rates, banks, funds, etc.
HA!
I laugh because when I read:
"Lottery, retirements, etc."
I somehow saw lottery as larceny.
Some of these groups who do shop around, sometimes waste a lot of money in the process of finding a good deal. At least they're trying though I guess.
How much it really costs to service a basic checking account
Re: "People don't realize how much it actually costs to service these small accounts".
What's an estimate as to how much it costs to service a basic checking
account? Does it include the bank buildings property? The ATM's? The employees salaries? The computer equipment and Internet communication lines?
I'm sure there's some cost apportioned from all of the above but what's
the actual total cost? And how does it compare to other banks?
Where's the economy of scale? And the other areas of business the
bank is involved in - particularly a big one like Bank of America?
It includes everything.
If you have 100,000 people who have checking acounts with $1,000 ($100,000,000 total), and those 100,000 people make five transactions a week, the bank has to use more resources than the 1,000 people that have $100,000 in their accounts and make the same amount of transactions (26 million transactions a year compared to 260,000 transactions a year).
The more money you give the banks, the better rates you get, and the less fees you pay. It's always been like that.
I hate when I travel and am forced to use an ATM and the $3-$5 surcharge. But hey, that's what I get for not having a BOA account anymore.
ATM fees
The smaller, local banks and the internet startup-type banks seem to be the ones that are connected with the most ATM networks and have things like apps to find a free ATM. I can always find a free ATM that works with my ING or Eastern Bank accounts, unless outside of the country, but Sovereign, for instance, charges a fee for anything that isn't a Sovereign ATM (and they only have banks in Northeastern states).
It seems like the smaller banks HAVE to be part of several ATM networks in order to get customers to buy in, since people are skeptical of that sort of thing with smaller banks (but will join large, national banks no questions asked).
Free market?
I know the Secretary's heart is in the right place, and no one likes banking fees. But is there a market failure here that would such justify heavy-handed legislation? If I don't like my bank, I can close my account and go somewhere else. Unless there are a significant number of communities in which one fee-charging bank has a monopoly (which I find implausible), this feels like a solution in search of a problem.
Inertia is a problem...
... because state agencies likely had their accounts at BayBank or Bank of Boston for years before the mergers, and never moved them.
Legislation is pretty much the only way to overcome that inertia for state agencies.
Individual consumers and privately-held small businesses can up and move their accounts (I did, at least one small business I work with is in the process of moving their merchant accounts out of BoA for price gouging); but large business and state agencies will likely need a push.
Unless you like your government encouraging predatory behavior; I certainly don't.