5 ms·

Banks Are Now Accused of Cheating Customers Billions

150 points by randycupertino 2y ago

diggan 2y ago
Original article: https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f7626f https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f76... (https://archive.is/wxqsC https://archive.is/wxqsC)
- deathanatos 2y ago
  … this website, "FrankNez", has recently been spamming subreddits Reddit recently too, some off-topic from what is being spammed. (Their user there: https://www.reddit.com/user/OfficialFrankNez/ https://www.reddit.com/user/OfficialFrankNez/, so you can see for yourself.) — e.g., an article "Kamala Harris Is Now Proposing Raising Crypto Tax To 28%" was cross posted to 13 subreddits and removed by moderators on at least 9 of them. It smells like it's just rehashing news for ad revenue. To be clear: I don't think OP here is involved; their post history seems varied, so they may just have picked this up from somewhere else. I'd be curious to know how they came across it, because it might be a tad interesting to see how these things spread. But these "as reported by" articles, just ditch that article and read the upstream source. 99% of the time, they add nothing of value, and are just plating it with ads. (There's also https://www.reddit.com/user/BFA_Artist/ https://www.reddit.com/user/BFA_Artist/ doing the same thing, just nothing but that site, spammed from an account that claims to be a person. Like … it smells. Nobody is like "man, I love this site's news. I'm going to spam everything they write to 20 subs". Came across that just trying to trace back by own steps…) (I should also mention that normally for blogspam I'd sort of lean into a "flag and move on", but here there's the problem that I think the content of the underlying FT article — banks screwing customers w/ 0% interest rates on their savings when interest rates are high — is worthy of discussion here, and I don't desire to kill that with a flag…)
  - randycupertino 2y ago
    Thanks for pointing this out. I couldn't get past the paywall of the original article and so posted this one. Also thanks to the person who posted the archived ft link!
oostevo 2y ago
Key paragraph (from the original FT article): > The issue has arisen from idle cash sitting in customer accounts at brokerage firms and large banks, which “sweep” otherwise uninvested funds into interest-bearing alternatives in order to generate income. The SEC is looking into whether the firms steered those clients into sweep accounts that paid little or no interest, and whether the financial advisers at those groups had a fiduciary duty to advise clients they could make higher returns if they moved their cash into other accounts.
- Animats 2y ago
  Yes. Before brokerages were part of banks, cash in a brokerage account was usually stored in a money-market fund, with whatever interest money market funds were paying. Once merging with a bank, cash was swept into an in-house bank account. This didn't matter much when money market funds were paying near zero interest. But the zero interest rate era is over. Except for demand deposits in banks, which pay well below money market rates. Often near zero. That's what's going on here. It's a conflict of interest created by the end of Glass-Stegall, which kept brokerages and banks apart.
  - reaperducer 2y ago
    My parents instilled in me a mild distrust of banks. It's for this reason that I get my statements mailed to me each month, and each month I reconcile what's on the paper with what's in my spreadsheet. Guess what? Every year I find a mistake in at least one bank statement. And it's always in the bank's favor. Sometimes it's a few cents, but once it was a few hundred dollars across multiple errors. When I've told people this in the past, I've been dismissed with "Oh, I use Venmo instead of a bank, so it's always right," or "Oh, it's too hard to figure so that out." I simply don't understand people who blindly accept what an app or web site tells them about something as important as their own money. I know they don't teach balancing a checking account in high school anymore, but you should be able to add and subtract to get through life. No, the computer is not always right.
    - educasean 2y ago
deleted 2y ago
[deleted]
0cf8612b2e1e 2y ago
Who has the best interest rates for idle cash? I have been using Marcus, but it is not a huge burden to shop around.
- loeg 2y ago
  It's hard to beat a decent money market fund.
  - CoffeeOnWrite 2y ago
    But you want a MMF that is the sweep. Like Vanguard, but not Schwab.
    - loeg 2y ago
      Sure, there are some benefits to that. I happen to use Vanguard for this (VMFXX sweep).
- lbwtaylor 2y ago
  I am a fan of fidelity. They have a cash management account with checking features. You can choose between a bank sweep at ~2.5% or a money market at almost 5%. Edit: There are always non-checking accounts that do better than the above, but I think there is real value in focusing on your checking account -- if you have to move money back and forth to get good rates, is that worth the effort and what's the opportunity cost of the funds that sit in the low paying checking account.
- dmoy 2y ago
  For money markets, it's typically vanguard. Other brokers that are not bad for sweep include IBKR, Fidelity, Schwab, etc. But vanguard will always have higher interest on cash. Marcus is FDIC insured savings though, which has slightly different implications. There's websites that compare current highest savings rates (nerdwallet, bankrate, whatever). Going in the other direction, there are things like SGOV or Treasury-only money markets, if you live in a state that has higher income tax. Since the treasuries are exempt from state income tax. Going even farther than that direction, there's muni bonds, funds, or money markets. At which point you're probably back to Vanguard for the best rates. (But again, not the same exact characteristics as a savings account)
loeg 2y ago
