Benefits of Size?

Felix Salmon points out that Bank of America can now charge customers overdraft fees ten times a day (up from five). (Read the original Washington Post article if you want to be aggravated.) Well, I can do one better.

I recently had to track down some past bank records. Local banks? No problem, no fee. At Bank of America, however, they insisted on charging me $5 per page – even though they were breaking a state law forbidding them from charging a fee. (All I’ll say is that they weren’t allowed to charge a fee because of the characteristics of the person I was getting the records for and the purpose for which he needed the records.) I pointed out to the drone at the bank that she was breaking the law, but she insisted she couldn’t do anything about it and we would have to sue them to get the money back. And I believe her; the problem is almost certainly that requests go from the local branch to some central processing center, and there is no way for the local branch to tell the central processing center not to deduct the fee from your account.

Now perhaps this central processing center setup reduces costs for Bank of America. But do they charge lower mortgage rates? No. Do they offer higher savings rates? No. Are they too big to fail? Absolutely. Do things have to be this way?

Update: Some people have pointed out that you don’t actually have to sue B of A to get your money back. That is correct. In my state you can send them a demand letter and they should pay you. However, the problem is that because you are dealing with your bank, they can just deduct the money from your account and force you to fight them to get it back. And most people don’t want to deal with that.

By James Kwak

28 thoughts on “Benefits of Size?

  1. James Kwak: “I pointed out to the DRONE at the bank she was breaking the law” Classic…. another classic line from James. James is getting more rebellious with his language recently. Hahaha

    James don’t even get me started on ATM fees man. It’s the biggest screw on this planet, getting charged for the use of MY money, that I LOANED to the bank. I LOAN money to the bank, then the bank charges me, to get part of the money I LOANED to them, back. The day ATM fees ORIGINATED at banks there should have been massive banks runs across America. Sometimes consumers deserve to get screwed.

    Again, I have all my money at a Credit Union, and the only time I used an ATM in my life was when I lived overseas. You know what I say to banks and their ATM fees??? I put my hand near a certain region of my body and say
    “Bite me Mr. Bank CEO”

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  3. It’s easier for bank to earn money on fees rather than managing money and doing proper maturity transformation and assets and liabilities management, which they have shown not capable to do it….I thought that the interest spread was wide enough for bank to be profitable but that’s maybe a naive and narrow view of narrow banking. Banks need to charge customers for services…even if they do nothing and they do not cost anything.

  4. no need to sue the bank to get fees reimbursed. just tip off the local news station help-me reporter & let them run with a nice those-evil-banks story!

  5. BofA charges illegal fees to cash State of California written checks to return Bail money, if a person wins a court case in State Court.

    Walk up to the main downtown BofA Los Angeles branch, and they will charge $5 to cash a bail money check. Totally illegal behavior, against State Law. The State should either sue BofA to change their behavior and/or switch to another financial institution which follows State Law in the first place.

    Why does the Supreme Court of the State of California do business with BofA, when it violates the law?

  6. Actually the clerk you were dealing with was wrong on two counts. First, you don’t have to sue them if they’re breaking the law. Call your State Atty General’s office to get the forms (or online) and file a complaint. Violations of the law are investigated and possibly prosecuted, and in a case like this, illegally collected money is refunded. (Been there, done that.)

    Second – the local teller/office/branch CAN credit your account. But they have to WANT to.

  7. Hmmm. Just yesterday, you quoted Mankiw as saying:

    “Recall a basic lesson of economics: A market participant with a dominant position can influence prices in a way that a small, competitive player cannot.”

    Interesting that for health care, this “basic lesson in economics” is deemed a negative by the forces opposed to reform. (And interesting that it only applies when the government is the dominant player – not the insurance companies.)

    But in banking, the work of TARP and other federal bailout tools seem to have fostered and supported the dominant players in ways that enrich the big guys but screw the consumer.

    Seems like the purpose of the American economy is to screw the consumer these days… at least that’s what it looks like over here on Main Street….

  8. Is it a state law ora Federal one they are breaking. Until yesterday Banks were above state law, and State AG’s could not even investigate them. Instead the OCC was suposed to enforce State laws. Of course when you have someonelike John Dugan at OCC, it means that the big banks were totally above the law. Tell me againwhy Obama kept that clown?

  9. What would it take to clean up this friggin’ unconscionable behavior?

    I highly recommend reading Ilargi’s post from yesterday – over at The Automatic Earth – it was great:


    “A little bit of an overdraft, and a 3000% or more interest rate will land on your doorstep. It just goes on, doesn’t it, this madness? If it still hasn’t been stopped yet, why would we expect it to stop at any time in the future? Usury and swindle are not accidents, they are embedded features of society.”

    “The entire system is so sick and rotten and so thoroughly geared towards a myriad forms of legal theft, that no politician would ever condone it if they were not part of it and dependent on it to sustain their particular place in the universe.”


  10. How do you raise hell at your local credit union to make certain they’re doing everything possible to punish this system?

