Mortgage loans are easier to get now. Here's how you can take advantage of it.
The biggest banks still don't have adequate bankruptcy plans to avoid precipitating another economic crisis, said U.S. regulators
Eleven of the nation’s largest banks still do not have viable bankruptcy plans that would avoid causing widespread economic damage, U.S. regulators said Tuesday in a sweeping admonition of Wall Street’s giants.
The Federal Reserve and the Federal Deposit Insurance Corp said that the bankruptcy plans submitted by the 11 biggest banks in the United States fail to prepare for an orderly failure, have “unrealistic or inadequately supported” assumptions and do not properly outline changes in firm structure that would prevent broader economic repercussions.
“…[T]he plans provide no credible or clear path through bankruptcy that doesn’t require unrealistic assumptions and direct or indirect public support,” said Thomas Hoenig, the second-in-command official at the FDIC, in a statement.
Banks are required to submit an annual “living will” under the 2010 Dodd-Frank law, a legacy of the financial crisis of 2007-2008, in which the bankruptcy of Lehman Brothers was a precipitating factor in the economic crash that led to the Great Recession.
Regulators called for banks to create “living wills” to plan for a bankruptcy process that would not require the billions of dollars in taxpayer money doled out during the financial crisis, when many of Wall Street’s biggest financial institutions had to borrow billions from the Treasury to avoid disastrous collapse.
With Tuesday’s announcement, the large banks face the threat of tougher capital rules and restrictions on growth if they do not address the issues by July 2015.
“Too big to fail is alive and well. The FDIC’s statement that these living wills are not credible means that megabanks will live on taxpayer life support in the event of a crash,” said Sen. Sherrod Brown (D., Ohio), a proponent of legislation to increase capital requirements for the biggest banks, the Wall Street Journal reports.
Tuesday’s findings apply to banks with assets greater than $250 billion in assets, including Bank of America, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, Deutsche Bank, Credit Suisse, Barclays and others.
By Cathy O’Neill in Mathbabe
By Tina Rosenberg in the New York Times
By Charlie McCann in Prospect
By R.J. Lehmann in Reason
By Issie Lapowsky in Wired
The Aspen Institute is an educational and policy studies organization based in Washington, D.C.
A tiny portion of bank customers pays nearly three-quarters of all overdraft fees, to the tune of $380.40 annually per account—and some $31 billion total.
Before getting into the nitty-gritty of a new government report about overdraft fees, and before reviewing the recent history and some of the staggering statistics regarding these much-maligned bank fees, let’s cut to the chase and give some straightforward advice:
DON’T OPT IN to overdraft protection.
You may have done so after thinking that “protection” sounds like it’s good for you. Heck, you may have no idea that you’re actually signed up for such a service. (An overdraft, by the way, is when you pay for something with a check or debit card and don’t have enough money in your account to cover the tab, prompting a bank fee to kick in, likely in the neighborhood of $35. When you don’t have overdraft protection and don’t have a sufficient account balance to cover a purchase, your card will be declined, and there will be no fee assessed.) If you’re not sure, check with your bank to check your status. And whether you’ve opted in consciously or unwittingly, give serious thought to opting out. Like, now.
Okay, now that that’s out of the way, let’s run through how we got to where we are today, and why even as reforms have helped consumers save money, they come up way short compared to how consumers can help themselves.
The total amount and frequency of customers paying overdrafts have been declining. American customers collectively paid a whopping $37 billion in 2009 in overdrafts, one of the more outrageous factoids helping to bring about the creation of the CFPB (Consumer Financial Protection Bureau), as well as the Occupy Wall Street protests. After rules were put in place requiring bank customers to opt in to overdraft protection, rather than be signed up automatically for it, the total shrunk to $31.6 billion in 2011, and remains at around $31 billion annually.
On the one hand, consumers are paying $6 billion less in overdraft fees compared to five years ago. On the other, we’re still paying $31 BILLION each year on a fee that bank reforms were supposed to rein in. Why is the figure still so high?