Relevant recent Levine article on this from last week: https://www.bloomberg.com/opinion/articles/2024-08-07/ai-companies-almost-get-bought https://www.bloomberg.com/opinion/articles/2024-08-07/ai-com... > Cash sweep sweep > If you go to a bank and say “I’d like to open an account and deposit some cash,” they will happily open a checking account for you, take your cash, and pay you an interest rate that is, in round numbers, zero. [4] (My checking account pays 0.01%.) If you say “no, I want a savings account, because those have higher interest rates,” they will happily open a savings account, take your cash, and pay you an interest rate that is … also 0.01%? Maybe 0.03%? But if you utter the correct series of incantations, at least some banks will open a high-yield savings account and pay you 5% or more. You gotta find the right bank, though, and utter the right incantations. Sometimes it’s tricky. > ... > People pretty regularly complain about this — “interest rates have gone up, why doesn’t my bank pay me more?” — and sometimes they even do something about it (they move their money to another bank that pays more, or to a money market fund). But the banks do not particularly get in trouble for it. Regulators understand that banks need cheap funding, and that if they can get cheap funding they’re supposed to take it. [5] > If you go to a brokerage firm and say “I’d like to open an account and deposit some cash while I wait to find some good stocks to buy,” they will happily open an account for you, take your cash, and … well! They will probably pay you some interest rate that is higher than 0.01% and lower than 5%. They would prefer to pay you less, because brokerage firms also mainly make money by getting paid more interest on their cash than they pay you on your deposits. [6] Some brokerages advertise “we pay a really high rate on cash,” and thus attract customers who want to get paid a high rate on their cash. Others … don’t? Others advertise, you know, “we will give you good financial advice” or “we make trading fun” or “we have a good app” or whatever, and they get people who do not pay attention to how much they will get paid on their cash. > On the other hand, there’s a sense that your broker has some fiduciary duty to you, or ought to, particularly if your broker is also giving you financial advice. If your broker is telling you what stocks to buy, she should probably also mention “hey, you have a bunch of money sitting idly in your brokerage account, and we’re paying you like 1%, but you could just put it into a Treasury money market fund that is essentially cash but pays 5.4%.” That would cost her firm money — it would give up your cheap cash — but would be good customer service. > Is it mandatory? Eh, maybe a little: (Links to the similar article, https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f7626f https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f76... )
shahzaibmushtaq 2y ago
Not only because of interest payments banks defrauding customers but also due of hidden charges.
- colechristensen 2y ago
  A month ago I got a mystery deposit then a letter explaining why I’d been given hundreds of dollars back from my bank… I’m thinking they were trying to get ahead of this kind of investigation.
  - shahzaibmushtaq 2y ago
    The outstanding interest may have been given back to you by your bank.
dadbot 2y ago
Not sure if is the same, but I noticed that account interest rates that went down when the reserve rates went down didn't go back up. We opened up accounts for our kids at a local credit union that had close to 0% interest. Fast forward 2 years and the rates are just as bad or worse. Savings accounts are 0.25% compared to >4% at other credit unions.
- jnordwick 2y ago
  It makes sense for interest rates to go down when the reserve rate is cut. That means there are more dollars to buy bonds with pushing up the price and lowering the yield (the inverse relationship between price and yield is a mathematical identity). Eurodollar rates are routinely lower than us dollar rates, and they don't have any reserve requirements.
- cowthulhu 2y ago
  Credit union deposit rates are usually tied to how much they need deposits, as opposed to what prime/sofr/fed are at. Credit unions whose lending isn’t keeping up with deposits (which is especially common in smaller CUs) will keep rates low to avoid paying a bunch of interest of funds that they can’t use productively.
clooless 2y ago
My 80 yr old mom had her atm card stolen. The guy withdrew close to 5k in small dips over a week. He had the pin, so my guess is he watched her enter it then distracted her to swipe the card. Bank refuses to cover it, despite her reporting it immediately on discovery. They claim if he had the pin, then she was negligent, and they are not responsible. This presumably happens regularly, as the guy's con was very practiced and slick and he knew exactly what to do to maximize the payoff. But the bank didn't pick up on the obvious pattern, and evades responsibility by blaming the victim.
katzinsky 2y ago
This is why I keep all but ~$200 in a bond ladder in my brokerage and pay my credit card bills directly from my paycheck. The bank is just an ACH terminal now.
tomohawk 2y ago
[flagged]
hn72774 2y ago
This happened to me with Umpqua Bank. They offered a money market account that sounded great. I basically forgot about it, and checked my statement one day to find it earning 0.05%. Not 5%, 1/100th of that. My fault for not being diligent. Missed out on a lot of interest earnings as a result. Edit: I have since moved all of my banking business to a local credit union and closed mine and my kids' Umpqua accounts, and opened a Schwab account for better interest earnings from their money market fund offering.
samstave 2y ago
A tidbit from the 2007-2008 crash: I was banking with a Credit Union in Silicon Valley at the time of the crash. I would go into the bank once or twice a month and the teller-line had a cork-board on the wall to the left, and the CU would post a Line-Printer style balance sheet of various financials they reported on for reasons because a co-op credit uninos transperency bylaws (Im assuming thats the thing) required it... I used to lok at it each time I was in the brankch because I despise banks and their inner workings (my mother was in wachovia/wells fargo commercial loan executive when the whole fraud accounts, and other bad things, BCCI Iran Contra Khshogghi, Keating Five Savings and lone, PPE loan scandal and tarp, and goldman sach - you get the idea) Anyway, the one line item I always looked at "OVERDRAFT REVENUE" Where it was in the ~$20,000 to $40,000 prior to the crash, at the peak of the crash they posted $500,000+ every TWO weeks in overdraft fees from the members of the credit union.
deleted 2y ago
[deleted]
jarsin 2y ago
Yup my broker did this and I now put everything into ICSH. It goes up everyday and back down at the first of the month when it pays dividend. So you can get your interest early when moving cash in and out of investments.
arcastroe 2y ago
Every time I see news of (alleged) fraudulent bank practices, it always seems to be Wells Fargo and Bank of America...
rosemarycluth 2y ago
[dead]

