or; one sad little boy defends his financial institution.
There’s been a lot of talk on JU in the past months about “bullshit bank charges” (most recently with Locamama’s article here) and the like. While I understand the angst that certain members of the community feel towards their financial institutions, I feel a desire – nay, a need – to defend bank practices and why they charge you the way they do.
The first and most important thing to remember about a bank, credit union, or any other financial institution is this – they are a BUSINESS, and as such, must turn a PROFIT. Even supposed “non-profit” organizations like credit unions are anything but – that’s just PR bullshit. They’re just as “for-profit” as your local big-boy bank.
But, I reiterate – a bank exists not just as a depository for your money – it exists to make money. Like any other corporation, the bank has a slew of shareholders that want their shares to go up – so, like any good business, the bank does what it can to maximize that money.
That said, it’s also important to realize that those “nickel-and-dime” charges that annoy the hell out of us all so much are not what’s turning the bank’s profit. They’re not. I promise. I work for a bank, and my dad is the CEO and President of said bank, and I’ve asked him and seen the records. Do you want to know why all those nickel-and-dime charges exist? To cover the costs of processing your business.
What the average Joe doesn’t realize is that every transaction you make with the bank costs the bank money – and quite a bit more than most people expect. Folks think that making a deposit or a withdrawal probably costs the bank a couple of cents – its not. Try about a buck and a half at the bank I work at. Yup kids, it costs the bank $1.50 just for you to bring your check to me and have me deposit it completely straight into your account. How? Well, first the bank has to pay me (and in conjunction with paying me, it has to pay for the equipment for me to use – computers, printers, secure T-1 network connections, licenses for software, etc. Did you also know that, for example, if you’re not a customer of the bank but bring in a check drawn on the bank I have to perform what’s called a “WatchDog” search on you to make sure there are no outstanding warrants on you before I can cash the check? Every one of those costs money, and I do ten or twenty a day sometimes), then it has to pay someone to scan all the work that I do during the day and send that in neat little digital packages to the Proof Department (which also comes with a lot of technology costs, because those new scanners that the Fed makes you use in order to comply with Check 21 are not cheap), where they have to pay another person to make sure that every deposit, withdrawal, and transaction balances, before sending all the check images to the Federal Reserve closest (ours is in SF). So that’s what it takes to process just your deposit or withdrawal. The same goes for when you write a check to a business – they deposit it in their financial institution, who transmits the images to the Fed, who transmits the images to us so we can process it on our end.
When you throw Debit cards into the mix, it gets even hairier. They cost a flat fee of $1 regardless, minus processing fees. So it usually costs the bank over $2 for you to use your card every time you pull it out, even if you’re buying a fifty-cent cup of joe.
What about those pernicious NSF (Non-sufficient funds) fees that seem so exorbitant? Each bank (or branch of the bank, depending on the size of your financial institution) has an NSF specialist, whose job is actually to avoid NSFs at all cost, because they end up costing the bank more than your $19 fee. At least at smaller institutions like ours, they are trained to order your transactions in such a way to eliminate as many of them as they can. But still, sometimes people don’t watch their accounts or things get wonky and that puts them in the negative. Now, with just normal overdraft protection (like we offer all our customers), we pay what puts you in the red – effectively loaning you money you don’t have. Then we charge you $19 for this unsolicited, good-faith loan. It seems pricey to the average consumer, and it’s enough to make you mad when it’s just a bit that puts you in the red, but remember this – at least they paid your debt. They were in their rights to reject the payment, putting you in a world of hurt, which causes credit problems, and can get nasty when you start getting those hired creditors hunting you down. Because remember, just like you, businesses jealously guard their money.
But the fact remains – we refund a lot of those NSF fees. I’ve only got my numbers from January of this year handy, but our branch goal was to not refund more than 2% of those NSFs – and we refunded more than 25%, because we love our customers and want you to be happy. That means we ate all those fees. That’s over $20,000 the bank just ate to make our customers happy.
Like I said, the bank is going to charge you. They have to at least break even, if not turn a profit. But most community banks like to keep their fees as low as they can, if only to cover operational costs. After all, the real money in banking is in the loan half of the equation – but we won’t even get into that today.
Needless to say, I doubt any of this meant jack shit to any of you. But I felt compelled to explain just why the bank charges you the way they do. It’s not a screw job; they’re just trying to cover costs with a little in the black. But if there’s one thing I’ve learned, there’s two things people are most defensive of – their families and their money.
And, sad to say, usually they’re more defensive about their money.