In defense of bank charges.

or; one sad little boy defends his financial institution.

from JoeUser Forums
There’s been a lot of talk on JU in the past months about “bullshit bank charges” (most recently with Locamama’s article here) and the like. While I understand the angst that certain members of the community feel towards their financial institutions, I feel a desire – nay, a need – to defend bank practices and why they charge you the way they do.

The first and most important thing to remember about a bank, credit union, or any other financial institution is this – they are a BUSINESS, and as such, must turn a PROFIT. Even supposed “non-profit” organizations like credit unions are anything but – that’s just PR bullshit. They’re just as “for-profit” as your local big-boy bank.

But, I reiterate – a bank exists not just as a depository for your money – it exists to make money. Like any other corporation, the bank has a slew of shareholders that want their shares to go up – so, like any good business, the bank does what it can to maximize that money.

That said, it’s also important to realize that those “nickel-and-dime” charges that annoy the hell out of us all so much are not what’s turning the bank’s profit. They’re not. I promise. I work for a bank, and my dad is the CEO and President of said bank, and I’ve asked him and seen the records. Do you want to know why all those nickel-and-dime charges exist? To cover the costs of processing your business.

What the average Joe doesn’t realize is that every transaction you make with the bank costs the bank money – and quite a bit more than most people expect. Folks think that making a deposit or a withdrawal probably costs the bank a couple of cents – its not. Try about a buck and a half at the bank I work at. Yup kids, it costs the bank $1.50 just for you to bring your check to me and have me deposit it completely straight into your account. How? Well, first the bank has to pay me (and in conjunction with paying me, it has to pay for the equipment for me to use – computers, printers, secure T-1 network connections, licenses for software, etc. Did you also know that, for example, if you’re not a customer of the bank but bring in a check drawn on the bank I have to perform what’s called a “WatchDog” search on you to make sure there are no outstanding warrants on you before I can cash the check? Every one of those costs money, and I do ten or twenty a day sometimes), then it has to pay someone to scan all the work that I do during the day and send that in neat little digital packages to the Proof Department (which also comes with a lot of technology costs, because those new scanners that the Fed makes you use in order to comply with Check 21 are not cheap), where they have to pay another person to make sure that every deposit, withdrawal, and transaction balances, before sending all the check images to the Federal Reserve closest (ours is in SF). So that’s what it takes to process just your deposit or withdrawal. The same goes for when you write a check to a business – they deposit it in their financial institution, who transmits the images to the Fed, who transmits the images to us so we can process it on our end.

When you throw Debit cards into the mix, it gets even hairier. They cost a flat fee of $1 regardless, minus processing fees. So it usually costs the bank over $2 for you to use your card every time you pull it out, even if you’re buying a fifty-cent cup of joe.

What about those pernicious NSF (Non-sufficient funds) fees that seem so exorbitant? Each bank (or branch of the bank, depending on the size of your financial institution) has an NSF specialist, whose job is actually to avoid NSFs at all cost, because they end up costing the bank more than your $19 fee. At least at smaller institutions like ours, they are trained to order your transactions in such a way to eliminate as many of them as they can. But still, sometimes people don’t watch their accounts or things get wonky and that puts them in the negative. Now, with just normal overdraft protection (like we offer all our customers), we pay what puts you in the red – effectively loaning you money you don’t have. Then we charge you $19 for this unsolicited, good-faith loan. It seems pricey to the average consumer, and it’s enough to make you mad when it’s just a bit that puts you in the red, but remember this – at least they paid your debt. They were in their rights to reject the payment, putting you in a world of hurt, which causes credit problems, and can get nasty when you start getting those hired creditors hunting you down. Because remember, just like you, businesses jealously guard their money.

But the fact remains – we refund a lot of those NSF fees. I’ve only got my numbers from January of this year handy, but our branch goal was to not refund more than 2% of those NSFs – and we refunded more than 25%, because we love our customers and want you to be happy. That means we ate all those fees. That’s over $20,000 the bank just ate to make our customers happy.

Like I said, the bank is going to charge you. They have to at least break even, if not turn a profit. But most community banks like to keep their fees as low as they can, if only to cover operational costs. After all, the real money in banking is in the loan half of the equation – but we won’t even get into that today.

Needless to say, I doubt any of this meant jack shit to any of you. But I felt compelled to explain just why the bank charges you the way they do. It’s not a screw job; they’re just trying to cover costs with a little in the black. But if there’s one thing I’ve learned, there’s two things people are most defensive of – their families and their money.