Original article: https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f7626f https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f76... (https://archive.is/wxqsC https://archive.is/wxqsC)

deathanatos 2y ago
… this website, "FrankNez", has recently been spamming subreddits Reddit recently too, some off-topic from what is being spammed. (Their user there: https://www.reddit.com/user/OfficialFrankNez/ https://www.reddit.com/user/OfficialFrankNez/, so you can see for yourself.) — e.g., an article "Kamala Harris Is Now Proposing Raising Crypto Tax To 28%" was cross posted to 13 subreddits and removed by moderators on at least 9 of them. It smells like it's just rehashing news for ad revenue. To be clear: I don't think OP here is involved; their post history seems varied, so they may just have picked this up from somewhere else. I'd be curious to know how they came across it, because it might be a tad interesting to see how these things spread. But these "as reported by" articles, just ditch that article and read the upstream source. 99% of the time, they add nothing of value, and are just plating it with ads. (There's also https://www.reddit.com/user/BFA_Artist/ https://www.reddit.com/user/BFA_Artist/ doing the same thing, just nothing but that site, spammed from an account that claims to be a person. Like … it smells. Nobody is like "man, I love this site's news. I'm going to spam everything they write to 20 subs". Came across that just trying to trace back by own steps…) (I should also mention that normally for blogspam I'd sort of lean into a "flag and move on", but here there's the problem that I think the content of the underlying FT article — banks screwing customers w/ 0% interest rates on their savings when interest rates are high — is worthy of discussion here, and I don't desire to kill that with a flag…)
- randycupertino 2y ago
  Thanks for pointing this out. I couldn't get past the paywall of the original article and so posted this one. Also thanks to the person who posted the archived ft link!

oostevo 2y ago

Key paragraph (from the original FT article): > The issue has arisen from idle cash sitting in customer accounts at brokerage firms and large banks, which “sweep” otherwise uninvested funds into interest-bearing alternatives in order to generate income. The SEC is looking into whether the firms steered those clients into sweep accounts that paid little or no interest, and whether the financial advisers at those groups had a fiduciary duty to advise clients they could make higher returns if they moved their cash into other accounts.

