TIME States

Colorado’s New Pot Banking Law Won’t Solve Cash Problems

Over 400 Marijuana Stores Ordered To Close As City Regulates Industry
Tim Blakeley, manager of Sunset Junction medical marijuana dispensary, shows marijuana plant buds on May 11, 2010 in Los Angeles, California. Kevork Djansezian—Getty Images

A new law signed by the governor offers a symbolic fix to a serious problem

Colorado Gov. John Hickenlooper signed a bill Friday designed to create the world’s first state-level banking system for legal cannabis companies, which have complained that their lack of access to basic banking services creates difficult and dangerous risks.

But the financial industry quickly cast doubt on whether the legislation will address issues faced by marijuana businesses in the state, where recreational pot became legal this year. Asked what it would accomplish, Colorado Bankers Association CEO Don Childears said: “Basically, absolutely nothing.”

“We don’t think it can be effective, and it can never get off the ground,” he said.

The bill allows legal marijuana shops to create a makeshift financial network that would help them gain access to credit and merchant services. A lack of access to banking has been the single biggest problem for Colorado’s recreational weed merchants, which have been legally operating in the state since Jan. 1. Forced to operate million-dollar businesses in cash, marijuana companies run the risk of robbery and face myriad logistical difficulties.

The problem with the bill is that it does nothing to change the reality that blocked pot shops from banks in the first place. Marijuana, which is classified as a Schedule I drug, remains illegal under federal law. As a result, financial institutions are wary of taking on cannabis companies as clients, even in states where some form of the drug is legal.

The legislation signed Friday allows pot businesses to petition the Federal Reserve for clearance. But even industry advocates acknowledge that the chances of obtaining a green light are slim. “It’s probably not going to work, but we’re trying,” said Mike Elliott, executive director of the Medical Marijuana Industry Group.

The point of the effort is simply to demonstrate that. The industry believes that the banking conundrum can only be solved in Washington—either by Congressional action, or by rescheduling marijuana as more and more states adopt permissive laws. The law signed Friday is an effort to show federal authorities whom Colorado officials have been petitioning for a solution that the state has done everything it can to resolve the issue.

“I don’t see anything coming out of it; it’s more symbolic than anything,” said Elan Nelson, who works in business development for Medicine Man, a legal retail shop in north Denver. “I think this starts the conversation. And if, for some reason, it works—great. We need this desperately.”

MONEY fees

No More ATM Fees? Sign Us Up!

Pile of money
B.A.E. Inc.—Alamy

FreeATM, which allows customers to watch a quick ad in lieu of paying the usual annoying $2 or $3 ATM fee, has big plans to expand, starting this summer.

Consumers run into plenty of tacked-on charges in today’s world—hello airline baggage fees!—but the ATM fee, small as it is, is up near the top in terms of generating aggravation. There’s just something patently absurd and beyond annoying about paying money to get your money.

According to a survey conducted on the behalf of TD Bank last summer, nonbank ATM fees were given the nod as the most frustrating bank fees, named by 38% of those polled. (Overdraft fees, which cost far more than the $2 or $3 charged by ATMs, came in second, with 27%.) In a previous survey, 77% of consumers said it is not OK for banks to charge ATM fees, and the majority of consumers said that a fair fee for using an ATM is … $0.

That’s just the amount consumers will incur when they an ATM service that plans on expanding rapidly throughout the country soon. First introduced in 2011 with a single ATM in New York City, the company—appropriately called FreeATM—announced that after the latest round of raising money from investors, it has plans for surcharge-free ATMs to open in 20 New York neighborhoods on the same (yet to be determined) day in August 2014.

In lieu of a fee for using an out-of-network ATM, customers will be shown a 15- to 20-second targeted ad on a screen, and then be able to use the machine fee-free. It doesn’t matter if your card is prepaid or a regular bank debit card; FreeATM won’t add a fee. (While the machine won’t charge you a fee, the bank or other service that issued the card might tack on its own fee, so watch out.) The plan is for around 250 ATMs in the New York metro area to start using the platform within a year.