And, sad to say, usually they’re more defensive about their money.
9,371 views 18 replies
Reply #1 from JoeUser Forums Top
I spaced out as soon as you started saying numbers...but I'm feelin' ya. Everything costs money somewhere along the line...I suppose if you don't want to be charged by the bank you could always keep your money under your mattress.

The pug isn't that ugly of a dog...but that snorting gets annoying after awhile. It does often look like their eyes are about to pop out of their head.

~Zoo
Reply #2 from JoeUser Forums Top

Back in the 80s, the Savings and loans tried to get into banking.  Because they were not set up to be as competive in the commercial market, most went belly up.  Since then, no one has heard of many banking failures - just a  lot of mergers, so I dont think Banks are hurting for profits.

When you go to the grocery store, the cashier waits on you, and puts your groceries in bags.  Both his time, and the bags cost money.  But that is built into the margins of their products.  They do not apply a service charge on you.

I can see where NSF is necessary.  But ATM fees?  It should be built into the margins of their profit line - or as a monthly fee.  Even Monthly fees do not piss off customers as much as being nickled and dimed to death with fees that are an ordinary cost of business and not extraordinary ones.

Ashes of the Singularity II
Reply #4 from JoeUser Forums Top
For an example of ATM fees - we don't charge you for using another bank's ATM if you are our customer, but we do charge non-customers to run our ATMs. To not do so would be foolish (besides, big banks like Washington Mutual can get away with no ATM charges for customers and non-customers alike). It costs way more than two bucks to process the card, get in touch with the cardholder's bank, and process the transaction.

In this instance, $2 is a steal.
Reply #5 from JoeUser Forums Top
I don't appreciate them accepting point-of-sale debit charges that do so.


At our bank, it'll be refused unless you have a "checkline" loan, which is the loan where they forward x dollars to your account and then you pay it back at your leisure. Other than that, if it'll put you in the red, it won't process it. And to have your card declined doesn't cost you anything.

What can I say? We're a good bank.
Reply #6 from JoeUser Forums Top
The forums are being wonky. Weirdness.
Reply #7 from JoeUser Forums Top
So do you think it's fair to be charged $1 for not remembering my PIN number. What did that cost the bank?

I understand that banks are in business to make money, I just think a lot of the charges are BS. The ATM's were supposed to save the banks money because their tellers would not have to process all deposits and withdrawals.

Also your bank may not try to increase overdrafts but I have read that many banks instead of processing outstanding checks by draft number actually process them from highest amount to smallest amount to increase their profit on the overdraft fee. Or also process checks before the deposits etc.

Maybe not all banks are ripping their customers off but I think many are making profits off of the small fees they charge their customers. Like I said when you have thousands of customers $1 here and $2 there adds up to some real money.
Reply #8 from JoeUser Forums Top
The ATM's were supposed to save the banks money because their tellers would not have to process all deposits and withdrawals.


That's actually not true. It costs more to have the ATM do it than for me to do it.

ATMs became popular in the 80's as a convenience thing. Banks started using them to lure more customers, not to make things easier on the bank. Now, they've become an institution.

On the other hand, your bank charging you a buck for not remembering your PIN is beyond ghetto. Dump that bank and shop around for another, community banks are usually best.
Reply #9 from JoeUser Forums Top
I’ve learned, there’s two things people are most defensive of – their families and their money.


...and their pets. Don't forget their pets!

Good article, SC but I still hate banks! (and my wife works in one, lol!)
Reply #10 from JoeUser Forums Top
That's actually not true. It costs more to have the ATM do it than for me to do it.


Kind of strange then, as one bank back here offered free checking - but only if you did not use a teller for transactions! Go figure.
Reply #11 from JoeUser Forums Top
My bank charges $30 for an overdraft fee.

I still believe banks could recoup a LOT of their NSF's (many of which wind up being written off as bad debt because the customer effectively closes the account) with a 72 hour grace period on half the fee. Make up the balance within 72 hours, get half the fee refunded to you. In the long run it seems they would save money because they don't have to chase down the money.

Some of the fees are reasonable, some are not. When my account is at -$15 because of a $30 overdraft fee, well, then, something's fishy. Sorry.

