It took a threat from Congress

Posted by Ray on September 23, 2009 under Main | Be the First to Comment

There is a win for the little guy, finally. It is not a major win, but nevertheless a win that should help those who are strapped for cash or who are unemployed. As I talked about just a few weeks ago banks love overdraft fees, it isn’t really overdraft rather  a fee to cover payments that overdraw your account by as little as a penny which looks like overdraft, but is really fee heaven as it is a straight fee of up to $38.50 with no official APR. Well, Bank of America and JP Morgan have become much friendlier on the fee front now waiving fees if you go over your limit by only a few dollars.

The two banks will also make it easier for customers to opt out of the “overdraft” protection program if they so desire. JP Morgan will implement their changes in 2010 and BoA will start in October of this year, which I applaud. This is a big deal for consumers as the banking industry ranks in some $36B in fees from these programs and gives consumers no way to opt out, until now. I can hear some of you arguing that people should know what they have in their checking account and you are right, but does a mistake of say $1 deserve a penalty of a $38 fee? No way.

Not to mention that this program hurts those who are hurting the most, the poor and unemployed. The other problem I have with these programs is the fact that the banks game it so they maximize the fees by pushing the largest withdrawals through first which ensures more fees than if smaller withdrawals went through first. Since the bank clears all deposits anyhow the only reason to go largest to smallest is to rack up fees, there is no other reasonable explanation. I even emailed the lobbying group who advocated the program and said it provided ‘value’ as it would clear rents, car payments or mortgage payments first, but we are talking about debit card transactions and no landlord takes a debit card for payment, I never received a response.

Now, these banks will not charge customers if the overdraft is either less than $5 or $10 which is all I ever ask for. Also the fact that you can opt out is just fantastic, not that I would ever bank with JP Morgan or BoA as I cannot stand the institutions, but this certainly puts them in a much better light with me. It also means that other banks will follow suit or Congress will surely pass legislation making their life’s miserable, which I am in favor of.

It is really just a shame that it took the threat of Congressional action for banks to do the right thing. When did business in America get to the point where it takes the threat of legislation to make things happen? This is why we need actual people, not lawyers, lobbyists or even our elected officials writing financial reform laws because they will make sure there are loopholes. But if you get Larry the Cable Guy or YouTube’s WallStreetPro2 up there I can assure all the fun and games would be gone and banks would have to make money the old fashioned way, they would have to earn it. Because right now banks simply steal it.

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One last thing to think about

Posted by Ray on July 5, 2009 under Main | Be the First to Comment

Citi, JP Morgan and, presumably, Capital One have or will be soon raising minimum payments on credit card debt. The minimums will increase from 2% of account balances to 5% which is a huge hike during the highest level of credit card defaults on record. This means that defaults will go sky high in 30 to 60 days which may cause major problems.

I realize that some may think this is not a big deal or that it is a good thing credit card companies are doing this, but it is not. They are trying to move marginal credit risk into default, for reasons I do not really understand yet, but it has to do with the new credit card bill or perhaps to get the defaults done now versus waiting for them to unwind.

Regardless, this will have unwanted consequences and will force defaults sky high, literally. As unemployment hits 10%, then 11%+, these higher minimum payments will not be met. Since this is a credit crisis, not a liquidity crisis, credit will be increasingly harder to get because of fear of default. This brings us to the possible “why are they doing this section?”

Simple, they are trying to finad any reason to not lend to consumers. The banks want to hoard money, some say because they are insolvent, which has some truth to it, but as they try to boost their Tier 1 capital and TCE the more they can hoard the better they will be. I have a few cases to illustrate this point.

1. Citi group has a $100M+ loan for a mall in Syracuse NY. The mall is supposed to rival the bigger malls in America. However, Citi says the developers defaulted and stopped payment on the line of credit. It is in court and there seems to be little merit for Citi to stop payment.

2. A person I know is buying a commercial building and they are putting down 25% of the value of the loan, its only $100K. Everything was a green light until the bank held things up, that is when they found an old paid off judgment on the buyer. The deal is off. Seriously an 8 year old judgment, that is paid, with 25% down is a relatively risk less loan for the bank, but so far it is a no go.

Banks want to hoard money and they refuse to loan, hey its their business, those ungrateful bastards. The point is the defaults are going to go up, period. This could prove dangerous to our fragile economy and it is our opinion that banks should really reconsider this endeavor.

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