Clinton Townsend, founder and owner of FreeATM, originally had the idea that his company would own and operate ATMs. That vision has evolved, however, and now FreeATM is partnering with major cash-machine operators Everything ATM, ATM Money Machine Inc., and NationalLink. The latter operates roughly 10,000 ATMs around the country.

“We have demand from operators from Boston to Hawaii, but we’re trying to control the roll-out,” Townsend said via e-mail. “We’re targeting the week of August 18th to launch. This may move around by a few days or so, as we are coordinating several venues to be unveiled at the same time.”

(MORE: How Do I Pick a Bank?)

If and when such ATMs arrive in your neck of the woods, you can say goodbye to the out-of-network ATM fee, which averages $2.60 nationally, according to Bankrate.com study. It’ll be great to get rid of one of life’s most annoying fees. Now we just have to wait and see how annoying the targeted ads are that are replacing the fees.

Bear in mind that there are other ways to avoid ATM fees, the most obvious of which is only using machines that are in your network. Also, a couple of convenience stores actively promote the fact that they have fee-free ATMs—a wise move considering that it gives consumers an extra reason to swing by and maybe buy some chips, jerky, and soda and gas up the car while they’re at it. Last fall, the Sheetz chain announced a partnership with PNC Bank to host 480 surcharge-free ATMs in its stores in Maryland, North Carolina, Ohio, Pennsylvania, Virginia and West Virginia. Wawa, meanwhile, has hosted surcharge-free ATMs for years, and celebrated its one billionth free ATM withdrawal back in 2010.

Again, while these machines don’t tack on fees, your bank might for using an out-of-network ATM. Check your bank policy before finding a $2 or $3 fee on your monthly statement—because while all fees are annoying, they’re especially annoying and unpleasant when they come as a surprise.

MONEY Odd Spending

There’s Probably No Cash in Your Wallet. Could That Cost You?

140528_EM_NoCash_1
Nikola Bilic—Alamy

If you walk around with little or no cash, you're in the majority. But choosing plastic over cash for everyday purchases could mean you'll spend more in the long run.

According to two recent surveys, the majority of consumers walk around with little or no cash. Most prefer plastic for the sake of convenience and safety. There could be an unfortunate side effect, however, based on the theory that people spend more when making purchases with credit or debit cards rather than cash.

Last week, VoucherCloud, a UK-based deals and coupon site, released the results of a survey of 2,341 Americans indicating that “over half of American citizens (57%) ‘never’ carry cash, instead relying solely on credit and debit cards to pay for their daily expenses.” Only 10% of survey participants said that they “always” carry cash, and another 33% said that they carried cash “rarely” or “sometimes.”

Could this be true? Do the majority of American adults you pass on the street really have empty wallets? There’s reason for skepticism. Let’s start with the question that prompted the responses: “How often do you carry cash with you on an everyday basis?” Many may read this question as essentially asking, Do you always carry cash? That’s different than asking if you usually keep a few greenbacks in your pocket.

What’s more, another recent survey, from Bankrate, focused on the same subject but ended up with very different results. In its survey, which asked, “How much cash do you usually carry on a daily basis?” Bankrate found that only 9% selected the option “Don’t carry cash/does not apply.”

There’s no denying that folks carry a lot less cash than they used to. According to Bankrate’s data, more than three-quarters of people generally walk around with $50 or less: 40% usually have less than $20 on hand, 29% say $20 to $50, and 9% typically go cashless (or “does not apply,” whatever that means).

In both surveys, participants said they felt safer that way. The top reasons given in the VoucherCloud survey were “concerns over safety and the risk of theft” (65%) and “risk of losing my wallet and/or its contents” (53%). Women tend to carry less cash than men—77% of female respondents said they keep $50 or less handy, versus 61% of men—perhaps owing to the fact that women “may prefer to carry less cash than men so as to reduce the risk of being a target for criminal activity,” according to Bankrate chief financial analyst Greg McBride.

