Your Money

Guide: Bill-pay kiosks can increase bottom line

2012-01-31T21:56:52Z

Convenient billpay starts with self-service, so KioskMarketPlace.com recently published a guide describing the benefits bill-payment kiosks provide and how they can add to both the biller's and the retailer's bottom line.

The bill-pay kiosk business has been growing steadily for years, but according to industry insiders, it has started gaining even more traction in the marketplace in the last two years, in no small part because of advances in technology and the growing demand for convenience, as well as an economic recession that has caused customers to manage cash flow more closely.

But self-service billpay also helps the silent third party in the billpay equation -- the retailers, such as grocery stores, that take bill payments at their customer-service counters or through their cashiers.

Approximately a quarter of the U.S. population is either unbanked or underbanked, according to the Federal Deposit Insurance Corp. Nine million households in the United States are unbanked, while another 21 million are underbanked.

Although a significant part of the self-service market is the unbanked and underbanked, said Rockville, Md.-based Pay-Ease CEO Marc Meisel, the largest part of the market is that which caters to all communities.

"It really services the banked as well as the unbanked," he said. "[But] there is a tremendous, growing underbanked population. And the question has been how to get to them, and the kiosks have been seen as the answer."

Both billers and retailers are cashing in by offering the self-service option.

"Our experience has been that if you provide people with more options to pay, they're just more likely to pay you," said Ed Walsh, spokesman for the Chicago Department of Revenue.

For retailers such as Homeland Supermarkets, having bill-pay kiosks provides a laundry list of benefits, from cutting labor costs to increasing customer traffic and spending.

You've been carded: State tax refunds coming as debit cards

2012-01-31T21:27:36Z

The State Department of Revenue Services said Monday it will not send you a tax refund check, instead, people who overpaid will now be issued a Chase Bank debit card if they do not accept direct deposit.

Tax refunds in excess of $10,000, or for people who have off shore bank accounts, will still be issued as checks, as will refunds filed on behalf of the deceased or for previous tax years.

The DRS' decision to stop sending out checks follows similar decisions by the state Department of Labor and the Department of Social Services to issue debit cards for unemployment insurance and food stamps respectively.

While the state attempted to limit the number of fees Chase could take for servicing the cards, people could ring up charges if they use the wrong ATMs or fail to use all the cash immediately.

The cards must be activated and will require refund recipients to provide their Social Security numbers to Chase as part of that process. You will also get a personal identification number for the card.

Research shows prepaid can be cheaper than checking

2012-01-31T20:02:23Z

Montvale, N.J., Jan. 26, 2012 -- The recent launch of several new prepaid debit cards has brought fresh attention to prepaid cards. Unlike credit cards, prepaid debit cards allow consumers to manage their money, control spending, and avoid interest charges and credit card debt.

Both Federal and State governments are using prepaid cards to distribute government benefits including unemployment compensation and Social Security. According to a 2011 Hudson Institute study, The Move to Digital Payment: When the Check is No Longer in the Mail, US Treasury estimates that moving all Social Security payments to direct deposit or prepaid cards would save taxpayers $125 million a year.

"Not only is there is a cultural shift happening in the way businesses and governments manage their payments, but also in the way people manage their finances. Many young people today have never set foot in a bank or written a check, while others are choosing prepaid cards because they either can't qualify for a bank account or don't want to pay rising checking account fees," said Kirsten Trusko, President & Executive Director of the Network Branded Prepaid Card Association (NBPCA).

Additionally, many prepaid cards offer savings programs, which help consumers save money. As noted in New America Foundation's policy paper, Beyond Barriers: Designing Savings Accounts for Lower-Income Consumers, "consumers using the savings pocket of a prepaid card reported that customers who set up defaults or automatic transfers into their savings accounts had more success accumulating savings." The policy paper further recommended "to help bridge the gap between where small-dollar savings products are offered and where consumers are located . . . the small-dollar savings products could be sold at retail outlets through branchless banking or as a reloadable prepaid product."