  11. the solution for me was to close the business accounts i had with b of a.

    i have decided i will not place any funds with any bank that accepted tarp money. if everyone else did the same…. this particular problem would be solved.

    i am very happy with bank of the west, where i moved my funds. as james mentioned, they dont charge me for exceptional service and special requests.

  12. I used to have an account with BofA, but I was annoyed by the fees they charged and their arrogant/incompetent service. I closed all my accounts, and am now a happy customer of my local credit union (which, incidentally, didn’t need any taxpayer bailout). If everyone did the same, those idiots would be out of business.

  13. Yeah, well, that’s the way they will pad their balance sheets. And it will continue. And it will continue some more. And no red flags go up because everyone in power is so afraid of clamping down. And, I might point out, you are seeing how regulation will never control insideous greed. BOA and all of the others just don’t care. There is no morality there. It’s like having hundreds of Macciavelli’s running our lives to our detriment. The climate has changed in many ways, but for the oligarchs, things are more the same than ever.

  14. I’m afraid you hit the nail right on the head. And for a country that is in this mess because we put so much effort into self interest, fear of where the next buck is coming from is causing all kinds of wacko behavior

  15. I was hit with a $38 overdraft fee triggered from a debt card with Compass Bank. It was .28 Cents over and I knew I was close, ran home and checked my account then ran to the bank with $5 to cover it. My cash posted up immediately, the transaction in question posted 3 days later. 3 days later the showed my account at a -$100 something. I told them to kiss certain parts of my body. I’m with ugh, Chase now and happy as they let me start a saving account that covered overdrafts. At Compass you can’t even start a savings account with less than $500. Seriously, I have nothing but animosity for preditors and since I don’t care about my credit due to health issues, denied insurance claims (pre-existing condition) I just go off on them. Compass will never get a penny of that usery fee. People just need to stand up and tell them NO WAY IN HELL. That includes judges too.

  16. Or as they say: What do you care about the people, just take care of yourself and your family.

  17. Just a heads up to those of you looking to change to a credit union:

    I was with Wamu when they failed; and Chase bought them. Because of bad experiences with Chase back in the late 1990’s, when they credited a payment on a credit card one day late, and hit me with late fees and interest (the balance was paid in full for $15, the fees were something like $29 late fee at the time, quite usurious, and they would not drop it, so I dropped them.) I decided to close the account.

    Or so I thought…

    Apparently, there was some double-secret paperwork I didn’t file, which allowed Chase to assess low balance fees, then NSF fees on the low balance fees. I’ve since hear this is not an uncommon practice when people close accounts… I ended up being dunned by a collection agency for $135.

    When you close your account, make certain it is closed!

  18. At year-end 2008, Bankers’ Bank of the West had a risk-based capital ratio of 12.4 percent, high enough to be considered very well capitalized.

    “We needed an insurance policy to continue to provide the products and services we provide to commercial banks,” said Bill Mitchell, CEO of Bankers’ Bank of the West.

    Mitchell’s bank serves 350 community banks in 11 states by buying their loans and managing lines of credit from the Federal Reserve. Yet it went ahead with a government investment, obtaining $12.64 million from the Treasury earlier this month.

    The bank issued the government preferred stock that pays 5 percent interest, plus another batch of preferred stock, equal to 5 percent of the amount requested, that pays 9 percent.

    Considering the costs of the stock, and the fact that the interest it’s paying the Treasury is not tax-deductible, Bankers’ Bank of the West figures it’ll pay $4 million in interest over the next five years for participating.

    “It’s extremely expensive capital, but we did this as a good-faith investment for our banks,” Mitchell said. “The government will do very well on this program.”

  19. Careful. There are several Bank of the West, and one Banker’s Bank of the West in Colorado. I suggest Hotei confirm which one he has moved to before taking any drastic action.

  20. The easy answer is that these banks charge the nuisance fees because they can, and most customers whine but don’t do anything about it. There may be some other feature about the bank that has a higher benefit than the cost of the nuisance.

    However, if customers regularly left, and moved on to the small local bank that didn’t charge the fees, then the big banks would change their policies.

    Many folks today want “someone else” to fix the problem, whether the problem is bank fees, bank size, politicians too long in office, whatever. The more we expect someone else to fix the problem the more passive we become and the process continues.

    I bank with a mid-sized bank with few fees and excellent service and I have been with them for many years. I stay away from the big banks because of their poor service.

    If all of the retail customers of the “too big to fail” banks left it would send a signal. They probably would not go out of business, but I’m sure they would notice the trend. And banks with great service would be rewarded for offering great service.

    Golly, wouldn’t that be capitalism at work?

    It’s just like voting. My one single vote out of millions is probably insignificant. But the combination of those millions makes it significant. That’s why I have never missed an election.

    Or, you can just whine about poor service and hope someone else does something about it….

  21. James see:

    Smiley v. Citibank, 517 U.S. 735 (1996). Fees (though not the exact ones you mentioned) were included within the definition of interest under the national bank act by OCC regulation. The BOA is probably headquartered in a state that allows such fees. Therefore, the banks can charge you a fee that is against your state’s law.

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