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I wonder if this is statistical discrimination. Like in theory, someone who closes an account $2.50 in the negative does very little damage to the bank directl
by metacritic12 4y ago
I wonder if this is statistical discrimination.
Like in theory, someone who closes an account $2.50 in the negative does very little damage to the bank directly. The $2.50 is a small fraction of the annual overhead of the bank account.
Yet these behaviors are highly correlative of unprofitable checking customers. The entire checking account model seems to be based on whales that return the bulk of the profits. If you sneeze wrong, your statistically 10x less likely to ever become that whale.
From a profit maximizing POV, it totally makes sense for banks to do this. But from a "banks are a basic utility" point of view, it doesn't seem to make sense.
- Retric 4y agoMany banks actually make most of their profits from fees not whales. A X$ overdraft fee quickly enters payday loan territory in terms of profit vs capital at risk.
- dalyons 4y agoExactly. Most banks lose money on servicing a standard checking account with debit card for people with no cash flow issues. They make it back in fees(mostly overdraft) off those who struggle - it’s a direct subsidy of the better off by preying on the poor. Disclaimer: I work for a neobank (chime) which inverts this model and has none of these fees and does free overdraft
- ntoskrnl 4y agoIt seems like customers who get rejected by ChexSystems would be more likely to overdraft frequently and be profitable to the bank. Why are banks using the system to deny them accounts?
- FireBeyond 4y agoI ran into this many years ago with the transaction reordering scandal, when KeyBank turned a series of transactions on a given day (that were all cleared funds, to be clear) that should never have overdrawn me, and left with me with roughly $100 in the bank, instead ended up with me being $400 overdrawn, thanks to an absolute slew of overdraft fees, that the bank (and I) refused to budge on. My ChexSystems entry wasn't removed until there was a lawsuit against the bank.
- clairity 4y ago> "Most banks lose money on servicing a standard checking account with debit card for people with no cash flow issues." that's simply not true. the marginal cost of a checking account is on the order of a dollar. the breakeven on that is on the order of holding (and otherwise using) a deposit of a $100 for a month or two. banks are not losing money on the balance of their checking deposits in any conceivable way. that's a just-so story told and retold uncritically to convince the gullible that fees are "necessary". they're not. they're pure profit, and borne of pure greed. no bank requires fees to function profitably.
- Retric 4y agoMarginal costs can be deceptive, yes sending a debt card in the mail is cheap and you don’t need extra staff or locations for a single customer. However, the infrastructure need to support a million additional customers is expensive even if a single customer doesn’t seem to add any significant cost.
- clairity 4y agoit's tricky but not deceptive. raising that point in this context indicates you've fallen for form of the sunk cost fallacy via conflating two separate business decisions (the investment decision with the pricing decision). we need to say no to these unsubstantiated, regressive fees, full stop.
- Retric 4y agoI don’t see how acknowledging the truth is somehow supposed to support a bank argument. I would happily ban these fees until the industry adapted to a new normal. That said, don’t let your views blind you to the truth. Unscrupulous actors will often drive an industry into predatory practices, it’s correctable but only when people understand the dynamics involved.
- clairity 4y ago> "don’t let your views blind you to the truth....correctable but only when people understand the dynamics involved." indeed. those sunk costs don't matter in this context, which is why they were originally, and should continue to be, excluded. it's extraneous, obfuscating, and most damningly, apologetic.
- nullfield 4y agoThen you’re just making all your money on interchange, right?
- xeromal 4y agoIt seems like there could be two kinds of customers at a bank. One who doesn't get to operate on credit or overdraft protections, but still can us the bank as a means to keep their money safe while allowing customers who can be trusted to still use those extra resources. Seems like a win win for everyone. Banks should probably be required to allow at least a minimal bank account even to people who aren't the best with their money.
- dalyons 4y agoWin win for everyone except the banks, they make huge amounts of money off punitive overdraft and are not interested in letting that go. $12.4 billion in overdraft fees in 2020
- xeromal 4y agoI could be outdated, but weren't overdraft feels turned off by default during the Obama era? You have to go out of your way to turn them on now.
- samstave 4y agoA credit union I used to belong, had a piece of paper hanging on the wall right next to the tellers, it had their running income monthly from overdraft fees. Before the 2008 real estate collapse, this number was less than $100,000 per month. During the recession, I noted it was going as high as $600,000 per month. At one location in Sunnyvale Ca.
- sjostrom7 4y agoI don't doubt you, since you saw this first-hand and didn't hear it from your friend's cousin's dog. But what purpose could a sign like that serve for tellers?
- samstave 4y agoIt wasnt for the tellers, it was literally for the banking customers. It was the statement of revenue the credit union had - the overdraft section was a single line on the document... I am uncertain as to why they posted it, aside from a "transperency" for the credit union members...
- throway782 4y agoWhy must profitability to a banker matter to public optimization of agency? If anything the banker just becomes a thought policing grifter who empowers agency of some without any oversight. A banker is nothing more than a fallible human. Why record in my inner monologue they’re to be seen as more than that? Prior to open discourse online, public relations teams did a stellar job convincing people financiers are special. I’ve been in the room with people that attend Davos. They mock and ridicule the public as they decide who is worth what to their bottom line. They’re uniqueness is a hallucination. Contemporary society is leveraging well understood propaganda techniques to take advantage of the same biological quirk religion stumbled upon by accident. One person is one person. Not some figurative thought leader we must kowtow to.
- gscott 4y agoBounce fees are highly profitable. Large banks earn over a billion dollars in bounce fees yearly each.
- metacritic12 4y agoThis is true, but bounce fees are a minority of bank revenue. I just pulled the BofA 2021 10K [1] and it shows $3.5bln in service charges, but $24bln in interest income. [1] https://imgur.com/a/cGjM5Gi https://imgur.com/a/cGjM5Gi