Stacked up against low-balance checking accounts, the yearly cost of using a prepaid debit card is less. Prepaid debit cards, like checking accounts, offer different fee structures to meet each individual's needs. Most card providers will waive monthly fees if consumers either get their wages or benefits directly deposited to the cards or maintain higher monthly balances, similar to checking account options offered by banks. Moreover, prepaid cardholders can avoid paying ATM fees by using in-network ATMs, just like debit card users, or by requesting cash back with purchases at retailers, just like debit card users.

A Bretton Woods March 2011 study comparing the cost of using cash, low-balance checking accounts and prepaid cards concluded:

Reloadable prepaid card users' costs range from $76 to $261.35 annually if they use direct deposit and without direct deposit yearly fees range from $184.35 to $380.15.
Bank customers pay from $218 to $284 annually for a basic checking account.
Consumers who pay to cash checks and live a cash-based lifestyle pay $140 to more than $720 annually.

Prepaid cards are viable alternatives to checking accounts, are issued by highly regulated banks and offer a variety of consumer protections including FDIC insurance on a pass-through basis and the card brand's zero liability protections against lost, stolen or fraudulent charges. Additionally, the majority of general purpose reloadable card issuers voluntarily provide Regulation E coverage as it applies to payroll cards. Prepaid card issuers comply with all applicable fee disclosure requirements and consumers also have access to card and fee data both online, or via a toll-free telephone call.

"It's important to remember that not everyone qualifies for free checking and the basic checking account services that many of us take for granted. Prepaid cards often compare favorably with the potential costs of low balance checking accounts," continued Trusko. "Prepaid cards provide an option to consumers who might otherwise be dependent on an insecure and inefficient cash-and-carry lifestyle."

A significant portion of the American population cannot pass the processes used by banks, such as ChexSystems, which qualify consumers for a bank account. According to the 2009 FDIC National Survey of Unbanked and Underbanked Households an estimated 7.7% of US households, about 9 million, are unbanked and an estimated 17.9% of US households, about 21 million, are underbanked. Approximately 80% of all banks and credit unions nationwide are members of, or use, ChexSystems. Prepaid card fills a void in the financial services marketplace for these individuals, enabling them to access the financial mainstream.

According to a KPMG study, today's financially underserved market who may choose the prepaid debit card option include recent graduates, hourly workers, immigrants and higher income workers who may have lost jobs, homes to foreclosures or filed bankruptcy due to the recession and can no longer qualify for checking accounts. For those who need or want another option in handling their finances, prepaid cards allow individuals to participate in our electronic, card-based marketplace with the safety, convenience and security of a bank debit card without the discrimination, risk and cost of carrying cash.

About the NBPCA

The Network Branded Prepaid Card Association (NBPCA) is a non-profit, inter-industry trade association that seeks to educate, advocate, protect and promote on behalf of network branded prepaid debit cards and represents the common interests of the many types of companies who come together to deliver the wide variety of prepaid products. For additional information, visit www.NBPCA.org .

Prepaid Cards Offer Americans a Safe, Secure and Cost Effective Way to Manage Their Finances

2012-01-31T19:49:54Z

Information contained on this page is provided by companies via press release distributed through PR Newswire, an independent third-party content provider. PR Newswire, WorldNow and this Station make no warranties or representations in connection therewith.

SOURCE NBPCA

According to Bretton Woods, Consumers Pay a Minimum Yearly Cost of $76 to Use Prepaid Cards Compared to the Minimum Yearly Cost of $218 for a Low-Balance Checking Account

MONTVALE, N.J., Jan. 26, 2012 /PRNewswire/ --The recent launch of several new prepaid debit cards has brought fresh attention to prepaid cards. Unlike credit cards, prepaid debit cards allow consumers to manage their money, control spending, and avoid interest charges and credit card debt.

Both Federal and State governments are using prepaid cards to distribute government benefits including unemployment compensation and Social Security. According to a 2011 Hudson Institute study, The Move to Digital Payment: When the Check is No Longer in the Mail, US Treasury estimates that moving all Social Security payments to direct deposit or prepaid cards would save taxpayers $125 million a year.