As for whether it’s wise to carry little or no cash, the surveys come to very different conclusions. When asked, “Do you spend more or less when paying by card instead of cash?” 84% of VoucherCloud respondents said they do more damage when spending with plastic. “While using payment cards rather than cash is a widespread modern phenomenon, because it is so quick and convenient, it can become a dangerous trend for some of us!” VoucherCloud’s Matthew Wood warned. “It’s much harder to keep up with what you’re spending as you don’t see the money leave your hands and, because it’s just a little piece of plastic, it doesn’t feel like a real exchange. It’s easy to get carried away.”

There’s plenty of research out there to back up this theory. Generally speaking, the idea is accepted that handing over cash feels more tangible and “hurts” more compared to quickly swiping a card. Many budget and personal finance experts recommend going cash only and maybe even freezing credit and debit cards in a block of ice as a strategy to limit one’s spending.

The Bankrate study, on the other hand, makes the argument that people today think of any cash as “petty cash” that will inevitably be spent quickly and carelessly. So it stands to reason that people don’t want to carry around too much. “If you’re carrying more, maybe you feel you have more, and you feel you spend more easily,” Joydeep Srivastava, a professor of marketing at the University of Maryland, told Bankrate. To many consumers, cash on hand is as good as cash spent. “As soon as you draw it from the ATM, it’s like you’ve already spent it,” said Srivastava. “You don’t feel that pang of guilt of spending it anymore.”

So which theory is true? If you’re trying to avoid unnecessary spending, should your primary mode of paying be plastic or cash? And by extension, is it best to carry lots, some, or no cash? The truth is, the answers probably vary a lot from person to person.

If you’re the type who is constantly piling up credit card debt or getting hit with overdraft fees on a debit card, it may be time to put the plastic on ice and limit yourself to cash-only expenditures. And it’s probably best to try to plan out your daily expenses and limit how much cash you carry around. Because if you have more cash than you need, you know you’ll just spend it.

TIME Companies

Barclays Cutting 19,000 Jobs in Major Trim of Investment Banking Ambitions

The British bank is scaling back on its ambitions to join the ranks of Wall Street's biggest investment banks.

Barclays will cut 19,000 jobs over the next three years as part of an anticipated new slim-down strategy announced Thursday, two days after the British bank said profits fell more than expected.

The bank is largely returning its focus to its retail operations, cutting 7,000 jobs in its poorly performing investment banking division alone, according to the report released by Chief Executive Antony Jenkins.

Barclays said Tuesday that first-quarter profit fell 5% from a year earlier, with profit in the investment banking division falling 28%. Its retail banking operations saw profits rise 7%.

“This is a bold simplification of Barclays,” Jenkins said in a statement. “We will be a focused international bank, operating only in areas where we have capability, scale and competitive advantage.”

The beleaguered bank, which began boosting its investment banking operations in 2008 when it acquired Lehman Brothers’s U.S. operations, has recently lost some of its top executives and faced criticism from shareholders and politicians alike for its high bonuses.

TIME Drugs

Pot Banking Greenlit in Colorado, But There’s a Hitch

Pot Marijuana Bank Colorado
Grower Joe Rey feeds marijuana plants a combination of nutrients and molasses in a flower room at 3-D Denver Discreet Dispensary in Denver on Dec. 04, 2013. Craig F. Walker—Denver Post/Getty Images

The financial cooperatives could theoretically give the medical marijuana industry easy access to banking services, but they're unlikely to receive the necessary approval from the U.S. Federal Reserve.

Colorado lawmakers approved a financial system that aspires to provide access to banking services for legal marijuana sellers who have largely been shunned by wary banks.

The bill, which still has to be signed by Gov. John Hickenlooper, a Democrat who has supported the idea, aims to wean the marijuana industry off of its dependence on cash, which makes it a target for criminals and is less easily tracked for tax purposes, the Associated Press reports.

