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10 Things Your Bank Won't Tell You

By JIM RENDON, SMARTMONEY

Posted: 2008-07-30 09:34:46

1. "Our branches are there to sell you, not serve you."

In the late 1990s bank branches were considered outmoded relics soon to be replaced by ATMs and Internet banking. But just the opposite happened: In 1998 there were 89,000 bank branches in the U.S.; by 2007 there were 97,000. Why? The industry realized consumer banking was profitable and that despite the predictions of Silicon Valley wonks, the main criterion consumers use in choosing a bank is proximity, says SNL Financial analyst Jennifer Payne.

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But branches aren't just about convenience; they're a bank's primary sales floor. Brochures for services as varied as retirement accounts and home loans are on display, and everyone from the teller on up is trained to make a sale. That's because in the current low-interest-rate climate, it's harder to generate revenue from interest alone. Many players in the industry have been trying to boost fee- and service-based income, so if a teller sees you have a mortgage, he might suggest you meet with a loan officer to discuss a home-equity loan. Says Greg McBride, a senior financial analyst at Bankrate.com, "The more products a customer has with a bank, the more likely he is to stay with that bank."

2. "Our fees will only go up."

With the economy slowing and big losses looming in the mortgage market, banks are looking for reliable revenue streams. Hence punitive fees -- for overdrawing your account, say, or using a competitor's ATM -- are increasing. The average ATM service charge doubled between 1998 and 2007, and overdraft fees brought in $17.5 billion in revenue in 2006, up from $10.3 billion in 2004, according to the Center for Responsible Lending. Rubecca Hegarty, a married mother of three in Woodridge, Ill., says she often pays upwards of $100 a month in overdraft fees to Chase, since, like most banks, it changes the order of purchases so that large debts get paid first -- increasing the likelihood of incurring fees on smaller purchases. JPMorgan Chase says it does this because big payments like a mortgage are more important to consumers, so they get priority.

Revenue from penalties can be addictive for banks, says Harvard Business School Professor Gail McGovern, but "they're going to face problems from angry customers, which leads to big call-center bills, employee dissatisfaction and turnover."

3. "We change our interest rates all the time."

Regardless of what your credit card agreement says, you can never be sure how much interest banks will charge you. For example, nearly all cards have a default rate -- as high as 30 percent -- which banks apply when you've done something wrong, usually after two late payments in 12 months. But some banks have cut that to one, says Curtis Arnold, founder of CardRatings.com.

Banks can also change the terms of your agreement, raising rates when they like (though you can opt out and pay off the balance at the old rate as long as you never use the card again). Bank of America did that recently, upping many cardholders' rates from 10 or 12 percent to 27 percent or more, even though they'd done nothing wrong. "There's no clarity on what criteria can lead a bank to raise interest rates," says Robert Manning, director of the Center for Consumer Financial Services at the Rochester Institute of Technology. "It's a black box." A Bank of America spokesperson says the company periodically reviews the credit risk of its accounts and adjusts rates accordingly, adding that in the past year 94 percent have had no increase.

4. "College campuses are a gold mine for us."

Students are the customers of the future, and banks are increasingly courting them, sometimes right on campus. More than 120 universities have cut deals with banks to issue student-ID cards that are also ATM and check cards. Schools can make millions from these deals, sometimes even taking a small cut of individual purchases.

Students are also a hot market for credit card issuers; banks will make private deals with alumni associations to get contact info for students, parents and even ticket buyers to university athletic events. Card companies cut deals to set up booths on campus, and Chase even inked a deal with Facebook to display ads and set up a Chase group on its Web site.

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The problem? Mounting credit card debt among college kids, for one. "Universities don't negotiate on behalf of students," says Manning. "They're negotiating the best deal for the university." A spokesperson for the National Association of Independent Colleges and Universities says don't blame schools -- banks would market to students anyway, and universities at least try to get the best rates they can for students.

5. "In debt? The courts won't help."

Since the late 1990s banks have been including mandatory arbitration agreements in their contracts for many of their products, including auto loans, checking accounts, home-equity loans and credit cards. Such agreements prohibit you from suing and instead require you to use an arbitrator -- someone picked by the arbitration firm named in your credit card contract to hear the dispute and decide the outcome.

