6/27/2012 5:55 PM ET|
Banks getting richer off the poor
As new banking regulations limiting debit and credit card fees take effect, some banks are recouping their money by targeting those least able to afford the cost.
It's not easy being a big bank these days. Consumers hate them, shareholders have beef with them, and regulators can't figure out what to do with them.
At the end of the day, though, a bank's gotta do what a bank's gotta do: make money. But how banks go about making that money is one way to differentiate them. The New York Times recently wrote about a few banks out there looking to boost business by offering products laced with loads of fees and plenty of interest to low-income consumers.
Some banks, namely U.S. Bank, Regions Financial and Wells Fargo, are luring low-income consumers to sign up for things such as prepaid debit cards and payday loans -- products that typically come with all sorts of fees and charges, The Times reports. Why are banks courting these customers with pricey products? Well, besides the obvious (fees), the products themselves weren't subject to the regulatory overhaul brought on by the Dodd-Frank reform act. That leaves more room for banks to make money in an environment where doing so has become more difficult.
The Times story features David Wegner. He makes about $1,200 a month and is looking for a checking account. He ends up at U.S. Bank, where he is offered all sorts of financial products geared toward low-income consumers. The branch offered him prepaid cards, check cashing and short-term loan options. He tells The Times that he felt he was being treated like a second-tier consumer.
The truth is that, when it comes to profitability, Wegner is indeed a second-tier customer compared with other customers with higher checking balances. And you know what? There are higher-tier consumers than the ones with bigger checking balances, too. Consumers with multiple mortgages, multiple checking accounts, savings, brokerage accounts and loans are valued more.
Nancy Bush, a bank analyst, puts it this way: "It goes back to the way some people have viewed banking. They treat banking like an electric utility, where, if you flip the switch, it has to be there for you. But the truth is banking is a business that aims to makes profits for shareholders."
Consider that 25% to 40% of checking accounts at the big banks are money losers. That's according to bank analyst Dick Bove, who says the way banks used to make money from those unprofitable checking accounts was through debit card swipe fees and/or overdraft fees. Regulations like the CARD Act and Durbin Amendment have dramatically shrunk the revenue from those activities. "In response, banks are either kicking out those unprofitable consumers by driving up fees or providing them with other products that are higher in cost," Bove says.
It's worthwhile to note that other big banks, such as Bank of America, JPMorgan Chase and Citi, aren't mentioned in the Times story. That's because they don't offer these so-called alternative lending products for low-income consumers, Bove says. Those banks don't rely as heavily on the retail banking sector for revenue and profits as banks such as Wells, Regions, U.S. Bancorp and Fifth Third Bank do.
The bigger problem here is that low-income consumers don't have much of an alternative when it comes to banking. There's a growing population of people who don't have bank accounts because they feel they can't afford it. They are called the "unbanked" and "underbanked," people who deal mostly in cash transactions and who say they can't afford bank fees. They are turning instead to things like prepaid debit cards, which the Federal Reserve says account for the fastest-growing noncash method of payment.
Unfortunately, those prepaid cards can also be laced with an alarming amount of fees and a lot less protection than a standard debit card.
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My comments certainly aren't isolated. I think the majority of Americans are ready to get rid of grubbers and law firm goons. we don't need legalese in small print, we need Common sense and and end to smoke and mirrors.
This should be the GLARING HEADLINE in every publication daily.
The President and Congress don't run this country - or the world for that matter. It's the Corporate-Rich that run this country.
And between our two-parties, which one's policies favor the Corporate-Rich?
The answer is too simple to even bother with.
Chase Bank also discriminates against older employees. Some older employees have not gotten raises in the last 5 years!
If any industry needs a UNION the banking industry certainly deserves one!
Two words: Credit unions.
Financial institutions are there to make money, but credit unions are a bit more consumer friendly and don't gouge nearly as much as banks. Everyone should have a relationship with a credit union.
But now as my M&T account is down to less than $300 as I wait to close it out to make sure my automatic payments are all switched over, I'm getting those extra charges.
