Fee, fie, foe, fum…

ancient_paztriot · June 17, 2004

Giant banks feasting on little people…

SAN FRANCISCO (CBS.MW) -- In a California Senate hearing room, officials of Wells Fargo and Bank of America did their utmost to explain why their banks are picking the pockets of the poor.The issue: How come two leading U.S. banks charge workers $5 to cash payroll checks drawn on their employers' accounts at the banks, when doing so violates a nearly 100-year-old state labor law? BofA and Wells are now facing class-action suits from employees and employers over the practice.

"They're basically requiring people to pay them to get paid," said Democratic state Sen. Dean Florez, who convened the special hearing March 30 on the banks' fees. "They've hit the lowest of the low. This is just morally bankrupt."

The dubious fee is the latest glaring example of how banks, brokerages and other financial-service firms are nickel-and-diming Americans of modest means in their relentless rush to boost "fee-based income."

As Consumer Reports notes in its May issue, fee income is a major profit center for the financial-services industry, as borne out by several first-quarter earnings reports. Banks once generated profits by lending out depositors' money. Now, they make them on huge markups on "services" provided to depositors.

Americans paid an estimated $216 billion in such fees last year. The larceny is that many fees, as Consumer Reports notes, "are no-see-ums embedded in fine print or collected so seamlessly that consumers don't realize they've paid them until long after the fact." That is, if they ever do.

"Wells Fargo holds itself up as a leader of the community," said Donna Chaffee, co-owner of 60-employee Ability Answering Service in Bakersfield, Calif., the lead plaintiff in a class-action suit set to be filed against the bank, following a similar suit against BofA filed Wednesday. "But they're not. They're a thief in the night."

The ways in which the money handlers are extracting add-on charges for electronic transfers that cost a pittance have become remarkable:

Overdraft charges now run as much $35 per "insufficient funds" check presented, even though it costs banks less than $1 to process a check that they don't honor, according to Consumer Reports' findings.

Many credit-card issuers have cut the grace period for payment from 31 to as little as 20 days -- without deducting for the mailing period on statements. That's a calculated move to boost late-payment fees. Some also hold payments not returned in preprinted envelopes for five-days, claiming that extends processing time, further triggering late fees.

Some stock-brokerage firms such as E-Trade charge $5 to $10 to cut customers a check for proceeds of a stock sale or an exercise of stock options. The account holders have no choice but to pay -- the money is held hostage otherwise.

Some banks charge fees of $5 to $10 if a savings account paying a whopping 0.25 percent or so in annual interest falls below a certain minimum. Forget that they're lending out deposits on 6 percent mortgages or 19 percent credit cards.

The privileged few

I got hit with such a charge from Wells Fargo when the savings account I maintained for overdraft protection fell below the requisite $300 level. When I complained the bank was charging me for an account, I discovered I'm actually an individual of high standing who can escape such a fleecing.

A bank manager said that because I had more than $25,000 in assets or debts with the bank (in my case, it's unfortunately a deeply tapped home equity line of credit), I qualified for a "Portfolio Management Account" that waives all sorts of extraneous fees.

And therein lies the injustice -- Americans of greater means don't have to succumb to the banks' chicanery. Banks don't want your business any more if you're not a fat cat. And so they stick it to those who aren't by slamming them with fees for what once was simply the cost of doing business.

Under the charters that banks receive from the federal and state governments, they're obligated to serve the public in a nondiscriminatory fashion. Trouble is, states that find the major banks' bias based on income levels objectionable will likely find any law curbing the practice slapped down by federal appeals courts that rule national banking laws preempt state statutes.

The banks' obsession with fees would be forgivable if they charged a pass-along cost or a slight markup to small-account holders. Instead, they extract windfall profits from middle-class Americans -- further evidence of why the rich get richer and the rest of us struggle.

Some banks have rigged their processing software to maximize fees against overdrawn customers. Presented with one $225 check and five $20 checks on an account containing $200, the banks will first "honor" the $225 check and charge an overdraft fee -- and then not cover the five others. That way, they're $25 in the hole but reap six overdraft charges, when they could have paid the five smaller checks out of the account, declined the $225 check for insufficient funds, and reaped just one overdraft charge.

That's not something your friendly neighborhood banker of old would have done.

