Service charges are one way banks have to make money
Banks have more ways than often we think to make money, and I was reminded of one by a reader a few weeks back, which I greatly appreciate. And you all know how I treasure those who, for whatever reason, take a look at this column: the few, the proud, the curious.
Among other complaints, she cited the common banking practice of assessing service charges on certain accounts when the balance gets below a specified level. This assessment is taken out each month until the balance reaches zero. And then it’s still debited every month, leaving the depositor owing the bank for, essentially, withdrawing the customer’s money to contribute to the bank’s bottom line.
This lady also noted that the resulting deficit amount was referred to a collection agency, which threatened to ruin her credit if she didn’t pay up.
Go into your bank to complain, and you can end up feeling like a real bozo: “It says right here in the forms you signed that you agreed to this (SMILE). Would you like a cup of coffee and a cookie?”
Of course I signed it. Then I forgot about it.
One of her other complaints was that some of her inactive accounts were taken off the radar screen by her bank, meaning that they couldn’t be found on the institution’s website, nor were statements sent. Banking justifies this by explaining that it’s not cost efficient to provide information on accounts that aren’t being used. But it also makes it easier to deduct service charges from accounts that customers may have forgotten about. And there’s something kind of oxymoronically beautiful about booking service charges on deposits that aren’t being serviced.
This is a common practice in banking. Many of us, including the writer of this column, have experienced it as bank customers. There’s no question that the administrative cost of maintaining thousands, or millions, of accounts is close to astronomical. But bear in mind that the wholesale price of the product banks sell, money, is virtually free for them. In this respect, banking is like no other business on earth.
The business of banking is still very lucrative. However, tightened, and often punitive, regulation has made it harder to make a buck. Thus, institutions are working every profit center they can, and the service charge profit center is a vital one. In fact, with many small banks during the recent crisis, it was one of the few sources of income that could be counted on. Of course, these maintenance fees aren’t the only charges in the service line item, but they’re a significant part of it.
On balance, we should be grateful for the U.S. banking system. It’s safe, efficient and constantly monitored. If a bank fails, the federal government makes sure you don’t lose a dime. An employee embezzles money from your account, and the bank’s blanket bond makes you whole.
But if a bank tells you it will take your money under certain conditions, pay attention.
Because it will take your money.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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