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View Diary: Bank of America CEO: We have a 'right to make a profit' (285 comments)

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  •  They are right. They have a right to charge (5+ / 0-)

    whatever they want to charge, and people can either bank there and accept it or bank elsewhere.  Nobody is forced to bank with BofA.  

    I suspect, frankly, that they don't want smaller accounts with small balances, so they will be just fine if people with amounts below the threshold for "free" debit cards take their money out of BofA.  The probably know that the transactional cost of administering a checking account with debit card activity is, say $x per account.  For years, they had been charging the merchants as a way of recouping their costs to maintain and administer those accounts.  Dodd-Frank cut what they could charge merchants.  So, since interest rates are so low (i.e., what they can make off your money per dollar when they lend it out is miniscule) they likely calculated that an account of less than $y does not "pay for itself" -- i.e., the interest they can make from using $1000 in a checking account does not cover the cost per account of administering its accounts.  So, they impose the charge.  Maybe if you have $10,000 in the account, the interest they can make is enough to offset the cost of administering your account, so they let you bank for free.  

    From a business perspective, it makes perfect sense.

    From a customer perspective, if you aren't willing to (1) have an account that meets the limit for free banking, or (2) pay the $5 a month, it's pretty simple.  Bank elsewhere.  If you don't like a product, your option is not to buy that product, but buy a competitor's product.

    It may well be that for a lot of people, credit unions (which likely have lower overhead and operating costs) are an option.  For others, the convenience of the bigger banks (more ATMs in more places, for example, online banking and billing paying, etc.) may be worth the $5 a month. That's a decision that an informed consumer has to make for himself or herself.  

    I will say that I suspect that, before long, all of the big banks are going to follow suit, so that soon it will be more commonplace that, if you want the extra services and convenience of a big bank over a credit union, you have to pay for it either through large minimum balances or a fee like the one BofA has imposed.  

    Dodd-Frank, which limited what banks could charge merchants for transactions, may have spelled the death of free checking.  

    And it always amazes me that when something like Dodd-Frank happens, which cuts revenue to a business, lots of people assume that the business will just be happy with a little less profit.  That generally doesn't happen.  Banks, like any business, need to maintain a certain amount of return on investment in order to attract and maintain investments and stay in business.  And it's return on investment that matters, NOT profit in dollars.  For a huge company like Exxon or Apple, a $1 billion annual profit is horrible, because that would represent a very very low ROI.  So, if you cut their revenues in one area, any business is going to do what it can to make up those revenues elsewhere.  People who don't like what they do to make up those revenues elsewhere should refuse to do business with them.  

    •  Sorry, but 28% credit card interest (6+ / 0-)

      is most definitely NOT miniscule and that is what BoA gets for their card business.

      They also get a fee every time someone uses their ATM machines.

      They have a big mortgage industry, most of the mortgagers are still paying and at 6, 7 8%.

      So, BoA is making plenty of money off lending to people, while borrowing fromthe Fed at essentially 0%.

      Fuck them and the horse they rode in on.  I want them to die and I want the American people to do it, the old fashioned "free market" way - no customers.  BoA can not exist without the millions of little people.

      Than, we move to Wells Fargo and shut it down.

      Then Chase.

      Then Citi.

      Etc....

      •  they don't get 28% on all credit card business (3+ / 0-)
        Recommended by:
        mmacdDE, davboyce, hayesb

        And they don't get a fee on ATM's if their own customer uses their own ATM's.  

        And I'm not here to argue whether the fee is justified or not ,  We don't get to tell BofA that WE don't think the fee is justified, so don't do it.   BofA clearly knows that this will cost them customers, and they have decided that, as a business move, they are better off losing those small deposit customers than to let them use debit card for free.  That's a decision that they legally get to make.  

        And customer response is just what you said -- if we don't like it, we go somewhere else.  My point is that I suspect that BofA knows that this fee will cause some of their customers whose accounts don't meet the threshold to close their accounts.  The people running BofA know that.  They know that a lot of people will run to credit unions.  They are not idiots.  They've calculated all of that into their decision, I'm sure.  That's why I said that I suspect they aren't too sorry to lose those small deposit accounts -- they know that this fee will cause that, and they did the fee anyway.