A study released last week from the Consumer Financial Protection Bureau provides some answers. The vast majority of bank customers actually pay no overdraft fees whatsoever. Seven out of ten accounts incur zero overdrafts annually, and 82% of customer accounts are hit with three or fewer overdrafts per year.
Therefore, it’s a very small portion of customers who are paying the lion’s share of overdraft fees. According to the CFPB, 8.3% of bank customers overdraft more than 10 times annually, and they’re collectively responsible for a mind-boggling 73.7% of overdraft fees collected by banks. Who are these people, who pay on average $380.40 in overdraft fees? The data in the report reveals a profile of the prototypical frequent overdrafter:
They’re young and inexperienced. Nearly 11% of customers ages 18 to 25 have 10+ overdrafts annually, compared to less than 3% of those age 62+.
They make small, frequent purchases with debit cards. Consumers who use their debit cards more than 30 times per month were more likely to be frequent overdrafters, with 18% incurring 10+ overdrafts per year. And the purchases that sent them into a negative balance tended to be small, with a median amount of just $24.
They pay back the money soon. More than half of accounts are back in a positive balance within three days, and three-quarters are positive within a week of overdraft. This tells us that an overdraft is often a matter of sloppiness—absentmindedly paying for a small purchase without realizing the money wasn’t there to cover the bill, then quickly making a deposit or transferring money from another account to get out of a negative balance. By then, however, the customer has already been hit with a fee (one likely higher than the median $24 mentioned above), and paid back a loan that equates to an annual rate of 17,000%, as the CFPB put it.
They’ve opted in. Well, duh. A little over 14% of bank customers have opted in to overdraft protection, and unsurprisingly, they tend to get hit with more overdraft fees. (In unusual circumstances, overdraft fees can be assessed even if you haven’t opted in.) The average checking account that has opted in is hit with $21.61 in overdraft fees monthly, compared to $2.98 for those who haven’t opted in. What’s more, those who opt in tend to pay more in other kinds of bank fees too, including maintenance and ATM fees.
If the portrait above sounds like you, the obvious advice is that it’s high time to start paying more attention to where you bank, how you spend, and whether or not you’ve opted in to overdraft protection. If you have, OPT OUT.
This viral "Automated Thanking Machine" video will warm your heart, despite the unlikelihood of any bank ever being this nice to you.
Visit the typical ATM and all you come away with is some of your own money, and perhaps a bitter taste in your mouth after coughing up a $3 fee.
Some very special ATMs set up by TD Canada, however, have been giving customers a whole lot more—like the opportunity to toss out the opening pitch in a Major League Baseball game, and a free trip to Disneyland for a single mom and her kids.
In this highly unusual case, the ATM acronym stands for “Automated Thanking Machine,” and TD Canada secretly recorded a bunch of customers on video while they’re receiving their very special gifts. It was edited and put into a YouTube ad that was posted last week and has generated more than 3 million page views.
It may seem like there are some privacy concerns. The bank bizarrely knows all sorts of intimate details about these customers’ private lives. For instance, it’s no coincidence that the guy who gets to throw out the opening pitch to Jose Bautista at a Toronto Blue Jays game just so happens to be a huge Blue Jays fan.
The robot-like voice emanating from the machine also gets into a deep conversation about how one elderly woman has a daughter in Trinidad who is stricken with cancer. Creepy, right? But when that voice announces that the bank is giving the woman a free flight to see her daughter, the heartwarming, tear-inducing scene that results apparently is enough to cast aside any qualms about invasion of privacy.
It turns out that the banks gathered information about these customers the old-fashioned way–with local staffers asking about their lives–rather than sneakily via reviewing Facebook accounts or scanning customer purchase histories. Most banks and companies use our personal information to try to sell us more stuff, but in this instance it was used to pick out the perfect, incredibly thoughtful gift. See for yourself.
A financial planner says people can be cynical about her work. Her own experience as a bank customer helps explain why.
Very often, we financial planners convey the impression that getting your financial life into shape is easy. And that we’re in control of our finances.
If we had a bit of humility, we’d admit that we share the same frustrations as our clients.
Like dealing with low interest rates on checking accounts in combination with high banking fees.