I've never questioned the check cashing fees, personally, or even the ATM fees (don't like 'em? Don't use 'em. It's that simple, folks). But overdraft fees can be ridiculous, as anyone can tell you.
Reply #12 from JoeUser Forums Top
I've never questioned the check cashing fees, personally, or even the ATM fees (don't like 'em? Don't use 'em. It's that simple, folks).


It's not actually that simple, Gid. I managed to get my account opened before the policy and so it doesn't apply to me, but at my current bank you are charged $5 for using the teller and $2 for using the ATM. Either way, it's certainly not free acess to my money.
Reply #13 from JoeUser Forums Top
I managed to get my account opened before the policy and so it doesn't apply to me, but at my current bank you are charged $5 for using the teller and $2 for using the ATM. Either way, it's certainly not free acess to my money.


Ok, THAT sucks. I'd be pulling my money from THAT bank, for sure!
Reply #14 from JoeUser Forums Top
Ok, THAT sucks. I'd be pulling my money from THAT bank, for sure!


If I hadn't gotten in before the change I'd be gone...but there seems to be a trend to it around here. Maybe it's a DC thing?

I concur though--it does suck.
Reply #15 from JoeUser Forums Top
Maybe it's a DC thing?


Must be. A bank like that around here out West wouldn't last a year.

No bank or credit union around here has a ludicrous charge like that.
Reply #17 from JoeUser Forums Top
This is a really good explanation Braeden! I still hate the nsf charges that conveniently occurs prior to them cashing a check or something, even though there was enough money to cash the check, they take a fee out, then they do a nsf for the check then they do a nother fee for something else, disgusting! And Whip is right, $19...wow!
Reply #18 from JoeUser Forums Top
What the average Joe doesn’t realize is that every transaction you make with the bank costs the bank money – and quite a bit more than most people expect


Exactly the mistake the Banks make - arrogance thinking they have a captive and docile market. I am staggered by the simplistic and non thinking repeating of that remark originally coined by Marketers. I feel so enlightened by these little gems:

- The Banks are not charities they are a business (that was hard to work out)
- Each task carried out costs money (remind me to light a candle at the next opportunity)
- and so on, and so on , blah blah.

There are two sides to a story, and little attention is paid by the Banks to the other as it effects the Bonuses of the Senior Individuals involved. The Banks also have to learn common sense such as not refusing overdraft extension to a 38 year long loyal customer, with a blemish free record, whose net assets cover the proposed overdraft by a multiple of 40, and has in addition liquefiable assets covering the proposal ten times over (which happened to me).

Poor me, I know. The point is, Banks have lost sight of a key business principle as old as the hills - do not focus on bottom line exclusively with insane exclusion to all else. The key factor in any business is the Cost to the Business of each Client and what the lifetime potential profit that Client can give to a business (do that and your bottom line will rocket).

The problem right now, is Banks are all - without exception - chasing the obvious 20% of customers who are the obvious low hanging fruit, and have forgotten, or frankly haven’t a clue how, to innovate with the other 80% of their customer base. They all see the obvious benefit of 20% of the market, all are arrogant enough to believe they can grab it, and fashion the business to do just that, thus creating themselves the very overcapacity they moan about. Its laughable.

Any other business that blatantly ignores the needs of 80% of its customers goes to the wall and deserves to. Banks are rapidly heading that way with merger after merger, citing "economies of scale, "overcapacity", "market realities" - and all the other spin driven claptrap their internal spin doctors regurgitate daily. That "repositioning of the market", and "merging to take advantage of common synergies reflecting the inherent abilities to increase support to our combined loyal customers" - oh yaddie "£"£$%g yadda.

Banks concentrate on maintaining revenue stream by slamming a captive customer base with simplistic charges, only moving them and laying the cost elsewhere when we moan.

Of course they need to make a profit, of course they are a business, we managed to work that out all by ourselves.

What they are failing to do is act like a business and innovate with the clear 80% they could less about at present. Fine, eventually that Bank will merge with another, and another, they just go in circles. What a waste, a huge market opportunity to innovate new Products, but do they? No, its easier to go for the big ones, the low hanging fruit, they just cant get it into their skulls that everyone else is doing the same thing - duhhh.

The message is as simple as it is often said to the business community as a whole, innovate or die. The maniacal focus on simplistic bottom line and not Cost per Customer over a lifetime, is the problem. Business Consultants know it, Industry Commentators know it, customers suffer because of it.

Sorry you cant defend the indefensible when they will not follow simple basic rules on how a business should be run.