Dictating Fees
The cost — to the company — of Bank of America’s fees was all of my business. The final straw came when I found out the hard way that, when the bank automatically transferred funds from savings to checking to cover checks, it took the fee from the checking account, thus increasing the odds of further overdrafts. Somebody made the decision as to which account would decrease for the fee, and that slimy somebody chose the account that had already come up short.
That said, RI Senator Frank Ciccone’s latest legislation is, at best, poorly considered, and at worst, cynically misinformed. It’s of the genre of bills in which General Assembly members specialize whereby they try to come up with anti-annoyance legislation in order to distract from the fact that they’re ripping off their constituents much, much more than any corporation could dream of accomplishing:
During these times of economic distress, said Sen. Frank A. Ciccone III (D-Dist. 7, Providence, North Providence), banks are taking advantage of their customers by charging exorbitant overdraft fees.
In an effort to prevent Rhode Islanders from paying overdraft fees which can amount to $35 or more, Senator Ciccone has introduced legislation that would limit the overdraft charge to $5.00 for a check issued with insufficient funds.
Now, $35 sounds like a lot to me, although I’d note (with a smirk) that Democrats generally like the idea of fees (or taxes) reaching punitive levels to discourage particular behavior. More important, though, is the question of Ciccone’s research toward coming up with a number. Why $5?
I ask, because if Rhode Island forces banks to lower fees below a certain threshold, they’ll just increase rates for everybody to cover those whom they can no longer penalize. If, for example, it somehow costs BoA $15 to deal with an overdraft, but it can only charge the customer $5, then it will simply take the further step (for example) of totaling its relevant losses and dividing them up among its all of its customers.
Once again, it’s possible that the legislation would wind up making everybody pay for a limited group’s bad behavior.
Somebody made the decision as to which account would decrease for the fee, and that slimy somebody chose the account that had already come up short.
I used to work for a bank, dealt with OD’s all the time. I assure you, a computer made the decision, somewhere around midnight, in about a nanosecond. It wasn’t even a decision, really- fees are never charged to savings accounts. It’s just now what they’re for.
The little booklet you threw away after you opened your account explains this, and all other rules and regulations related to bank accounts. I’m not taking a shot at you; nobody actually reads it. If they did, many of them would return to the bank, close the account, and put the money under their mattress.
The most common misperception amongst the banking public is that there’s a human being at the bank actually watching your account for things like this. I got asked “Well why didn’t you CALL me?” nearly every day.
I’m not buying it. Savings accounts have fees. Checking accounts have fees. When the two interact, the fees have to come out of one or the other.
There’s a decision there.
Two comments from someone who has worked in the banking industry (including several banks which eventually came into Bank of America’s possession):
Banks make most of their money from fees, not from interest on deposits or even loans. Therefore, they try to balance the ability of maximizing fees, while at the same time, not doing it in so burdensome a way so as to lose too many customers. They do anticipate losing some accounts over time, but eventually they make it up as new people open accounts. It’s roughly analogous to the theory of putting a frog in water and bringing it to a slow boil, rather than a fast one where it might hop out.
Secondly, I believe that Mr. Ciccone’s legislation is not only short-sighted, but that it would likely be legally unenforceable. There are few to no state chartered banks in Rhode island (I think BankRI may be one though). Nearly all the banks in Rhode Island are “national banks” (or NA’s), and are subject to federal law and the Uniform Commercial Code, and not to state law. Even if it were legal, it’s bad public policy to try to regulate the fees of any private business, especially one’s not based in RI.
Although an overdraft fee is usually a profit maker for the bank (assuming that you’ve paid back the amount of the overdraft), it is also intended to be punitive at the same time (i.e., meant to discourage someone from overdrawing their account in the future). Is Mr. Ciccone suggesting that we should encourage more people to overdraw their accounts? Although that may not be his intent, it will end up being the result. Remember, the road to Hell is paved with good intentions. I’ve often wondered if that road is Smith Street.
PS The “decision” as to when to charge fees, and where to charge them out of at some point may have been made by someone — but more likely a number of different people — at some point in time, but not specifically for you.
At the specific time that a person is charged a fee, it is almost always an automated process. Usually the morning after an OD (usually more than 1 OD at a time), the “home” bank branch (or cost center) receives a report of all of that night’s overdrafts. Given the very high number of people that have accounts, and the fairly high number of OD’s, it’s extremely unlikely that anyone is going to make a spontaneous courtesy call to you — unless you happen to have a $100,000 CD or a $500,000 mortgage or something like that with them which they may be afraid of losing.
“It’s of the genre of bills in which General Assembly members specialize whereby they try to come up with anti-annoyance legislation in order to distract from the fact that they’re ripping off their constituents much, much more than any corporation could dream of accomplishing”
Not to mention freeing up revenue that can now go to taxes and gov’t fees.
Would it be bad pool to bring up here that the Senator is facing ethics charges?
In that case, I’ll just mention that Senator Ciccone introduced a bill last session to make the General Assembly full time at an annual salary of $85,000 per lawmaker.
http://www.projo.com/opinion/columnists/content/CL_achorn15_05-15-07_4K5JAEJ.1b9a42d.html
“I believe that Mr. Ciccone’s legislation is not only short-sighted, but that it would likely be legally unenforceable.”
I’d be willing to bet Ciccone knows this. This bill smells like a cheap attempt to look like he’s on the side of the consumer, and is a good way to look populist while not threatening the corporatist policy.
There’s a decision there.
*shrug* If you say so.
Justin,
In Hawaii both of my banks charge no fees for savings and checking accounts (minimum $100 balance). Also interest is paid on both savings and checking accounts and there are no ATM fees if I use another bank ATM (Hawaii or mainland up to $20 per month). Both banks provide free overdraft protection and one bank provides a dine-out-two-for-one yearly coupon book and a 10 cents off per gallon anytime gasoline station discount card.
It’s a pleasant (one bank has a doorman to open/close the door for you and live cable TV screens while you are waiting in line) big difference from doing business in RI with Industrial National Bank/Fleet/Bank of America, Citizens Bank, Old Stone Bank.
Domestic Bank-Free checking. No minimum balance. No fees of any kind. Free gift to sign up. Branches in Walmart and Shaw’s open late nights and weekends.