“You get interest on this account,” the customer service representative from my bank said. This was about a month ago. I had called the bank upon receiving my monthly statement.
“Yes,” I replied. “I got a penny last month. A penny. And now you want to charge me $25 a month to have a checking account?”
She had to laugh.
I was calling to ask why a $25 charge had shown up on my formerly free checking account.
She asked if anything had changed. It had. I had paid off all my big debts. I was in much better financial shape.
Well, that explained it.
Now that I had repaid my loans to the bank, apparently my relationship with it wasn’t sufficient to earn me free checking. I was no longer paying the bank large amounts of interest, so it would start charging me this monthly fee. That is the way it works.
If this makes sense to you, you must be a banker.
Okay, that was a low blow. But for me, it’s an example of why so many clients have a bad attitude toward financial services institutions and professionals.
It’s not just the malcontents, it’s everyone. The surveys confirm that the public does not hold financial services institutions in high regard.
Many of my clients been burned before. And they’re probably still getting burned by such ridiculous tactics as fee-ing the customer to death or the inability to get a new mortgage or a small business loan without a dossier three feet thick that proves you do actually pay your bills.
I told the woman on the phone, “I just opened two checking accounts at another bank for my twin daughters. The other bank is going to charge $12 a month for each account. And as soon as my girls go show their college IDs, the accounts will be free. So tell me why I should pay you $25.”
I spoke politely, without a trace of anger.
Eventually, the customer service representative found a way to give me some credit for direct deposit of my paycheck. And she switched me to an account that will ding me only $7 a month.
Of course, if the bank had wanted to provide the best deal for a longtime customer, they could have recognized this direct deposit before. But they hadn’t. They had just slapped a fee three times larger than on my new account, perhaps hoping I wouldn’t find out how I could save some money.
Cynicism? Anger? The emotions that I feel are the same ones that people have when they approach me as a professional. As a certified financial planner I have much larger ideas that I need to convey to our customers and the general public than “I won’t cheat you or slip in something that benefits me and not you.”
But it’s tough to get through all that dreck first and get on to the important ideas.
I told the customer service representative that I didn’t mind giving up the penny in exchange for a lower monthly fee.
When I told this anecdote to one of my partners, he just had to raise the ante. “Last month, I got three pennies,” he said.
Another happy financial services customer.
Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.
But U.S. assets lost $2.7 trillion in value from 2007 to 2010
Citigroup is reportedly closing in on a settlement deal that could cost the bank roughly $7 billion for its alleged involvement in the mortgage crisis.
The sum took Wall Street by surprise, the Wall Street Journal reports. Analysts predicted a settlement of $2 billion, perhaps $5 billion, but nowhere near the Department of Justice’s original request for $10 billion. That was approaching JPMorgan Chase’s record payout of $13 billion, and Citigroup argued it had sold far fewer mortgage-backed securities, so it should pay a commensurately smaller price.
Maybe so, but the Justice Department had momentum on its side. Banks have recently been falling like dominoes before its demands.
From 2010 to 2013, the nation’s six largest banks paid a total of $85.7 billion in settlement fees for their involvement in the mortgage crisis, according to SNL Financial. Add in two more whopping settlements in 2014, plus Citigroup’s impending deal, and the legal bill tops $100 billion. Citigroup’s tab would put it roughly in the middle of the past three years of legal shellackings.
This partly reflects a more aggressive push by U.S. Attorney General Eric Holder to hold big banks accountable for the housing crisis, even as critics ask how it is that no bankers have successfully been prosecuted since the collapse. Holder himself once said that prosecution of a big bank might be “difficult,” given the complexity of their trades (a statement he later recanted).
But prosecution remains purely theoretical so long as Citigroup, like every other big bank before it, hops on the settlement bandwagon. After all, a lawsuit would have posed a public relations nightmare for the banks. No bank wants to be seen digging in its heels over sums that are positively dwarfed by the losses that mortgage-backed securities unleashed on the larger economy. The IMF estimates that U.S. assets lost $2.7 trillion in value from 2007 to 2010. That’s 28 times what big banks have subsequently paid in settlements.
No wonder, then, that Citigroup is expected to wrap up its deal with regulators as early as next week.