Animats 2y ago
Yes. Before brokerages were part of banks, cash in a brokerage account was usually stored in a money-market fund, with whatever interest money market funds were paying. Once merging with a bank, cash was swept into an in-house bank account. This didn't matter much when money market funds were paying near zero interest. But the zero interest rate era is over. Except for demand deposits in banks, which pay well below money market rates. Often near zero. That's what's going on here. It's a conflict of interest created by the end of Glass-Stegall, which kept brokerages and banks apart.
- reaperducer 2y ago
  My parents instilled in me a mild distrust of banks. It's for this reason that I get my statements mailed to me each month, and each month I reconcile what's on the paper with what's in my spreadsheet. Guess what? Every year I find a mistake in at least one bank statement. And it's always in the bank's favor. Sometimes it's a few cents, but once it was a few hundred dollars across multiple errors. When I've told people this in the past, I've been dismissed with "Oh, I use Venmo instead of a bank, so it's always right," or "Oh, it's too hard to figure so that out." I simply don't understand people who blindly accept what an app or web site tells them about something as important as their own money. I know they don't teach balancing a checking account in high school anymore, but you should be able to add and subtract to get through life. No, the computer is not always right.
  - educasean 2y ago

deleted 2y ago

[deleted]

0cf8612b2e1e 2y ago

Who has the best interest rates for idle cash? I have been using Marcus, but it is not a huge burden to shop around.

loeg 2y ago
It's hard to beat a decent money market fund.
- CoffeeOnWrite 2y ago
  But you want a MMF that is the sweep. Like Vanguard, but not Schwab.
  - loeg 2y ago
    Sure, there are some benefits to that. I happen to use Vanguard for this (VMFXX sweep).
lbwtaylor 2y ago
I am a fan of fidelity. They have a cash management account with checking features. You can choose between a bank sweep at ~2.5% or a money market at almost 5%. Edit: There are always non-checking accounts that do better than the above, but I think there is real value in focusing on your checking account -- if you have to move money back and forth to get good rates, is that worth the effort and what's the opportunity cost of the funds that sit in the low paying checking account.
dmoy 2y ago
For money markets, it's typically vanguard. Other brokers that are not bad for sweep include IBKR, Fidelity, Schwab, etc. But vanguard will always have higher interest on cash. Marcus is FDIC insured savings though, which has slightly different implications. There's websites that compare current highest savings rates (nerdwallet, bankrate, whatever). Going in the other direction, there are things like SGOV or Treasury-only money markets, if you live in a state that has higher income tax. Since the treasuries are exempt from state income tax. Going even farther than that direction, there's muni bonds, funds, or money markets. At which point you're probably back to Vanguard for the best rates. (But again, not the same exact characteristics as a savings account)

loeg 2y ago

Relevant recent Levine article on this from last week: https://www.bloomberg.com/opinion/articles/2024-08-07/ai-companies-almost-get-bought https://www.bloomberg.com/opinion/articles/2024-08-07/ai-com... > Cash sweep sweep > If you go to a bank and say “I’d like to open an account and deposit some cash,” they will happily open a checking account for you, take your cash, and pay you an interest rate that is, in round numbers, zero. [4] (My checking account pays 0.01%.) If you say “no, I want a savings account, because those have higher interest rates,” they will happily open a savings account, take your cash, and pay you an interest rate that is … also 0.01%? Maybe 0.03%? But if you utter the correct series of incantations, at least some banks will open a high-yield savings account and pay you 5% or more. You gotta find the right bank, though, and utter the right incantations. Sometimes it’s tricky. > ... > People pretty regularly complain about this — “interest rates have gone up, why doesn’t my bank pay me more?” — and sometimes they even do something about it (they move their money to another bank that pays more, or to a money market fund). But the banks do not particularly get in trouble for it. Regulators understand that banks need cheap funding, and that if they can get cheap funding they’re supposed to take it. [5] > If you go to a brokerage firm and say “I’d like to open an account and deposit some cash while I wait to find some good stocks to buy,” they will happily open an account for you, take your cash, and … well! They will probably pay you some interest rate that is higher than 0.01% and lower than 5%. They would prefer to pay you less, because brokerage firms also mainly make money by getting paid more interest on their cash than they pay you on your deposits. [6] Some brokerages advertise “we pay a really high rate on cash,” and thus attract customers who want to get paid a high rate on their cash. Others … don’t? Others advertise, you know, “we will give you good financial advice” or “we make trading fun” or “we have a good app” or whatever, and they get people who do not pay attention to how much they will get paid on their cash. > On the other hand, there’s a sense that your broker has some fiduciary duty to you, or ought to, particularly if your broker is also giving you financial advice. If your broker is telling you what stocks to buy, she should probably also mention “hey, you have a bunch of money sitting idly in your brokerage account, and we’re paying you like 1%, but you could just put it into a Treasury money market fund that is essentially cash but pays 5.4%.” That would cost her firm money — it would give up your cheap cash — but would be good customer service. > Is it mandatory? Eh, maybe a little: (Links to the similar article, https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f7626f https://www.ft.com/content/de751907-c870-4b8c-b86b-317483f76... )