Additionally, many prepaid cards offer savings programs, which help consumers save money. As noted in New America Foundation's policy paper, Beyond Barriers: Designing Savings Accounts for Lower-Income Consumers, "consumers using the savings pocket of a prepaid card reported that customers who set up defaults or automatic transfers into their savings accounts had more success accumulating savings." The policy paper further recommended "to help bridge the gap between where small-dollar savings products are offered and where consumers are located . . . the small-dollar savings products could be sold at retail outlets through branchless banking or as a reloadable prepaid product."

A Bretton Woods March 2011 study comparing the cost of using cash, low-balance checking accounts and prepaid cards concluded:

Reloadable prepaid card users' costs range from $76 to $261.35 annually if they use direct deposit and without direct deposit yearly fees range from $184.35 to $380.15.
Bank customers pay from $218 to $284 annually for a basic checking account.
Consumers who pay to cash checks and live a cash-based lifestyle pay $140 to more than $720 annually.

About the NBPCA

Only 15% of Americans have confidence in the U.S. banking system -- an all-time low.

2012-01-31T19:21:49Z

Last November, Gallup found that only 15% of Americans had "a great deal" or "quite a lot" of confidence in the U.S. banking system. That's a new low. This is a problem not only for the financial industry generally but for individual banks too. That's because people who lack confidence in their bank may be less loyal -- and they may be more likely to leave it and go elsewhere.

Bankers may think they aren't doing anything wrong; they're just trying to provide a return for shareholders. So from their perspective, they're doing the right things. In that case, why are customers reacting so strongly? Because bankers are also doing things like overtly passing on costs in the form of fees, which infuriates the customers who are expected to pay them. And bankers are also making cuts in customer service, which not only angers customers, but it basically encourages them to walk out the door.

It doesn't have to be this way. As Gallup Chief Economist Dennis Jacobe, Ph.D., discusses in the following conversation, there are ways to do the right thing, both by the bank's P&L sheet and by its customers. But banks need a more educated view of customers and their own place in the consumer economy. In short, Jacobe says, they need to "think behavioral economics."

GMJ: What do you mean when you say banks should think behavioral economics?

Dennis Jacobe, Ph.D.: Behavioral economics is the study of the ways that emotion affects how people make decisions and, ultimately, how they behave. I think the debit card fee debacle provides a good example of how emotions play a role in consumer decisions.

The Dodd-Frank Act required changes in how much banks charged for processing debit card use. When the Fed issued the standards required by the act, bank management tended to feel that the imposition of limits on the fees they could charge retailers for debit transactions were totally unfair. As a result, many banks seemed to think it was OK for them to replace this source of income by adding debit fees to their customers' accounts. If they were questioned by their customers, they could explain that this was the result of a change in government policy. Thus, the debit fee pricing decision was a financial calculation aimed at replacing what had previously been a revenue source.

Unfortunately, this finance-focused approach to replacing the bank's lost revenue ignored some of the basic tenets of behavioral economics. From a behavioral economics perspective, one of the worst things a company can do is to begin charging a new fee for a service that had previously been free.

GMJ: And we all remember what happened.

Dr. Jacobe: Yes. Predictably, there was a huge backlash. And the situation was worsened by the way the proposed consumer debit fees became entangled with the anti-bank story line. Not only were these fees perceived as unfair, but they were also perceived as a way for greedy bankers -- who had been bailed out by U.S. taxpayers -- to gouge their customers. Further, the price-leader way of introducing these fees doomed them to failure.

GMJ: Price leader?

Dr. Jacobe: This is a tactic we often see in the airline industry: One airline announces a fee increase hoping the others will follow and match it. In this case, when some banks announced a debit fee increase, others did not follow the leader. As a result, it's not surprising that the banks that were trying to increase debit fees felt forced to rescind them before they went into effect.

This is all too reminiscent of banker efforts to charge for teller transactions many years ago. A terrible customer backlash led management to forgo teller use charges. However, it led to different forms of product packaging, which is a behavioral economics approach: Some banks offered a variety of discounts for not using the bank teller. In that instance, a behavioral economics approach changed a lose-lose scenario to a win-win.

GMJ: But most banks have shareholders. Don't those shareholders expect banks to make up the lost revenue?

