Bank of America: Gouging Customers

Last Tuesday, July 7th, an article by Candice Choi of the Associated Press reported some disturbing practices in retail banking. Below are some excerpts in italics with my numbered comments.

The math is alarming for anyone with a debit card.

At Bank of America, overdrawing your account by as little as $6 could trigger a $35 penalty. If you don’t realize you have a negative balance and continue spending, you could incur that fee as many as ten times in a single day, for a total of $350.

1. Agreed, responsible adults should be aware of their bank balances at all times. It’s true!

2. In the real world, however, there are all sorts of wonderful, highly effective and usually responsible adults – great parents, terrific workers, model citizens; business authors - who do not monitor their bank balances that closely because we trust our bank to!

3. Indeed, as we’ll read in a moment, many of these people rely on their debit card to let them know when they are out of money in a given account. They let the bank do the math for them. This new BOA policy predates on that traditional relationship of trust between customer and bank.

Failing to repay the overdraft within a few days now results in an additional $35 penalty.

4. Quite a number of the people who start with a $6 balance don’t have $350 lying around to pay off surprise bank fees in the first place. Thus, this $35 late penalty is kicking a dog when it’s down.

The article goes on to discuss customers expectations of what a debit card is and how it works, which is crucial to understanding why Bank of America is being so particularly abusive in this new policy. Says Jean Fox, director of financial services at the Consumer Federation of America, traditionally with a debit card,

“If you didn’t have enough money, the bank wouldn’t accept it and you wouldn’t owe anyone a fee.”

Now automatic enrollment in overdraft programs, which allow consumers to draw more than what’s in their accounts, is an industry standard.

The Federal Deposit Insurance Corp. says a 2006 survey found three-quarters of large banks have automatic overdraft programs.

The article notes that the just-passed federal law regulating credit card abuses does not cover debit cards. Banks have found a way to game the system for their own (short-term) advantage.

5. Here’s one we haven’t discussed yet: These “on the edge” customers are not where Bank of America – or any bank – makes its money. They are actually a drain on the system. This is a not-so-gentle way of inviting these unprofitable customers to leave, to find another bank.

Let’s go with that. Let’s assume that Bank of America and its peers aren’t just trying to dig up some ill-won revenues: they’re trying to cull their customer base.

I was actually part of a small group at the Boston Chamber of Commerce a few years ago who met the then-new president of New England operations for BOA. She told us point-blank that retail customers, the ones we’re discussing in this article, were not the priority of her company. That is not where BOA’s bread is buttered, she related. To hear her tell it, they were all about commercial banking.

So… there you have it. This explains an awful lot.

However, it fails to explain why Bank of America spends so much money on advertising to the general public, or why they have so many retail branches. As I sat there ingesting her words, the disconnect struck me as odd – even dysfunctional. Did this lady actually work for Bank of America? If so, had she seen their business plan?

Even if we assume that said president wasn’t just having a bad day (or a nervous breakdown) when she told us this, I bring up a point in my book Five-Star Customer Service that every service provider is wise to heed: the $6 on-the-edge customer today is quite possibly your next seven-figure depositor tomorrow. Add to that the knowledge that some of these $6 customers could give you an awful lot more business right now, today, if they saw fit.

I’m a perfect example. Part of my self-appointed job as a customer service researcher is to do business with different banks. At one point I had money in six different banks at one time: I was shopping. To think of your customers in terms of the business they have already given you, rather than their potential, is just… what’s the word I’m looking for? …Oh, here we go: dumb. It shows a phenomenal lack of imagination.

As the article states, Bank of America may be the most flagrantly abusive of its field in this new trend, but they are not alone. Seventy-five percent of large banks are doing it, if to a lesser extent.

My first walk-away for you, my reader: give your business to a small local bank today! No matter that I’m posting this on a Sunday – just do it!

I call this blog “The Savvy Capitalist” because that is who I am writing to: capitalists (a.k.a. business leaders, influencers; change-makers) who are savvy/shrewd/smart enough to realize that short-term piracy, Primitive Capitalism, is no way to build a long-term business.

In other words, if you’re smart, you’ll do the right thing.

Not because it’s good karma, necessarily (although we can hope!), but because it’s more profitable. Doing the right thing pays.

So here is your second, much more important take-away from this article: don’t gouge your customers.

Don’t be a Bank of America.

As Google puts it, “Don’t do evil.”

Not only is it a crappy way to lead your life. It’s also just plain dumb business.