        This is a clear statement that they only want checking accounts (1) over a certain deposit level; or (2) where a customer is willing to pay $5 a month for the convenience and service of a big bank over a small local credit union.  I suspect that they don't WANT customers who are willing to sacrifice those things for $5 a month.  That's why they are going to "talk to" their customers and try to show them that the convenience and services offered by a big bank over a credit union are worth $5 a month.

        And I completely agree with you that people who don't like that should take all their money out of BofA.   Absolutely.  That's what our economic system is all about.  If you don't like the product, don't buy it -- go elsewhere.  

        •  Oh yes we do get to tell them that. (0+ / 0-)
          We don't get to tell BofA that WE don't think the fee is justified, so don't do it.

          We may not currently regulate it.

          We may decide not to regulate it in the future.

          That does not mean we don't have the legal authority to do so.

          Nor does it mean that as consumers we don't get to tell them in no uncertain terms that we don't think it is justified and will not put up with it.

          Why would you think otherwise?

          Someone in a very expensive suit is at the front door and says he wants to foreclose on our democracy. Where should I tell him he can put his robosigning pen?

          by Into The Woods on Thu Oct 06, 2011 at 10:06:53 PM PDT

          [ Parent ]

      •  PS - Actually they can (0+ / 0-)

        I don't think BofA wants lots of customers with small balances if they can't take more fees off their cards. If hundreds of thousands of people move their checking accounts I don't think BofA will mind at all. They would like to have fewer, but more affluent customers. It costs just as much to service an account with two more zeros on the end.

        "let's talk about that"

        by VClib on Fri Oct 07, 2011 at 11:04:15 PM PDT

        [ Parent ]

    •  They already charge low balance depositors (4+ / 0-)
      Recommended by:
      OldDragon, Losty, Calfacon, white blitz

      for having their checking accounts. It's not like they have been giving away service for free.

      The bottom line is- they are sustaining a huge loss due to their mal-absorption of Countrywide & Merrill Lynch. So now they are trying to make up for it by getting the money from their depositors.

      •  That's probably a part of it. (2+ / 0-)
        Recommended by:
        davboyce, hayesb

        Like I said, they've got to aim for a certain ROI and they are going to make up revenue any way they can.  If they thought they could get it from enough customers, they'd charge $50 a month for using debit cards.  What they are charging is probably derived from weighing what they thought they'd bring in against how much in deposits they'd lose.  

    •  And i'm sure you also agree with them (0+ / 0-)

      that they have no obligation to release your money to you if they don't feel like it.

      "The existence of a good thing is no evidence of its being enjoyed by the working class." ~ Daniel DeLeon

      by ActivistGuy on Thu Oct 06, 2011 at 02:17:59 PM PDT

      [ Parent ]

      •  Of course not. (3+ / 0-)

        They have a contractual obligation with their customers, and their have to live up to that.  That gives their customers the right to remove their money from BofA.  

        For anyone who does not want to pay this $5 a month, I would strongly suggest they take their money out of BofA, and find someplace else.  That's how this kind of thing is supposed to work.  BofA offers a product -- banking services -- on certain conditions -- $5 a month if you use your debit card and don't maintain a certain balance.  Anyone who doesn't want that should absolutely take their money out of BofA.  Today.  Tomorrow.  Soon.  

        My point is that, because they are not idiots, the people running BofA surely know that this will cost them some customers -- especially customers whose balance is not high enough to meet the threshold for "free" services.  They've obviously decided that they'd prefer losing some of those customers rather than continue to provide debit card services at the rate Dodd-Frank allows they to charge merchants.  And they are legally allowed to make that decision.  

        They are also likely betting that some people will decide it's worth $5 a month to have the extra services that a big bank provides over a credit union.  

    •  Charge for small VS large accounts (0+ / 0-)

      I think the smaller accounts will be the first to go to another bank. I think the stampede may cause a bit of a run on BOA. Perhaps BOA is counting on more 0% loans from the Government to deal with such any such crisis as they know they are "too big to fail". Those loans would cost much less than managing all those small accounts.

      However if they don't get such hep, customers would be risking their money by leaving it in BOA. The largest accounts would be most at risk because the limit on FDIC insurance.

      The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

      And note that even if your entire deposit amount is covered, should the bank go under, you will have to wait a good while to see your money.

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