You may also be getting something else: Assessed bank fees simply trying to access YOUR money.
This Associated Press report (via. the ‘Clarion-Ledger’ [Mississippi]), “Jobless hit with bank fees on benefits” (“Fair Use” claimed) tells of the unpleasant “surprise” some unemployed people have discovered when they try to use the “convenient” cards, or even ask the bank via. phone how to use them!
One unemployed engineer–Arthur Santa-Maria from New Mexico–found out the hard way just why banks such as Bank of America (B0A) have found these contracts with several states to administer the unemployment benefits via. prepaid debit card attractive:
[H]e was issued a Bank of America debit card …was surprised to learn he had to pay fees to get his money. He asked the bank to waive them. It said no. That’s when Santa-Maria called back to ask how to check his account online. He logged on and saw that the call cost him a half dollar. To avoid more fees, Santa-Maria found a Bank of America ATM at a strip mall and withdrew $80 at no charge… [H]e decided to take out the rest of his money — $250 — and deposit it in his bank account.
Afterward, Santa-Maria logged on to his account and saw a charge of $1.50 for two withdrawals in one day.
Nice: He gets charged to call them to ask how to use the thing.
Then he gets charged to get his balance on-line.
Then, to add insult to injury? Mr. Santa-Maria gets dinged an additional penalty fee for making two withdrawals in one day! And was his bank BoA? If so, that was adding insult to injury.
Avoid this expense by “using the card in the right way”? Not so easy: Since many an expense cannot be paid with a debit card–such as the rent and utilities–and a single benefit payment (benefits are generally paid by the week) is likely less than the amount of the biggest bills over the course of a month which necessitates multiple withdrawals and re-deposits into an existing account, either at that bank or another one? One can easily see the income potential for a bank like BoA.
But why would the states agree to a program that could be a political millstone around their necks? After all, their unemployed constituents would not exactly be fond of being treated like little children–or welfare cheats–simply to get the unemployment benefits they are qualified for.
Unless…
A typical contract looks like the agreement between Citigroup and the state of Kansas… The state expects to save $300,000 a year by wiring payments to Citigroup …
Citigroup’s bill to the state: zero. The bank collects its revenue from fees paid by merchants and the unemployed.
It’s cheaper to wire money in bulk and let the private sector take on the expense…and the opportunity to make a big profit…of distributing the funds to beneficiaries. After all, issuing individual checks is expensive and states are not adverse to saving beaucoup bucks where they can. New Mexico certainly does:
The state saves up to $1.5 million annually by not printing checks.
Are these fees necessary? Not really; the banks are open to administering the distribution of the benefits if the states would just pony up those administration fees.
You can guess what the states will NOT do. Nor will they necessarily think the current fee schedule is “unfair”:
Bank of America spokeswoman Britney Sheehan pointed out that the fees charged in New Mexico are similar to those charged in the 29 other states with unemployment debit cards.
How prevalent is the issuance of pre-paid debit cards as the medium for paying unemployment benefits? Thirty states now use these debit cards for paying benefits; eleven are considering switching to debit cards from paper checks. (The rest use checks or direct deposit.)
[See the original graphic here .]
Are there benefits? Maybe, if one is among the “unbanked”:
[T]he cards can save money for jobless workers who have no bank accounts. In the past, these people had to use corner check-cashing shops that charged fees as high as 2 percent, or $6 for a $300 check. Now, they can swipe their cards at McDonald’s, Wal-Mart or elsewhere for free
A bargain for these people? Hardly: It’s very unlikely that businesses will give “cash back” without a purchase or even with one.
This also overlooks the fact that many of these banks may not be located where the unemployed worker is or can get to and the ATMs they can access may not be in the “network”. That means more fees, potentially to at least two different entities (the ATM owner and the issuing bank). Since the average fee for a withdrawal at a non-network ATM is already substantial (it averages around $2.00 a withdrawal where I am located (CT)), the fess for using a check cashing service may well be cheaper than the fees tied to the use of the debit card over time.
Also remember that “pre-paid” debit cards do not allow for any sort of “overdraft” privilege so there are no additional costs to the bank for such transactions. Or, do they prohibit overdrafts? Perhaps not: Seems that such a logical conclusion–don’t allow overdrafts–may not be in the best interests of the bottom line of some banks:
Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what’s on the card.
How nice: Overdraft fees, too.
The only way to avoid all of this is to handle the debit card as if it were a paper check:
They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller.
And they claim this service is really for the “convenience” of the beneficiary? Since when is having to wait in line at a bank and then dealing with a teller (especially if the bank is not the one one has their account(s) at) “convenient”?
No…the reason for all of this bulldung is here:
Some banks…also make money on the interest they earn after the state deposits the money and before it’s spent. The banks and credit card companies also get roughly 1 percent to 3 percent off the top of each transaction made with the cards.
As an example, in Missouri, analysts figure the average recipient uses the card six to ten times a month:
…94,883 people claimed unemployment benefits through debit cards from Central Bank….If each cardholder makes three withdrawals at an out-of-network ATM, at a fee of $1.75, the bank would collect nearly $500,000. If half of the cardholders also dial customer service three times in any given week…the bank’s revenue would jump to more than $521,000. That would yield $6.3 million a year.
As Rachael Davis from St. Louis, MO, recently unemployed said to the AP [after she had to pony up $6.00 for two $40 transactions against such a debit card]:
“It’s a racket. It’s a scam.”
Need I say more?
——————————–
Leonard, Christopher, “AP IMPACT: Jobless hit with bank fees on benefits”, The Clarion-Register, Mississippi, February 19, 2009. Originally via the Associated Press; downloaded February 19, 2009 from http://hosted.ap.org/dynamic/stories/B/BANK_FEES_JOBLESS_BENEFITS?SITE=MSJAD&SECTION=HOME&TEMPLATE=DEFAULT
(“Fair Use” claimed for all quoted materials.)