Dr. Jacobe: Of course, and banks have approached this in various ways. Many banks have instituted new fee structures and/or cut services. Generally, they have suffered significant customer defections and a loss of loyalty and engagement among those customers who remain. These changes in the bank operating model -- and in combination with the overall decline in Americans' confidence in the nation's banks -- may explain at least in part why bank loyalty fell sharply as 2011 came to a close.

Given the current regulatory outlook -- and the recess appointment of Richard Cordray as the first head of the new Consumer Financial Protection Bureau -- it seems likely that the bank operating model will continue to change and evolve in the months and years ahead. Instead of making product and service adjustments in the traditional finance-driven way, bank management would be well-advised to make these changes in a customer-centric way -- and in a way that reflects behavioral economics.

GMJ: You mentioned customer engagement. How can banks promote customer engagement when consumers may be wary of the banking industry overall right now?

Dr. Jacobe: That's another area that needs some behavioral economics application. Given the changing banking model, some banks have reacted by cutting back on employees. That may make financial sense in the short term. The fewer people on the payroll, the lower the operating costs, and cost cutting is required when revenues are declining.

But that short-term gain -- and precisely how it is achieved -- needs to be viewed in a behavioral economics context, because customer-facing employees remain consumers' most preferred provider of banking services and may be a bank's best hope for promoting customer engagement. Gallup's 2011 proprietary retail banking study showed that the most powerful drivers of customer loyalty and engagement remain branch visits and call center interactions with a real person. So the last place to cut should be front-line employees, because when fewer people are providing what matters most to customers, loyalty and engagement can easily take a significant hit.

GMJ: Give me an example.

Dr. Jacobe: Cut back on people too much, and customers get longer times in the branches and on the phone. If you have fewer people to serve your customers, if you don't spend the money training tellers and bankers, then you don't have enough people providing top-quality customer service. Worse yet, a dehumanized approach to customer service can play right into the story line of greedy bankers who don't care about their customers.

GMJ: So banks can't assume that their websites can make up the difference in customer service.

Dr. Jacobe: Gallup's research shows that Internet and automated channels aren't the same. Customers use them, and they have a significant place in building relationships, but they can't replace human interaction. This may be disappointing to companies that have invested a lot of time and money in new technology assuming it would take care of most customer needs and cut employee costs.

According to the study, though online and automated banking channels are important to relationship building, they have become table stakes in building customer relationships. Banking consumers continue to use new channels while showing little tendency to substitute for -- or abandon -- live interactions through traditional branch and phone channels. Of course, this doesn't mean things won't change over time, but this is the situation bank management faces today.

GMJ: Which means that employees are still important in building customer engagement.

Dr. Jacobe: Employee engagement is more important today than at any time since the Great Depression because of lack of confidence in the banking industry and the declining confidence in individual banking companies. Most Americans don't seem to fully recognize the vital role our banking system plays in the success of the U.S. economy. Fully engaged bank employees can be important advocates for banking and their institutions by explaining to consumers and small-business owners alike not only the key role banking fills but also why banking needs as many advocates as possible right now.

GMJ: How does behavioral economics jibe with customer engagement?

Dr. Jacobe: That 2011 banking study also shows that individual banking companies have been able to significantly differentiate their customer engagement and loyalty over the past several years. Customer engagement is built on a hierarchy of responses, and the bare minimum of them is that the company executes and fulfills basic expectations. Banks that are too short-staffed don't have the people to do what banks are expected to do and keep wait times short, thus failing to meet customers' transactional requirements.

GMJ: How can banks engage their customers?

Dr. Jacobe: Customers become engaged only when four emotional needs are met: they feel pride and passion for the brand they bank with, they believe the bank has integrity, and they're confident they'll always be treated well and fairly. It's financially imperative that banks provoke this response. Fully engaged retail banking customers are much more likely to say they intend to open a new account or take out a new loan over the next three months than are actively disengaged customers. And actively disengaged customers are much more likely to switch banks.

It's very difficult to emotionally engage people who are irritated by being kept in line for a long time. And the customer-facing staff knows it -- they are quite capable of looking over the counter and seeing lines of impatient, angry customers. When that happens, bank employees can be forgiven for losing some of their own engagement, which has costs of its own. Disengaged bank employees are not good brand or banking ambassadors. They're brand killers. Banks need employees who are positive about their banking institution and positive about the role banking plays in making the economy function.