Is this what deregulators envisioned?

Banks argue that their fee structure is a result of 1980s deregulation -- the very deregulation they fought for to enter nonbanking activities such as mutual funds and insurance.

Deregulation made the lending business far more competitive and cut into loan margins, which turned banks' profit sights onto depositors. The shift, already well under way in the 1990s, became more pronounced in the new millennium as interest rates hit 50-year lows and loan margins got squeezed even tighter.

A BofA spokesman noted that account-holders have reaped incredible benefits in the last 20 years with the availability of ATMs, debit cards and online bill-paying -- and said suggesting that banks are profiteering from those services is "an oversimplification."

Yet each of those "enhanced services" has been a far greater benefit to banks than to consumers:

ATMs may afford us far greater access to our money than in the days when banks stayed open only from 9-to-3 Monday through Friday, but they've vastly reduced the need for tellers and paper processors, and reap billions in fees for the steep markups on "outsider" usage.

Visa said last month that its total debit-card transactions exceeded credit-card transactions in 2003. Debit cards have been a godsend to banks in eliminating the cost of processing and storing checks that might have been used instead of the cards. Banks also reap percentage fees from merchants just as they receive on credit cards. And they minimize nonpayments on credit cards, since the money is immediately taken from the cardholder's checking account.

Online bill-payment, running about $5.95 a month, similarly reduces the cost of processing and storing paper checks, but account holders must pay for this cutting-edge "privilege."

In short, the technology that banks masterfully employed to slash their costs have also been the means for boosting fee-income on "improved" services.

One journalist's question on fairness

The California hearings were kicked off by a series of columns by David Lazarus of the San Francisco Chronicle. Lazarus noted how the fees charged to workers cashing paychecks violated a 1911 state law prohibiting employers "or their agents" from extracting a premium in the process.

Florez, whose Central Valley farming district is a temporary home to many migrant field workers, took up the issue. Migrant workers are especially hard hit by the fees, which at $250 a year based on their weekly paychecks consume a week's worth of income.

The banks argued that workers could escape such fees if they and their employers opened direct-deposit accounts with the bank. But migrant workers don't know what bank will have branches in their next destination, be it picking apples in Washington or field crops in Mississippi. They can't put a permanent address on their checks. And checks with their last temporary address wouldn't likely be honored in the next state they migrate to.

The banks' solution was offensive to some small-business account holders, who are also getting raked. Namely, they must pay a fee for every deposit they make -- an unconscionable charge in its own right.

Add to that selective application of the fees. San Francisco Treasurer Susan Leal threatened to pull the city's payroll account from BofA upon discovering it imposed paycheck-cashing fees on the city's 27,000 workers, prompting BofA to waive the fee to keep a major client.

In testifying why they charge the fees, the banks said that no-accounts (that's actually what they're called) crowd teller lines and cause delays for bona fide customers. God forbid the Great Unwashed should enter their branches.

They also made no bones that their aim was to pressure these payroll recipients and their employers into opening direct-deposit accounts -- which of course would yield greater fees for the banks from the small-business employers and their "free-checking" account employees. It's nothing short of legalized extortion.

As controller of the Karis House, a nonprofit that runs several California group homes for delinquent boys, Jim King said he stepped up as lead plaintiff in the employer class action against BofA because the bank charged one of his employees $5 to cash a $13 expense check drawn on the company's account.

"That's just extortion, using leverage to get our employees to open an account," King said. "Some of our employees have to work an hour just to cash a check."

In this day and age, it doesn't just take money to make money; it now takes money to preserve what little money you have.

"Banks learned that the fee you didn't know you had to pay when you comparison-shopped never entered into your purchase decision," said NetBank CEO Douglass Freeman, who formerly worked for Wells and BofA. "In the mouse type, they hide a lot of disclosures."

Forgive me, but isn't highway robbery still illegal in this country?

theist · June 17, 2004

Forgive me, but isn't highway robbery still illegal in this country?

Yes, but that is for guys like us only.

Everywhere we look we see inspiration to transfer from this realm of exploitation. It won't stop. It may change form with us on top exploited the weaker to us being exploited in the wake of the reaction to our own past exploits.

The realm of exploitation is inhabited by souls we are the cheater or the cheated, that's it.

Why did we come here? Why do we stay?