While these clauses were originally designed to thwart class-action suits, the banks have also been using them for debt collection, says Paul Bland, anattorney with consumer-advocacy group Public Justice. There are even times when consumers, often victims of identity theft and unaware of the debt, aren't present when awards are handed down against them.

A recent suit against an arbitration firm brought by the San Francisco city attorney noted that arbitrators ruled in favor of banks in 100 percent of the 18,045 California cases brought against consumers from January 2003 through March 2007. "From the consumer perspective, it's a nightmare," says Bland. If a bank brings arbitration against you, hire a lawyer and request a hearing -- in person.

· Continued on Page Two

2008-07-29 14:47:09

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Violinbabe7 12:30:22 AM Aug 09 2008

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Stay away from Compass Bank. They are truly the worst ever. We had an overdraft incident with them once. Turns out they "manually" enter your direct deposit, and since ours had not been "manually" deposited, we got overdraft fees every time I used my check card that day. It was the pay day, and I had paid a ton of bills. So I guess the deposit has to be manually entered, but the withdraw comes out immediately. It took us forever to clean up that mess, and we haven't been back to that bank since.

Dynabee53 07:39:48 PM Aug 07 2008

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When I overdraw my account through my own error, I own it. What I have a problem with is the $5.00 daily overdraft fee. By the time notice is mailed, and I know about the OD, it is at least two days. If we can be debited in real time, why can't we be notified in real time? God forbid customer service actually provided us with service- don't telephones still work?

Dlee2371 03:52:51 PM Aug 07 2008

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TO ANNBARNES89. IT IS ACCEPTED DEAR, NOT EXCEPTED. BETTER TAKE A COURSE IN GRAMMAR

Jazel57 03:47:14 PM Aug 07 2008

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Try using a Federal Credit Union instead of a Bank this will cut out most of your probs with banlks because BANKs are not fed regulated!!!!!! Goo Credit Unions are!!!!!!

JcqlCa 12:58:44 PM Aug 06 2008

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all the banks should be honest with people, we losing I'll money anyway, why can't they be honest with us and just tell; us the truth

ppdfarm1usa 06:47:34 AM Aug 06 2008

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You will not win against the Banks or any other big corporation until you start filling out the Tax form correctly. Check out the 1099-OID process. You do not owe taxes on your labor, but the corporations do on the use of your credit. The whole country is a maze of corporations, you have to use the IRS as a friend and make the right people (corporations) pay the taxes. This will slow them down from destroying the small ma and pa business and farms.

Vinnielynnsmom 07:38:46 PM Aug 03 2008

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I work for a privately owned bank. Yes, we process deposits (credits) before withdrawals (debits). This means you will have as much money as possible before we start paying your withdrawals. Yes, we pay the largest item first. If we end up returning a check would you rather have it be your rent/mortgage or your athletic club fee? When I open an account I tell my clients that right away and explain it could cause additional overdraft fees. Overdrafts are unsecured loans that a bank does not earn interest on.I also point out that we just raised our fees for the first time in 7 years. Can you say that about your utilities or taxes? Also, I have to admit my dog likes his puppy treats. I work for a reason, just like you.

Lostwolf1swifey 05:51:51 PM Aug 03 2008

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I have to agree iwth the post on here about Bnak of America (aka crooks of americans ) Imy husband and I had our account frauded and I caught it on Monday called them it took me calling six times and my husband calling once and four days to get it cleared up and they knew it was a fraud.When I have my payroll deposited it takes them two days to credit the account while my co workers who are with other banks accounts are credited the day we are paid and to top it all off they are doing away with their military banking services.Yet they continue to want to build their banks on military installations ( like Fort Campbell,KY) They are truly the worst in the game !!!!!!!!

Razorback1430 05:00:12 PM Aug 03 2008

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The worst is bank of america. any other bank I would deposit my check and have the funds at least by the next day. bank of america wouldnt credit my account till a few days later. and if i did overdraft they would charge me the fees and not pay the bill. well if they didnt pay the bill it wouldnt have overdrafted. well if your not gonna pay the bill then dont charge the fees. they were the worst I have ever dealt with

JeepMan067 03:21:17 PM Aug 03 2008

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WHO GOES AFTER THE MONEY CHANGER I WILL VOTE FOR.

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