Customers are confused and angry
Bank customers are angry and confused by overdraft fees, research confirmed recently, an indication that effort four years ago to implement transparent rules about when banks are allowed to charge customers has not worked.
Roughly 41% of consumers have taken action against their bank after being charged for overdrawing from their checking accounts using their debit cards in the past year, a new study by Pew Charitable Trusts found.
Regulations in place since 2010 require banks to ask customers to opt into overdraft protection—when banks cover a shortage on your balance with a temporary advance, in exchange for a fee. But the study found more than half of those charged an overdraft fee don’t remember ever agreeing to the protection.
If the rules are vague, the banks are reaping the benefits: banks earned an estimated $16.7 billion for such overdraft fees in 2011, according to the New York Times.
Young people were the most likely to have to pay. A 25-year-old had a 133% higher chance of being charged an overdraft fee than a 65-year-old, the survey of 1,800 found.
Some peeved customers have reportedly closed their accounts in retaliation. According to the survey, 13% of people who paid an overdraft penalty last year say they no longer have a checking account, 19% of people discontinued their overdraft coverage and 28% of people closed their checking accounts. The median overdraft fee was $35, but 25% of customers were charged $90 or more.
You pay $15 per month and get … $10 worth of quarters. Apparently, it's not a joke.
File this under the category of Solutions to Problems You Didn’t Know You Had, or perhaps Ways for Extremely Lazy and Disorganized People to Drop an Extra $5 Per Month.
On Thursday, a startup called Washboard launched a quarter subscription delivery service, which is just what it sounds like. Customers sign up—OK, in theory, they sign up—for $10 or $20 worth of quarters to be delivered to them on a monthly basis. The service costs $14.99 for a $10 roll of quarters per month, or $26.99 for $20 worth of quarters monthly. The latter is the option that’s “great for high volume folks, couples, or roommates,” according to Washboard’s website.
Understandably, the reaction at large has been one of puzzlement, with people alternately assuming that the service is a joke or pointing out the obvious—that such a subscription doesn’t seem remotely necessary, and certainly doesn’t seem anywhere near worth the money. “Ever hear of a bank?” a typical Twitter comment says of Washboard.
Washboard’s founders, who say they already some customers (“less than 10″), are apparently cool with being a magnet for mockery in social media. “I’ll admit, it’s a little bit of a negative critique for the most part on Twitter, which is good,” cofounder Caleb Brown told Valley Wag. “I think it’s good. I think it’s a polarizing thing.”
He also insists it’s a completely valid, practical, worthwhile service, because many of the young people he encounters would pay a few bucks in order to skip a regular trip to the bank. “Banks close at 5, maybe they’re open Saturday, but they close at noon. I’m rarely out of bed by then,” he said.
The company follows in the footsteps of many other startup subscription services, such as viral hit of 2012, Dollar Shave Club, which sends subscribers razors for as little as $1 per month (plus shipping and handling). But Dollar Shave Club offered more than just convenience; there was a true value proposition. The service saves time and money. By most accounts, it’s been successful, and has even welcomed a sidekick subscription service, One Wipe Charlies, which are butt wipes for guys. (That’s no joke either.)
Washboard must also be discussed in light of Silicon Valley’s ongoing “bubbly race to wash your clothes better, faster, and cooler,” as New York magazine, put it, with startups like Washio offering drycleaning pickup and delivery at your door, sometimes with cookies as a scrumptious bonus.
Such services charge a premium, of course, but they save the customer a substantial amount of time. Anyone using Washboard still must do his or her own laundry, and whatever time is saved on gathering quarters comes at a 50% premium on a $10 roll of quarters. Nonetheless, the founders claim that the service legitimately eliminates one of laundry’s “pain points,” and that therefore it’s not silly. They also have ambitions to move on to detergent and fabric softener subscription services.
And who knows? The idea is probably pretty appealing to those who want to turn off their brains and never have to think about getting quarters for laundry ever again. But even after signing up for Washboard, you can’t turn your brain off entirely. After getting your monthly shipment delivered, you still have to remember to actually bring the roll of quarters to the laundromat.