It’s not just Bank of America’s debit cards. The biggest banks are now raising fees on consumers without a moment of worry that it will cost them business.
How do they get away with it?
Here’s how the economy is supposed to work: businesses have to offer their customers the best goods and services at the best price or their customers take their business down the street.
It’s called “competition,” and it’s kind of the big idea of our economy. Competition forces businesses to squeeze costs, including the pay of their top executives, and squeeze profits to keep prices low while giving consumers what they want.
Here’s how consumer banking appears to work: banks decide how much they’re going to pay their executives and what their profits will be, and then set their prices. And if big, complex banks lose money in other lines of business, they make up for it in consumer banking.
When Congress considered consumer banking protections - mortgages, credit card, overdraft fees, whatever - bank lobbyists waved their hands dismissively and announced that if they had to change those practices, they’d just raise prices on something else and tell consumers to blame Congress.
Sure enough, megabanks are now raising fees for checking and debit cards and blaming Congress for passing financial reform.
It’s pretty clear that the switch for competition in consumer banking is in the off position. Creating real competition would do more to protect consumers than any law we could pass.
There really are two reasons consumers don’t move their accounts.
One is that it is hard to compare different banks’ services and prices. Their contracts are page after page of tiny print, written in legalese by the bank’s lawyers. A recent Pew report found that checking account terms were almost impossible to understand, often imposed costs on consumers that were grossly disproportionate to the bank’s costs, and stacked the deck against consumers in any dispute with the bank.
But it’s also a nuisance to change accounts. According to a 2007 report by Jupiter Research, 22 percent of bank customers admit that they stay with their current bank because it’s just too hard to switch.
No wonder consumers put up with so much from their banks: it’s a monumental pain to switch banks and there’s no telling if the new bank will really be any better.
How can we fix that?
First, the new Consumer Financial Protection Bureau has the power to make sure consumers have standardized, clear and comprehensive information so they can comparison shop between banks, which is one of many reasons the industry wants to smother the CFPB in the crib.
The deliberate stickiness of consumer banking can also be fixed. Last week I introduced a bill to make it easy for consumers to move from one bank to another, the Freedom and Mobility in Consumer Banking Act, HR 3077. I’ve been working on the bill with consumer groups for well more than a year, but Bank of America’s announcement of new debit card fees could not have given us better timing.
The bill would let you close your account at no charge in person, by telephone or over the internet. The old bank has to transfer your funds electronically to your new bank, and also promptly send the new bank any funds later deposited into your old account, like your paycheck. And your old bank has to tell you of any automatic deductions so you can make sure you don’t miss a mortgage payment or something.
As it is now, customers keep accounts open at their old and their new bank for as much as ninety days to make sure their credit doesn’t suffer because they missed important bills. They have to keep enough funds in both accounts to cover their bills until it’s all sorted out. That’s pretty hard for a lot of people to do.
It shouldn’t be that hard. Here’s how it should work: you walk into a new bank or a credit union and tell them you’ve decided to move your money there. They hand you the telephone so you can close your old account. Then your old bank and your new bank work it out.
The worst abuses are of financially struggling customers, who may have negative balances because of overdraft fees and the like. Now banks don’t let customers close accounts with a negative balance, and keep popping the accounts for more fees.
And banks blacklist customers with negative balances by reporting customers to ChexSystems. According to ChexSystems’ own website, ChexSystems is a “network…comprised of member Financial Institutions that regularly contribute information on mishandled checking and savings accounts to a central location. ChexSystems shares this information among member institutions to help them assess the risk of opening new accounts.”
Few banks will open an account for a consumer with a negative balance at another bank, and most will close a consumer’s account if they’ve already opened it. So even if a customer disputes the fees their bank charged, they have little choice but to pay the fees before they can open a new account at another bank.
The bill would require banks to close accounts even if the customer has a negative balance. The bank can still try to make the customer pay, but they have to close the account and turn off the meter, rather than continue to rack up recurring charges until the customer pays off the balance. And if the only reason the customer’s balance is negative is bank fees, the bank can’t tattle to ChexSystems.
So far Americans for Financial Reform, Center for Responsible Lending, Consumer Federation of America, the NAACP, The Leadership Conference of Civil and Human Rights, La Raza, the AFL-CIO and SEIU are on board. That’s kind of the usual coalition we’ve had behind consumer financial protection.
But because of the furor over new bank fees, Occupy Wall Street and all the rest, we’ve added an interesting new ally, The Progressive Change Campaign Committee. Their approach is a little less wonkish and buttoned-down than mine, but they’ve already collected more than 70,000 signatures on their petition supporting the bill.
And they’ve posted this video of them delivering the petitions to Occupy Wall Street:
We’re not going to pass real reform legislation on the strength of our policy arguments. We need the support of a popular movement. I’m glad to have PCCC’s help.