Lenders–Beware the Coming Storm (X-post from Debtorboards)
Tuesday, November 3rd, 2009This post by Flyingifr originally appeared at Debtorboards on November 3, 2009. It is a succinct commentary on the current credit crisis and how lenders are likely to discover that the “Law of Unintended Consequences” can hurt when it is applied to them and their business model.
The link to the original post: http://debtorboards.com/index.php/topic,8736.msg62516.html#msg62516
The post is used with the express permission of the author.
Flyingifr wrote:
Lenders – beware the coming storm
With the current recession and credit crisis, the news media is beginning to note a cosmic shift in people’s attitudes towards credit. No longer are credit cards being looked at as a universal necessity – they are once again being looked at as a luxury.
I am also seeing a shift in attitudes on both sides of the equasion. Loyalty is history. Lenders, who used to value long term relationships with their customers are now looking at their customers as cash cows and when the cow doesn’t give enough milk it is sent to the slaughterhouse to be turned into hamburger through rate jacking, credit line decreases or simple unannounced account closures.
I remember the days when bankers encouraged you to have a long term relationship with them. My Debit Card attached to my bank account still reads “customer since 1996″, but my credit cards no longer do. American Express still does that, but after a rate jacking and 4 credit line decreases in six months on an account that was never delinquent by one dollar or one day that account was closed within 14 months of its opening. Amex made no attempt to keep me as a customer and actually paid thousands of their customers to go away. The other credit card companies are in the same boat. Citibank made no attempt to salvage our relationship, neither did GEMB.
It is easy to ascribe this to the current credit crisis, and that is probably a correct assumption, but what is happening to the concept of “loyalty”? Loyalty is a component of trust, and the credit industry is built on trust. Lenders trust borrowers to repay and borrowers trust lenders to be honest with them and to honor their commitment to lend. Stories are legion of people at checkout counters across the land attempting to use a credit card that they thought had plenty of available credit only to find there is none after a quick and unannounced decrease in credit line. I am not talking about accounts that are delinquent in payment – I am talking about accounts that are current, have always been current and in many cases actually have no balance owed at all.
Lenders say “it’s a business decision” and they are correct. But that goes both ways, and this is where I am sure the collectors will argue with me. How many of us have heard collectors cajole us towards repayment based not on the “business decision to repay” but on the “moral” argument – you have a moral commitment to repay. It’s as if one side of the transaction is an amoral “business decision” when made by a lender and the other is a “moral imperative” when made by a consumer. “Yes, we raised your interest rate to 30% and cut your credit limit to $5 above your balance with no advance notice, tripled your payment, changed your due date and there is nothing you can do about it even though you have been a customer of ours for thirty years and have never made a late payment, but your payment is now five minutes late. Here’s your late charge and we dinged your credit.”
OK, so it may not actually be THAT draconian, but many people feel it’s pretty close to that, and many are angry. How angry? I see a storm coming that the lenders are powerless to stop and may end up hurting them big-time.
If credit is reduced to simply an amoral “business decision” what happens when BOTH sides of the transaction see it that way? The moral imperative to be honest goes out the window and only what is expedient and can be “gotten away with” will happen. Let’s discuss someone I know and we will call her Jenny. I personally know about dozen people who fit Jenny’s profile and the number is growing daily.
Jenny is in her late 50′s. She has a six-figure credit limit spread among a half a dozen credit cards. Her utilization is about 20% and makes her payments consistently above the minimum and on time. Her FICO’s are all in the mid 700′s. She has a six-figure household income, owns her home and has three paid for cars. Her children are all grown and she is preparing for her retirement. She has two pensions fully vested and a solid investment portfolio.
She has also had $75,000 in credit lines reduced in the past year and has had four credit cards closed unannounced. She feels she plays by one set of rules and the lenders play by another. She is right – she plays by the “moral imperative” set of rules and the the lenders are playing by the “business decision” set.
That is about to end.
Her plan: To retire at age 62 – as soon as she can collect her pensions and Social Security and move to the Philippines. She will sell her paid for home to her child before doing anything. By that time her investment portfolio will be in the low six-figure range, and her combined pensions and Social Security will allow her to live like royalty in the Philippines. Did I mention that she plans to hit all her credit cards up to the maximum before she leaves, and not pay them back? She won’t need them in the Philippines, she will have enough cash for whatever her heart desires. She doesn’t care what happens to her credit rating in the US, she will be in the Philippines. Or Brazil. Or Singapore. Or Korea. Or Mexico, Belize, Costa Rica or anywhere else in the world, even Nova Scotia. “It’s not personal, it’s business.”
Collectors will skip trace her, maybe they will find her, maybe they won’t. If they do, what can they do? Her pensions and Social Security will be Direct Deposited to a bank in the Philippines. Her assets will be in Treasury Bills. The Treasury will mail her a check every six months for the interest. None of which can be touched by bill collectors. Is she alone in making these plans? No, I know of a dozen like her and several who have already done this. The numbers will grow and with each one the lenders will get hit hard. In Jenny’s case for $100,000. The new morality is “it’s just business.”
Lenders – you created this environment. I hope you enjoy it.
Tags: bank fees, banks get theirs, business procedures, close the account incentives, contracts, credit cards, credit freeze, credit issuers, creditors' "WHAT??" moves, economic "meltdown", excessive fees, original creditors' tricks, policies and procedures, unintended consequences of greed
Posted in Commentary., Credit Issuance., Creditors, Flyingifr, bank rip-offs, credit line decrease tricks, creditors' acting badly, economic "meltdown" | Comments Off