shahzaibmushtaq 2y ago

Not only because of interest payments banks defrauding customers but also due of hidden charges.

colechristensen 2y ago
A month ago I got a mystery deposit then a letter explaining why I’d been given hundreds of dollars back from my bank… I’m thinking they were trying to get ahead of this kind of investigation.
- shahzaibmushtaq 2y ago
  The outstanding interest may have been given back to you by your bank.

dadbot 2y ago

Not sure if is the same, but I noticed that account interest rates that went down when the reserve rates went down didn't go back up. We opened up accounts for our kids at a local credit union that had close to 0% interest. Fast forward 2 years and the rates are just as bad or worse. Savings accounts are 0.25% compared to >4% at other credit unions.

jnordwick 2y ago
It makes sense for interest rates to go down when the reserve rate is cut. That means there are more dollars to buy bonds with pushing up the price and lowering the yield (the inverse relationship between price and yield is a mathematical identity). Eurodollar rates are routinely lower than us dollar rates, and they don't have any reserve requirements.
cowthulhu 2y ago
Credit union deposit rates are usually tied to how much they need deposits, as opposed to what prime/sofr/fed are at. Credit unions whose lending isn’t keeping up with deposits (which is especially common in smaller CUs) will keep rates low to avoid paying a bunch of interest of funds that they can’t use productively.

clooless 2y ago

My 80 yr old mom had her atm card stolen. The guy withdrew close to 5k in small dips over a week. He had the pin, so my guess is he watched her enter it then distracted her to swipe the card. Bank refuses to cover it, despite her reporting it immediately on discovery. They claim if he had the pin, then she was negligent, and they are not responsible. This presumably happens regularly, as the guy's con was very practiced and slick and he knew exactly what to do to maximize the payoff. But the bank didn't pick up on the obvious pattern, and evades responsibility by blaming the victim.

katzinsky 2y ago

This is why I keep all but ~$200 in a bond ladder in my brokerage and pay my credit card bills directly from my paycheck. The bank is just an ACH terminal now.

tomohawk 2y ago

[flagged]

hn72774 2y ago

This happened to me with Umpqua Bank. They offered a money market account that sounded great. I basically forgot about it, and checked my statement one day to find it earning 0.05%. Not 5%, 1/100th of that. My fault for not being diligent. Missed out on a lot of interest earnings as a result. Edit: I have since moved all of my banking business to a local credit union and closed mine and my kids' Umpqua accounts, and opened a Schwab account for better interest earnings from their money market fund offering.

samstave 2y ago

A tidbit from the 2007-2008 crash: I was banking with a Credit Union in Silicon Valley at the time of the crash. I would go into the bank once or twice a month and the teller-line had a cork-board on the wall to the left, and the CU would post a Line-Printer style balance sheet of various financials they reported on for reasons because a co-op credit uninos transperency bylaws (Im assuming thats the thing) required it... I used to lok at it each time I was in the brankch because I despise banks and their inner workings (my mother was in wachovia/wells fargo commercial loan executive when the whole fraud accounts, and other bad things, BCCI Iran Contra Khshogghi, Keating Five Savings and lone, PPE loan scandal and tarp, and goldman sach - you get the idea) Anyway, the one line item I always looked at "OVERDRAFT REVENUE" Where it was in the ~$20,000 to $40,000 prior to the crash, at the peak of the crash they posted $500,000+ every TWO weeks in overdraft fees from the members of the credit union.

deleted 2y ago

[deleted]

jarsin 2y ago

Yup my broker did this and I now put everything into ICSH. It goes up everyday and back down at the first of the month when it pays dividend. So you can get your interest early when moving cash in and out of investments.

arcastroe 2y ago

Every time I see news of (alleged) fraudulent bank practices, it always seems to be Wells Fargo and Bank of America...

rosemarycluth 2y ago

[dead]