Hey folks, switch to credit unions! They are federally insured, with usually take you as a customer even if they're named something like "State Employees Credit Union" and you're not a state employee. Many have lots of branches and their ATM networks -usually at NO fee whatsoever- are much usually larger than your bank's! Mine charges nothing to swipe my debit card anywhere (some discount places take them but not credit cards) and no charge at 59,000 ATMs nationwide including those in every 7-11 - and in another 10,000 overseas. I don't get charged an overdrawn fee for debit card or checks as long as savings will cover it. I get 3x the interest rates I got at M&T. In fact, my 0.6% regular savings account interest is what M&T was giving me for a 5-year CD! There are no other nickel-and-dime fees for automatic payments, internet payments, etc.
Do business with your local credit union! Forget the big banks!!
20 years ago, I was considered a "low-income" person. The bank personnel snubbed me and were downright rude when I tried to open an account. I didn't have enough to open a checking account and I felt like they were laughing at me because I couldn't open a savings account. I couldn't keep at least $500 in there at all times.
I went to the local credit union. What a change that was! I was able to open a savings account for $5 and had to agree to always keep at least $5 in there. I was able to open a checking account, too. They were always fair. When I deposited my paycheck, the funds were immediately available. They offered me the best rates for 2 auto loans and offered me a credit card with a VERY reasonable interest rate. Recently, when I applied for my 3rd auto loan and inqured about rates, the manager suggested that I use Acura Financial because my credit score was good enough to qualify for the preferred rate and it would have been better than what they could have offered me.
After 20 years of clawing my way up the ladder, I am now no longer considered "low-income". Now I'm getting a bunch of mail box filler from these big banks that would have NOTHING to do with me years ago.
Nope. I'm sticking by my local credit union. Big banks can find someone else to screw over.
These types of banks are predators of the poor, though. But it is all legal and they are just being a business and trying to make money. Honestly, if a person read the fine print before signing up for these products, we could avoid a lot of this. It all comes down to personal responsibility. There are going to be companies that offer you cash today in the form of a payday loan, and this sounds way too good to someone poor who is trying to pay bills. But at the end of the day it's up to that person to make the wise choice and consider the fees and risks associated with that loan. We can't count on the government to take care of people when it's their responsibility.
This is typical capitalism at its worst.
Capitalism is a total failure.
It only makes the rich, richer and the poor, poorer.
One of the biggest myths being played on us is that we are broke due to spending when taxes are at a 60-year low and tax revenue from corporations and the wealthy have all but dried up due to ever increasing tax breaks, subsidies, and credits to the point where our business savvy legislators say we need to cut those nasty retirement and health care entitlements instead of ending the entitlements to the rich and sleazy corporations and big political donors. Call your legislators and demand the end to entitlements to the corporations and the wealthy first. Then ask them to pay back what was 'stolen' from SS over the last few decades.
I gave up my bank, and began using only a prepaid debit card 3 years ago, and I completely disagree with the article regarding prepaid cards. The reason I gave up a "traditional" bank is because I was constantly being charged fees for everything imaginable, and when at one point when I had fraud on my account it was extremely difficult to get the bank to do anything to help me sort it out and recover my lost funds, even with a police report - which I never fully recovered, and the bank put a "bad mark" on my record because of it, which made it impossible to open an account elsewhere. With my prepaid debit card I do pay a fee of $9.95 per month, but I use it every day, and it works out to be much more reasonable than dealing with bank fees. I also have my paycheck direct deposited onto my card, which arrives 2 days earlier than it did in with a traditional bank. My debit card is Visa branded, so I have been able to use it everywhere with no problems at all. I won't be going back to a "traditional" bank any time soon.
How dumb are you people, poor people don't have money so you get nothing from them,its a modern day myth that the left wingers keep saying and its a lie!
Banks charge fees you pay them or you take your money somewhere else!
Banks only make money off the rich and the uneducated people that use banks and credit cards then run up high debt!
Poor people don't use banks, ah duh!!
Only the rich and the stupid use banks.....guess that makes you stupid rich if your still using a bank!
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