Monday, January 11, 2010

Too Big to Fail - the Fallout

The Credit Card Act of 2009 has been touted as a successful bit of legislation that will force credit card companies to engage in more disclosure. Card companies will no longer be able to arbitrarily raise interest rates on customers who pay on time – just because they can. The bad news is that the banks are going to make up the losses in other ways.
From the WSJ:
Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.
Christopher Moss, who regularly shops at sporting-goods chain Gander Mountain, recently was notified that he will be charged a $1 "processing fee" each time he receives a printed statement of his Gander credit-card account rather than an electronic one. The 50-year-old paralegal said he is prepared to cut up the credit card even though he likes the loyalty rewards that come with it."It's not like I can't afford it, but it's another little stick in the consumer's eye," Mr. Moss said.
Banks will be also be changing their practices, to make up for the fact that they now have to receive customer consent before charging overdraft fees.

Other banks are expected to eliminate free checking completely, raise fees on safe-deposit boxes and charge customers more for issuing a stop-payment on a check.

"There may be some areas of opportunity that banks really haven't focused on because they had the engine of overdraft fees," said Chris Gill, who specializes in the community-banking industry at SNL Financial in Charlottesville, Va

The cost of accessing our money continues to rise. The Federal Reserve
will be looking into regulating ATM fees.
For those who want to stop paying ATM fees, a number of phone apps are now available to tell us where ATMs for our banks are, so that we can save the fees.

Arianna Huffington and other folks involved with the Huffpo blog, have launched a
campaign called Move Your Money.

The big banks on Wall Street, propped up by taxpayer money and government guarantees, have had a record year, making record profits while returning to the highly leveraged activities that brought our economy to the brink of disaster. In a slap in the face to taxpayers, they have also cut back on the money they are lending, even though the need to get credit flowing again was one of the main points used in selling the public the bank bailout. But since April, JP Morgan/Chase, Citibank, Bank of America, and Wells Fargo -- all of which took billions in taxpayer money -- have cut lending to businesses by $100 billion.

Meanwhile, America's Main Street community banks -- the vast majority of which avoided the banquet of greed and corruption that created the toxic economic swamp we are still fighting to get ourselves out of -- are struggling. Many of them have closed down (or been taken over by the FDIC) over the last 12 months. The government policy of protecting the Too Big and Politically Connected to Fail is badly hurting the small banks, which are having a much harder time competing in the financial marketplace. As a result, a system which was already dangerously concentrated at the top has only become more so.

The folks at Move Your Money urge us to put our money in local banks and credit unions. They have a tool on their website: to help you discover what your local banking options are. Investing in local banks keeps the money in our communities, where it can do the most good. It’s a simple, beautiful, concept. Your local bank is less likely to add all manner of new, egregious charges. They want your business – because unlike the giant corporate banks, they are not too big to fail.

cross posted at


DissedBelief said...

Bankers have always had a really bad reputation and this may be a case of mud sticking because the medium allows for it. I heard this info. today also on NPR and am just waiting for bad news in the mail. "They" just keep sticking it to us. Good advice Susan. Local banking is the best way to go. Sidenote; And thank goodness Sarah Palin will now be on Fox to babble more chirpy garbage to her ever gullible low IQ Broederbonder audience.

Nikkiru said...

I've had my credit union account for over 20 years, and can barely imagine why anybody would do business with a Bank. The last time I dealt with a bank was Bank of America in California, and they were bad enough before deregulation. When the banks were suing to restrict credit union membership more strictly, all I could think was that this was probably the only way a well-informed person would deal with them instead of a credit union: because they didn't have the option.

DissedBelief said...

In response to Nikkiru when I first arrived in the state of RI (early 1990's)they were at the brink of a "banking crisis". I was searching for a bank and called up a few credit unions as well. Each one hesitated and then told me after I inquired about FDIC or similar insurance that they were "stable and solvent". Shortly thereafter, each and every one collapsed and nearly all investers in these credit unions lost their life savings and some. My close friend received back a mere 10% of his savings. Joseph Mollicone went to prison after they found him in Las Vegas, but it didn't help my friend and thousands like him. I know credit unions like banks,also have insurance now.

Nikkiru said...

Yes, Credit unions are insured now. They're also regulated in ways banks aren't. So while they do make housing loans, they tended to have minimal exposure to the housing bubble.

My real point about avoiding banks - even locally owned banks - is that they're all vulnerable to being taken over by larger banks, which have no stake in the community other than their ownership of a local branch. Credit unions are local entities, and every depositor is a member/shareholder. That's reflected in both the level of service and the fee structure, which truly astounds me when I hear what's happening in banks lately.

Nikkiru said...

Yes, credit unions are now insured by the NCUIC. They also operate under rules which have insulated them from the excesses of the credit market since deregulation. Another layer of protection you get with credit unions is that they can't be bought up by these huge banking corporations which have bought out so many formerly local banks. All of this is reflected in the lower cost and frequency of account-related fees in credit unions.