Most banks rejected pot businesses even after Jan. 1, when Colorado became the first state to allow recreational pot sales, amid concerns that the federal government would come after them. The Obama administration has signaled that it would let banks do business with state-license marijuana suppliers despite federal law, but it has not issued blanket immunity.

“This is the final piece to our pot puzzle,” Representative Jonathan Singer, the chief sponsor of the proposal, told Reuters. The bill would create financial cooperatives, similar to credit unions, for marijuana businesses.

But while the proposal highlights the problems facing the legal marijuana industry, it’s unlikely to pan out. The cooperatives would only take effect if the U.S. Federal Reserve lets them perform services like accepting credit cards and checks, which is unlikely particularly because the cooperatives will not have deposit insurance.

[AP]

TIME Advertising

This Bank Ad Hilariously Mocks Google Glass

Takes aim at "glassholes"

The faux PSA is a well-worn advertising trope. Now, many advertisers are using it to take aim at the glut of technology in most consumers’ lives. Take this new ad for FirstBank. The spot, created by agency TDA_Boulder, paints a vaguely dark scene from the not too distant future. An entire family is totally distracted from their dinner because they’re all wearing futuristic headsets not dissimilar from Google Glass. (They don’t look as nice.) Pop-up ads, selfies, and games turn the normally Norman Rockwell-esque scenario into a comedy of spasms. The tagline is “get back to the real world”—which in this case consists of a banking app that is apparently pretty easy to use.

TIME Economy

We’re Much Too Obsessed With Central Bankers

Bank Of Japan Governor Haruhiko Kuroda News Conference
This man can't save the economy by himself, and neither can any other central banker. Haruhiko Kuroda, governor of the Bank of Japan, during a news conference in Tokyo on April 8, 2014 Bloomberg—Bloomberg via Getty Images

Japan's struggles make clear that global financial markets are overly focused on what central banks are doing and not enough on what really ails the world economy

Turn on CNBC any given morning and you’ll endure fund-manager after banker after stock-market-analyst attempt to decipher what the U.S. Federal Reserve might or might not do, and when it might or might not do it.

The statements of Fed Chairwoman Janet Yellen are dissected syllable by syllable for clues of direction or intention over and over and over again. Across the Atlantic, Mario Draghi, president of the European Central Bank, garners similar attention. What will — or should — Draghi do to combat the euro zone’s continuing economic woes?

The financial world is obsessed with our central bankers. And though they possess great power over economies and markets — Draghi is credited with almost single handedly quelling the euro-zone debt crisis — the focus on what they say and do has gone too far.

That’s made obvious by the efforts of Haruhiko Kuroda, governor of the Bank of Japan. A year ago, when he first took that lofty post, Kuroda instituted a radical plan to jump-start the perennially sluggish Japanese economy with a massive infusion of cash — like the Fed’s quantitative-easing (QE) programs, but even more aggressive. The plan is part of a great experiment called Abenomics, named after Japanese Prime Minister Shinzo Abe, who inspired it. Abe believes that the central bank’s largesse, combined with government spending and economic reforms, will finally shake Japan out of its two-decade funk.

Yet what Abenomics has become is a study in the limits of central-bank power. A year into Kuroda’s stimulus program, Japan is only marginally better off than it was before. Kuroda has overcome the damaging deflation that plagued the economy, at least for now. But after an initial lift, Abenomics has done little to boost Japan’s growth.

GDP expanded only an annualized 0.7% in the quarter that ended in December. A cheaper yen, engineered downward by Kuroda’s actions, may be helping Japan’s exports a bit, but not enough to close a widening trade deficit. Wages have gone nowhere. Meanwhile, in an attempt to chip away at the government’s giant budget deficit, Abe hiked the consumption tax to 8% this month, which will further drain demand out of an economy that already badly lacks demand.