GMJ: What's your outlook for banking in 2012?

Dr. Jacobe: U.S. banks face a hostile environment in 2012. The European banking situation is likely to continue to remain volatile and unresolved. The U.S. economy is likely to continue to struggle. Most importantly, the intense political environment of the 2012 presidential election is likely to increase the demonization of the nation's banks -- and the regulatory activity of the new Consumer Financial Protection Bureau -- while ignoring the vital role banking plays in the U.S. and global economy.

I think it is important that bank management recognize all aspects of this operating environment -- including Americans' perception of the banking business -- as they make their strategic decisions in the year ahead. They need to recognize that their business decisions can become political issues and act accordingly. Most importantly, they need to think behavioral economics.

-- Interviewed by Jennifer Robison

Old jewelry worth its weight in gold?

2012-01-19T20:11:30Z

Selling jewelry

A jeweler, pawn broker, gold refiner or scrap gold dealer will buy the stuff in the back of your jewelry box at a price based on the weight of its gold content, minus a handling fee. He melts down the jewelry, extracts the gold and sometimes some of the hardening agents and resells it or uses it himself.

You can pocket the cash -- or if you prefer, many jewelers will trade the old jewelry in for something you like better.

The gold content of jewelry is indicated in karats. Solid gold jewelry is 24 karats. Lesser jewelry has less gold content and more of other metals and hardening agents. Gold buyers will only pay for gold. With few exceptions, other metals have no resale value.

Generally, the gold content of any piece of jewelry will be marked on it somewhere -- on the inside of a ring or bracelet and on the clip of a necklace or the back of an earring. For instance, a 14-karat piece of jewelry may actually have "14 karat" inscribed on it in tiny lettering or the lettering may say "14/24" or "14K."

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The less gold content in a piece of jewelry, the less money it will be worth to anyone who intends to melt it down. When you buy jewelry in the store, you are paying for the design and craftsmanship, as well as any precious and semi-precious stones that may be a part of the piece. A beautifully designed piece of jewelry may have more resale value as used or "estate" jewelry than it will have as recycled gold. If you think that might be the case, get the piece appraised.

Michael Gusky, owner of Goldfellow.com, points to the heavy gold chains and bracelets that were popular among men in the 1970s as perfect candidates for meltdown. They have no resale value as jewelry because they are so far out of fashion, but the best of them had substantial gold content. Gusky says he recently paid $1,575 for a gold bracelet a customer bought 30 years ago for $1,000 during a visit to the Caribbean. The customer was "absolutely stunned," Gusky says.

Most buyers of gold won't pay anything for stones, with the exception of diamonds. So if you want them, remove them yourself or have them removed before you turn a piece of gold jewelry over to a buyer.

Gold coins

If you've inherited somebody's coin collection and it includes some gold coins, these can be sold for meltdown as well. But it will probably pay to get an informal appraisal first. Coin dealers who are members of the American Numismatic Association subscribe to a code of ethics and should be able to examine gold coins and tell you whether they have more value as coins or bullion.

"When valuing gold coins, there are a lot of components. When the price of (gold) is very strong, based on authenticity, condition and rarity, some coins are worth more for their bullion than they are as a coin. A good dealer should be able to help you with this," says Jay Beeton, the association's marketing director.

Beeton also suggests getting a second opinion -- "because there are people who will take advantage of you."

Dental and other gold

Dental fillings, gold teeth, bridges and crowns are usually 16 karat gold and can be resold as well. Some dental gold contains platinum as a hardening agent, and that has a separate and often greater value. It pays to shop around if you have this kind of gold to sell. It can be harder to value than gold jewelry.

Gold knickknacks, medallions and religious items also are salable, but again, first find somebody who will help you determine their value as a collectible before you sell them to be melted down.

Nonbank Lender Group Won't Sue Over CFPB Cordray Appointment

2012-01-12T21:59:10Z

By Kate Berry

American Banker | January 10, 2012

Park City, Utah -- For all the talk about legal challenges to the recess appointment of Richard Cordray as director of the Consumer Financial Protection Bureau, at least one group of consumer lenders has no intention of stepping into the fray.

