Be alert, new banking fees are on the way

Most consumers are not aware of it, but the CARD Act of 2009 and the new Regulation E (which seeks to reduce Overdraft fees) are sure to have a significant impact on the way they do banking. These two regulatory changes are designed to cut down on practices which are consumer-unfriendly, but which contributed significantly to the bottom line. Without these options, be expecting banks to go out of their way to create and assess new fees to make up the lost revenue. Be especially mindful of inactive accounts which you may have forgotten, which banks may now start charging "inactivity" fees against.

Is I.T. Responsible for the Economic Crisis?

I work in Information Technology, so I am sharply aware of the dangers inherent in a badly-built set of systems. It is not just the risk of the Blue-Screen of Death that Windows users are familiar with, or the spinning beachball that haunts Apple users. Even a system that never crashes can be a danger to your business if it doesn't get you the info you need, when you need it. A logical question then, is whether better I.T. systems could have prevented the Economic Crash.

This fragmented IT landscape made it exceedingly difficult to track a bank’s overall risk exposure before and during the crisis. Mainly as a result of the Basel 2 capital accords, many banks had put in new systems to calculate their aggregate exposure. Royal Bank of Scotland (RBS) spent more than $100m to comply with Basel 2. But in most cases the aggregate risk was only calculated once a day and some figures were not worth the pixels they were made of.

During the turmoil many banks had to carry out big fact-finding missions to see where they stood. “Answering such questions as ‘What is my exposure to this counterparty?’ should take minutes. But it often took hours, if not days,” says Peyman Mestchian, managing partner at Chartis Research, an advisory firm.

Of course, it never helps to blame technology for the failings of human nature and human decisions. But poor human decisions about technology can lead to even more poor human decisions. Quality counts.

Overdraft Policies Changing

Overdraft policies at banks are always a tricky subject. When a customer tries to cash a check and goes over their funds, what should a bank do? If the bank refuses to honor the check, they are within their rights but the customer may miss their mortgage payment, car payment, rent, etc. If the bank does pay the check and charges a fee to cover it, that could further overdraw the account and lead to more debt. Different banks handle it different ways. Which confuses customers trying to understand how to play by the rules.

Now, the Fed is looking to standardize overdraft policies by making Overdraft Fees an "opt in" proposition. This means it will be LESS likely that you'll see excessive fees when you try to buy a stick of gum, but it means you'll be MORE likely to see a rent or mortgage payment bounce without payment. The changes go into effect July 1, 2010. Be sure to contact your bank before then, to make an informed decision.

Welcome to the Oligopoly

Many years ago, Federal regulators looked at AT&T and realized that a single company running all phones in America was bad for customers. It limited choice, and gave a single CEO too much power over national communications. So, they broke up the behemoth and brought about our modern world where multiple landline, cellular, and VOIP providers are competing for your business. This has brought down prices and increased choice.

But when the economy tumbled, regulators decided that some banks were "too big to fail" and moved to prop them up with taxpayer dollars. The idea was that these banks should be given support for a short time, to allow the economy to heal, at which point they could be safely returned to the wild. Instead, as it turns out, all of the banks declared "too big to fail" have gotten substantially bigger and more powerful, while smaller banks are failing in record numbers. And what happens when a smaller bank fails? Inevitably, it is sold to one of the "too big to fail" banks.

How much do you want to bet that the NEXT economic crisis is precipitated by bad behavior by one of the "too big to fail" banks with too much power and no incentive to act cautiously, in light of a guaranteed bailout?

Interesting Take on the $500K Salary Limit

While I could find a lot to cut out (such as $16,000 per year for vacation), this article takes an interesting look on how a banker "couldn't live" on a $500K salary. Though mortgage commitments and cost of living differences are part of the reason, the author argues that a successful banker has a certain lifestyle that has become part of their identity. While I don't think taxpayers should subsidize their way of life - after all it is the banking industry that is part of the cause of this mess - it is interesting to take a look at it from the other side.

Understanding Bank Fees

Working for a bank, I am amazed every day to see how many fees our customers pay. To some, this may seem like a criticism of the bank, but overall I am amazed by how many customers are paying fees that there is no reason for them to pay. For example, millions of people every day are paying transaction fees to take money out of ATMs, when they could save $5 and simply walk across the street or down the block to an ATM at their own bank. I am sure some of this is laziness, but some of it is also ignorance. This article is a good summary of the main kinds of fees that banks charge, and how you can reduce the impact to your bottom line. In this current economy, consumers need ever extra dollar they can find, and these simple tips can help you save big bucks.

Do banks understand this is how they are viewed?

My sense is no. Bankers are like anyone else, and think they are the victims and innocent in the current economic slump. From here.