So inevitably, attention has shifted back to Kuroda. Some economists are expecting the Bank of Japan to step in and increase its stimulus even further to regain momentum. Yet Kuroda can’t fix Japan on his own. The problem is that he’s not getting enough help from Abe and his policy team.

Japan’s economy requires a serious makeover to enhance its ability to grow. Yet the part of Abenomics aimed at major reform, called the third arrow, has progressed much more slowly than Kuroda’s printing presses. Only now is Abe beginning to talk about tackling the economy’s most difficult problems.

In late March, the government began unveiling details of economic zones in which policymakers plan to experiment with looser regulation on labor, health care, foreign investment and other overly controlled sectors — all reforms economists believe are long overdue. But it isn’t clear at this point how far the deregulation will go. Nor is it clear how fiercely Abe is willing to take on those special interests (old-line politicians, civil servants, farmers) that prefer the status quo. Economists believe Japan would see a big boost from joining the Trans-Pacific Partnership, a free-trade agreement orchestrated by the White House, but talks have stalled in part because of Abe’s refusal to open the country’s protected rice industry.

Such reforms would achieve what Kuroda can’t — making Japan Inc. more competitive. In the end, Japan can be saved only by fundamental change to the way the economy works. The same can be said about the rest of the industrialized world. Draghi can help fight deflation or support the banking sector, but he can’t reform the euro zone to produce more growth and better jobs. That’s up to Europe’s political leaders, but their efforts at further integration have slowed. Nor can Yellen improve American infrastructure and education, reform the tax code or take other steps that would aid U.S. competitiveness.

We’ve come to rely so much on our central bankers because politicians and corporate leaders are failing to fix what really is holding us back. Whatever their meeting minutes might tell us, central bankers can never say enough to finally get the global economy on the road to health.

TIME

Can $68 Billion Make Wall Street Any Safer? Nope

This week, U.S. financial regulators announced that Too Big To Fail (TBTF) banks will be forced to increase their capital cushion by $68 billion, to comply with new financial reform rules. But if you think that’s going to finally make our financial system safe, you are wrong. At least, that’s the verdict from an all-star panel that spoke on the topic of financial stability on Thursday at the Institute for New Economic Thinking annual conference, being held this year in Toronto.

The panel was made up of a diverse group of heavy-weights: Andy Haldane, head Bank of England’s stability board, Stanford professor Anat Admati (author of “The Banker’s New Clothes”), Richard Bookstaber from the U.S. Treasury’s Office of Financial Research, and Boston College professor Edward Kane. What’s disturbing is that they all came to the same conclusion—not only have we not repaired the financial regulatory system since Lehman, but we may have made things worse by creating a complicated spaghetti bowl of new rules that don’t actually address the fundamental problem. (Those would be Dodd-Frank and Basel III.) Banks need a lot more money, and the financial lobby needs a lot less.

Haldane, one of the most influential voices these days in economic policy circles, laid out the situation with stark numbers showing that, amazingly, global TBTF banks are bigger, more complicated and riskier than before the crisis. In 2006, for example, such banks held $1.3 trillion on their balance sheets. Today, they hold $1.7 trillion. Back then, they held $19 trillion worth of derivatives, those “weapons of financial destruction” that Warren Buffett complained about. Today, they have $31 trillion. Thanks to the Fed’s post crisis low interest rate policy, they pay less than ever to borrow money, which means that debt is cheap. That’s one reason the amount of debt held by such banks is still about 21 times their assets. Yes, those “leverage ratios” are lower than the 32X average in 2000. But holding that much in liabilities means that if asset prices go down even 5%, banks will once again be in the gutter. And history shows that happens about once ever 20 years–meaning, if big banks don’t put away a lot more capital, we can look forward to another Lehman Brothers event in our lifetime.