"I want to make it perfectly clear, we are not suing our regulator," Bill Himpler, executive vice president for federal affairs at the American Financial Services Association, told an audience of bank lawyers on Tuesday. His trade group's members include nonbank automotive and installment lenders.

During a panel discussion Tuesday about the newly-empowered CFPB, Himpler offered some rare industry praise for the agency's staff and for President Obama's political instincts in appointing Cordray.

"I have to tip my hat to the president," Himpler said. "This was a great political play. It plays to the themes he was running on," primarily in "cleaning up Wall Street."

Himpler mentioned Rick Hackett, the CFPB's deputy assistant director for installment lending, and called the agency's staff "very professional, very thoughtful."

"There is a receptivity [by the CFPB] to learn and that's very refreshing," Himpler said. "They want to get it right so to a certain extent that creates a level of comfort, but there are other signals that still leave lingering heartburn."

There is some concern how the agency will define large nonbank participants and how much weight it will give consumer complaints, he said.

The Dodd-Frank Act gives the CFPB supervisory power of all sizes of companies in the mortgage, payday lending and private student loan markets. But it can supervise only larger companies involved in consumer installment loans, money transmitting and debt collection. The agency must issue a final rule defining such "large participants" by July 21.

Nonbank finance companies account for roughly $500 billion of the $2.5 trillion credit market, which excludes mortgages and payday loans, Himpler said. About 35% of American consumers have some type of product from nonbank financial companies that now fall under CFPB supervision, he said.

Don Lampe, a partner with the Dykema law firm, joked about Cordray's recess appointment, saying: "There are those of us having trouble using the D-word -- director."

But he also said that compliance executives "down in the trenches," and their intermediaries, such as outside lawyers, "have to say they need to comply."

"We tend to say whether or not we have a duly-appointed director is not as relevant as it might be because advisors will tell you prudence and a conservative approach dictates compliance," Lampe said.

Lampe said he was concerned because the CFPB appeared to inform regulated companies through a combination of bulletins, guidance, blogs, videos and press releases.

"Some fairly material industry-changing initiatives that ordinarily are handled through regulatory processes are being done informally," he said. "It does pose due process concerns for old timers who are used to due process in regulatory procedures."

The CFPB's hiring of bank examiners from other agencies also has raised the hackles of nonbanks.

"We're not banks, we're not federally-insured, we're market-funded, not deposit-driven, and it's a different business model and needs to be treated as such," said Himpler, who questioned how the agency will assess risk to consumers.

"If the bureau deems that your company poses a risk to consumers you still may be regulated by the bureau," he said.

RushCard Customers to Enjoy Early Access to Funds Before Payday

2012-01-12T21:56:30Z

CINCINNATI--(BUSINESS WIRE)--RushCard announced today a new feature that allows many of its cardholders to get access to their money even faster. Members who have their paychecks and certain other payments directly deposited on their RushCard may be able to receive their funds up to two days early.

"At RushCard we are committed to helping our customers realize their financial goals"

"In an effort to keep our customers out of pay day loans and other high priced lending products, we're enabling many of our customers to access their direct deposit up to two days early," said RushCard founder, Russell Simmons. "Our members can now enjoy increased flexibility and peace of mind knowing that RushCard will help them meet any financial challenge."

As part of RushCard's robust suite of money-saving solutions that include comprehensive budgeting tools, online bill pay, money transfer services, and many other valuable services like prescription discount plans, the new early access feature helps cardholders to take greater control of their finances.

"At RushCard we are committed to helping our customers realize their financial goals," said RushCard CEO, Rob Rosenblatt. "Underbanked and unbanked consumers need innovative financial products and services to help them achieve their financial objectives."

Recently, RushCard announced RushGoals, a new tool and a cashback reward that helps hard-working members and underserved customers achieve their financial goals. In each month in which a Cardholder maintains an average daily balance of $500 or more across their RushGoals sub-accounts, the Cardholder will be rewarded with $2 that will be applied toward their RushCard fees.

To learn more about the Prepaid Visa RushCard and its financial empowerment program, visit www.RushCard.com.

