By Jim Rendon
TODAY
With the economy slowing, consumers and banks alike are doing what they can to stay afloat. Are you reading your bank's fine print when it comes to fees, online banking, interest rates and more? Here, SmartMoney reveals the top things that your financial institution is probably not telling you.
"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.
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."
"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 upward 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."
"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.
"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.
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.
"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, an attorney 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.
source:
http://www.msnbc.msn.com/id/25736566/
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