Last week Bank of America announced it would be charging customers a monthly fee to use its debit cards to use their own money to make purchases. Today, Citibank announced it would be increasing its fees for its checking accounts. The news media are buzzing and the public seems to be bristling at these developments. This should come as no surprise.
By way of background, let’s take a trip down big-bank memory lane.
It used to be that you could walk into a bank and make your deposit or withdrawal with a teller. Even if you were a small account holder, the tellers generally made you feel like you had some kind of relationship with the bank. (I even remember doing some banking in Beverly Hills about 30 years ago in a bank that had nice comfortable chairs that you could sit down in while you were transacting your business with the teller.) But banks soon discovered that it was cheaper for these transactions to be executed at ATMs, so that technology proliferated.
Who benefitted financially? The banks.
A number of banks, to force their customers to do business with ATMs instead of tellers, even started charging to transact business with a teller.
Who benefitted financially? Again, the banks.
So. To the debit card issue.
Banks used to encourage people to open checking accounts. Remember the free toaster they’d give you when you started a new account? They wanted your checking account business because it meant that, for the wholesale cost of a small kitchen appliance, they essentially had free use of your money. Your money was way more valuable to them than was the blender or hand mixer or toaster they’d pawn off on you. They could combine the money in your checking account with the money in everyone else’s checking accounts, and they’d have a whopping big amount to invest, earn interest and receive dividends. (If you’re not familiar with this practice, read more here.)
Who benefitted financially? Once again, the banks. (I’m sensing a pattern here.)
But that wasn’t enough. The banks soon started charging fees for checking accounts. Perhaps they’d waive the fees if you adhered to some rule or other, like a minimum balance or direct deposit of your paycheck. For many, it wasn’t possible or practical to meet those requirements, so the fees were inevitable. Add to that huge increases in overdraft fees, as well as a whole host of fees the banks concocted over the years.
Lots more money to the banks.
Somewhere in there, banks started issuing debit cards along with or instead of their ATM cards. Depositors could make purchases with them in places where credit cards were accepted, but the real benefit was to the bank. Merchants paid fees to the bank for each transaction for which their customers used their debit cards. A few cents might not be much, but a few cents times millions of transactions starts to add up to some real money.
Additionally, the costs associated with processing all those paper checks was virtually eliminated and replaced by computerized tracking of purchases. This has been in addition to the popularity of online banking, which also streamlines banking processes and theoretically reduces costs.
And still, that’s not enough. Now Bank of America (and others) are starting to charge for the privilege of making your purchases with your own money.
Wouldn’t it seem that, with all of the jockeying that the banks have done over the years to stack the deck in their favor, they would be solvent by now?
It seems like there are only a couple of explanations. Either they are grossly incompetent in their management of our money (which I doubt they would fess up to being), or their cost of doing business has raised substantially.