Which kind of puts this week’s capital announcements in context. Sure, it’s great that banks are being required to hold 5% of their own cash, rather than the usual 3%. But no other business in America, not to mention individuals, would be able to survive with a balance sheet that looked like this. Bankers would argue that things have changed hugely from the pre-crisis days till now. After all, the CEOs of the world’s top banks got paid an average of $20 million a year back then (many U.S. chiefs got more), and only $9 million now. Yet the value of these banks’ stock has plummeted over that time, as has their asset base. If you look at pay as a percentage of assets, it’s now 42%—3 percentage points higher than it was back in 2006.

What’s the solution? The panelists had plenty of ideas. Make banks hold a lot more cash–more like 25% of their balance sheet. Make risk models, which are amazingly simplistic given the complexity of the global financial system, a lot more sophisticated. And make financial institutions pay criminally for bad behavior. The U.S. Supreme Court’s Citizen’s United decision, which gave corporations the same rights as people, paved the way for ever more lobbying money to make its way into our system. (Some 96 % of all Dodd-Frank consultations were taken with bankers themselves, which is perhaps one reason the system looks as ineffectual as it does.)

If companies get the upside of being people, they should get the downside too, argued Ed Kane. That means prosecution for malfeasance, and punishments like being split up if they take on risk that leads to a taxpayer bailout (no, nobody believed the current Dodd-Frank promises of no more bailouts would actually hold in a financial crisis). It may sound wacky–but so does the fact that bankers are getting more pay per dollar of assets today than they were before they wrecked our financial system.

TIME

America’s Most-Hated Bank Fee Is on Its Death Bed

Inside A Standard Chartered Plc Bank Branch
Bloomberg—Bloomberg via Getty Images

Sort of

The overdraft fee might be America’s most-hated bank fee, so a new report showing that the number of overdraft fees Americans are paying has dropped to a 14-year low sounds like great news.
A survey of nearly 2,900 financial institutions by financial research company Moebs $ervices finds that there were 7.1 overdrafts per checking account last year, the lowest since 1999, and a return to what Mike Moebs, CEO and economist of Moebs $ervices, says is a more normal long-term pattern.

This should be great news. It isn’t, because there are a couple of big caveats.

For two years in a row, banks and credit unions have earned roughly $32 billion annually from overdraft fees, even as the number of overdrafts dropped.

“It’s price and volume,” Moebs points out. When their volume dropped, financial institutions kept that revenue stream steady by increasing overdraft penalty fees — the median is now $30 — so if you do get hit with an overdraft fee, it’s going to sting your wallet more.

That’s a bummer, but what’s worse is that these higher overdraft fees are coming from credit unions, which have been pitched over the last few years as a more consumer-friendly alternative to banks.

“The increase from the previous year of $29 [came] entirely from Credit Unions increasing their median price from $27 in 2012 to $28 in 2013,” Moebs points out in his research. Granted, that’s still less than some places charge — the Wall Street Journal points out that U.S. Bancorp bumped its overdraft penalty to $36 last summer, and overdraft fees at a handful of the other megabanks have hovered in the $35 range for some time now — but credit unions charged $25 per overdraft transaction in 2009, the year the financial industry raked in a record $37.1 billion in overdraft fees and the Fed laid down rules restricting debit card overdrafts.

The other reason we’re paying fewer overdraft fees is because we’re basically stockpiling all our cash into checking accounts, Moebs says. In a “normal” economy, we tend to keep around $2,500 in our checking accounts, but we also have other types of assets like CDs. Today, the average checking account has more than $4,000 in it — but that higher number is because that’s all our money in there.

“They’ve moved everything they had long-term to short-term… and that’s all been done in the past few years,” Moebs says.

More money in our checking accounts means we’re less likely to overdraw those accounts today, but when you consider that many Americans are saving less and spending more, that leaves us financially vulnerable if the economy or our own financial circumstances take a turn for the worst.

Since a small percentage of account holders are responsible for the lion’s share of overdraft charges, Moebs suggests these consumers evaluate how much they’re paying on these fees and look around for the most cost-effective place to park their money.

 

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