When your bank doesn't want you
WASHINGTON (Reuters) - Tensions between banks and consumers were at fever pitch last fall, when Bank of America tried unsuccessfully to make a $5 monthly debit card fee stick and consumer activists took to the parks and asked customers to move their money on "Bank Transfer Day."
Now those tensions are rising again, but don't expect the banks to back down like BofA did. It's not because consumers are any less upset: A report that the megabank was simply considering new checking account fees was met with an immediate press release from Consumers Union calling on Bank of America "to drop its latest fee scheme."
And it's not because consumers aren't leaving when they are mad. Roughly 9.6 percent of customers switched banks during the past year, according to a survey released on Monday by J.D. Power and Associates. This is up from 8.7 percent in 2011 and 7.7 percent in 2010. One-third of the customers at larger banks said they were moving mainly because of fees.
Now, if there's new backbone in the banks, it's because they may be getting better at figuring out when they have to raise fees, and which customers they can afford to lose.
Put another way, the banks are coming to terms with the fact that there are some customers they can't afford to keep. And if those customers find other financial services to use instead of banks, so be it.
Those unprofitable customers may be a larger cohort than you think, and you may even be one of them.
People who don't bring at least $100,000 to the table in investable assets, loans and deposits will be largely unprofitable to banks once Dodd-Frank financial reform rules are fully phased in, Todd Maclin, head of consumer and business banking at JPMorgan Chase & Co, told investors at an event earlier this week.
He said that roughly one in three customers has less than $5,000 in deposits and investments and 80 percent of those folks will be unprofitable to banks that can't charge as much as they once did for overdrafts and the like.
This is not necessarily the ethical/moral problem that some consumerists suggest; it's more of a practical dilemma. After Dodd Frank, fees may be more directly connected to the services that cost financial companies money. And consumers may be billed directly for services they used to get free because someone else was actually paying for them behind the scenes.
As banks and investment companies (JPMorgan and BofA do both) get better at the kind of consumer data crunching that everyone else is doing, they'll know exactly how much each customer brings them in profits and which ones are worth hanging on to, and which services they need to charge for.
A young person without much money, but a big salary and nice prospects, would be good to snag with online banking and investment advice. A wealthy customer who only wants to use the neighborhood bank for free checking and bill pay? Not so much.
Of course, consumers do have alternatives, so the giant banks don't have all the power in those relationships. Small banks, credit unions and new automated advisory services are going after depositors and investors with offers that should have the big banks nervous. They may not want unprofitable customers, but what customer wants to be a big profit center for their bank?
Here are some tips, and a short shopping guide for financial customers who are in that under-$100,000 category.
-- Don't bundle big money. Most big financial institutions will give you free checking (and probably a toaster, too) if you take out a $250,000 mortgage or drop $100,000 into an investment account with them. But do you want to? Not if you are overpaying for those big services just to save a few bucks a month on your checking account.
If you like the convenience of an ATM on every corner and a great online bill-pay application, you may be better off sucking it up and paying the monthly bank fee.
-- Bundle little money. Many banks require a minimum monthly balance of $2,000 or so for free checking. If you can afford to tie up that much money without getting interest for it, you could probably qualify for free checking and avoid overdraft problems, too.
-- Seek upstart alternatives. Small community banks are hiring marketing front companies to build online businesses for them: Companies like PerkStreet, SmartyPig and Simple.com offer a variety of banking accounts, FDIC insured, via Web portals. My colleague Lou Carlozo recently identified 10 banks offering free checking accounts (tinyurl.com/6tty2uy).
-- Use automated investment services. The thinking about how to build a solid retirement portfolio has coalesced around this approach: A mix of stocks and bonds in low-fee funds, rebalanced regularly. And you don't need a high-priced banker or broker to do that for you; a computer can. Some companies that are doing a decent job of managing portfolios on autopilot include FolioInvesting, Marketriders, Betterment (which just dropped its fees) and Wealthfront, which offers free advisory services for accounts under $25,000 and charges just 0.25 percent on accounts over that.
-- Complain, if you want. Of course, banks are supposed to deal fairly and clearly with their customers, and if you feel like you've been wronged, you don't have to just slink away. The new Consumer Financial Protection Bureau said Thursday that it is accepting consumer complaints about bank accounts at its web site (here).
You can file a complaint, print it out, and - ahem - take that to the bank.
(The Stern Advice column appears weekly, and at additional times as warranted. Linda Stern can be reached at email@example.com; She tweets at www.twitter.com/lindastern.;
Read more of her work at blogs.reuters.com/linda-stern;
Additional reporting by John McCrank and David Henry; Editing by Steve Orlofsky)
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