Bank of America: Benefits of Size?

By James Kwak

Felix Salmon points out that Bank of America (BAC) can now charge customers overdraft fees ten times a day (up from five). (Read the original Washington Post article if you want to be aggravated.) Well, I can do one better.

I recently had to track down some past bank records. Local banks? No problem, no fee. At Bank of America, however, they insisted on charging me $5 per page – even though they were breaking a state law forbidding them from charging a fee. (All I’ll say is that they weren’t allowed to charge a fee because of the characteristics of the person I was getting the records for and the purpose for which he needed the records.) I pointed out to the drone at the bank that she was breaking the law, but she insisted she couldn’t do anything about it and we would have to sue them to get the money back. And I believe her; the problem is almost certainly that requests go from the local branch to some central processing center, and there is no way for the local branch to tell the central processing center not to deduct the fee from your account.

Now, perhaps this central processing center setup reduces costs for Bank of America. But do they charge lower mortgage rates? No. Do they offer higher savings rates? No. Are they too big to fail? Absolutely. Do things have to be this way?

Comments

[jayminho:]

probably.
vere likely the remanescent of its era.
long live bank of america.
why dont they statize it ?
look bank of brazil is state owned, and still public traded ?
this neo-capitalism is great! we should hire those etf managers/creators to come up with new ideas. they always have amazing creative ideas, lige (long inverted short.. 3x inverted long, and so on..) haha

Jun 30 09:09 AM

[jackooo:]

This article explains why I own Bank of America and you should also. They will fee you to death and the public will still put their deposits there. Great source of income for BAC.
As for the fee charge you are talking about, ask yourself this instead of making excuses. If 30 yrs. ago we sent a man to the moon and then brought him back, why can't the fee be erased or refunded.

Jun 30 11:22 AM

[John Lounsbury:]

James - - -

Good post. B of A has some customer relations problems. Felix Salmon also discusses this today seekingalpha.com/artic...

I am repeating my comment to Felix's article here:
My wife was just refused to cash a small corporate check at the Bank of America branch that we have used for the past 4 years. She was informed that it was a new B of A policy. The check had to be deposited. She demanded to see the branch manager and did get the check cashed.

It is obvious that B of A has established this policy to incrementally expand the float - the three days they get the money before they have to make it available for withdrawal.

My wife wants to move our account to a local bank that will provide better service. I have already moved my business account from B of A to a local bank at a savings averaging $15 a month in fees. Our home owners association has also moved from B of A.

In total from these three accounts (if my wife moves our personal account), B of A will have lost an average monthly low balance between $10,000 and $20,000, money that sat there for their use for free. The value to B of A of that free cash is greater than the fees and occasional float on small checks, but they are losing the business. Multiply this by a large number of customers, say a few hundred thousand and you have lost a net (pre-tax) income of several million (tens of millions?) that was very low maintenance (just residual minimum account balances each month). I have not attempted to estimate what the value of the float in these three accounts for money that was in the account for many days before being spent. That value may be a significant fraction of the minimum balance value to them.

Maybe the new B of A degraded service rules will increase income from some account holders who will stay, but how much will they lose when they lose business from people like us?

Jun 30 11:57 AM

[Spiderman:]

I agree w/ jayminho, Bank of Brazil is state owned as well as the big and profitable Petrobras.
B of A is increasing its customer relations problems.

Jun 30 02:47 PM

[TinyTim:]

My banker at BofA used to waive all the silly fees they sock you with by crediting them back. He now claims he can't do that.

James Quinn over at Burning Platform is organizing a boycott against BofA and the other financial gangsters.

Jun 30 03:56 PM

[FloridaBoy2:]

Five negative comments....millions of sheep will be fleeced and not complain. What capitalist pig the banks are.:- ) Borrowing money at -0-% and raising interest rates on credit cards. I have a B of A business Visa Card and carry no balance. I recall that when they sent it to me the interest rate was capped at 8.9% as long as I had the card. I was recently notified that the rate is now 18.99%. I am O.K. with it because they need to heal their balance sheet. I will not ever use that card again. I don't think any of the other big banks are any different.

If the banks followed sound business practices we would not be in the mess.

Jun 30 08:39 PM