About UniRush LLC

Headquartered in Cincinnati and New York City, UniRush LLC provides members with access to services that enable them to achieve their personal and financial Goals. The RushCard offers the more than 60 million Americans without access to a traditional banking relationship an array of basic financial services via the Prepaid Visa RushCard. Benefits of the program include direct deposit, card-to-card funds transfers, online budgeting tools, the ability to withdraw funds at more than 850,000 ATMs globally, the ability to use the card wherever Visa debit cards are accepted, and a suite of health products to help those underserved by the insurance industry. RushCard is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used wherever Visa debit cards are accepted. The Bancorp Bank; Member FDIC. For more information about UniRush and RushCard visit www.rushcard.com or find us at Facebook.com/Rushcard or on Twitter @RushCard.

Prepaid debit: oasis for unbanked?

2012-01-12T21:37:11Z

If you follow this blog with any regularity, you know I've been writing a lot lately about prepaid debit cards, which are increasingly becoming a challenger to traditional checking accounts.

I caught up with RushCard CEO Rob Rosenblatt this week to give him a chance to respond to my criticism of its new RushGoals savings program and what I consider high fees on the company's prepaid cards. Here's what he had to say.

Who typically uses prepaid debit cards? Give me an overview of a typical user profile.

To begin with, the user base right now is extremely broad and it is growing, in large part because of -- and by the way, I come from the banking community, so I'm well aware of the impacts of the Durbin amendment and the CARD Act before it -- the combination of those two pieces of legislation have made the banking system ill-suited to serve those customers that typically don't maintain large balances with them.

In fact, there were two quotes I wanted to cite for you. The CEO of Bank of America Brian Moynihan has said that they're going to be focusing on the top 20 percent of the most profitable customers and getting rid of the unprofitable ones. And Jamie Dimon, who's CEO of the bank I just left, Chase, mentioned that it cost $350 on average to provide a free checking account each year.

If you think about the overhead associated with maintaining a large branch and ATM system with multi-hundred-million-dollar advertising budgets, every bank in America is having to get more focused.

We define our customer set as anybody for whom the banking industry and more loosely defined check-cashing system don't adequately serve them. Those numbers are somewhere between 60 million and 70 million customers. And typically, they live in urban environments in inner-city areas, where you may see a bank branch once in a while, but you don't see many of them.

I live and work in New York City, and my son is a baseball player, and he practices on some Saturdays about a mile away from Yankee Stadium and it's a little bit of a dangerous neighborhood where he plays, and I have to drive him. In the course of that drive, we sometimes pull over to go get him something to drink, something to eat, and typically we walk into a large drug store, where in the middle of the drug store is somebody behind bullet-proof glass cashing checks at a cost of anywhere from 2 (percent) to 10 percent per check and also doing money transfers for folks who need to send money back home. That business is a little bit murky; it's not well understood.

We believe that there's a customer base out there. It's going to be a little younger than the traditional check-cashing user. There is a high preponderance of single parenting. A lot of these customers have children. Some of them are on some kind of public support, some of them earn hourly wages. Many of them, by the way, are holding down two jobs, so this is a very hardworking population that has very strong aspirations, and actually, interestingly, is relatively optimistic from a psychographic perspective about the future. Basically, they use these cards to give them what the banking and check cashing systems can't do, and that includes, by the way, the ability to have access to my money, the ability to spend in a way that is anonymous that doesn't identify me as somebody that has to pay with cash, the ability to put my money in a place that's safe and sound, and also the ability to pay my bills.

What we try to be is a fairly valued substitute for those that really don't get the proper level of value for the money from banking and check cashing.

Do you find your customers habitually and are putting money into it every month?

The best way to use the RushCard to help manage your financial needs is to direct deposit your paycheck or your government check, and that way the money is on the card immediately. And by the way, we announced today that we're giving customers access to their direct deposited check up to two days early.

But the basic thing there is that there's no fee for direct deposit, the money is automatically loaded; you can get it early in many instances. Basically, we run the highest direct deposit rates in the business and our customers do stay with us longer, and that's because we've been at it for a long time. We've been doing this for eight years. The majority of our cards were acquired over the years through our direct-response television efforts, where we really spent a good chunk of the last eight years defining the category and explaining its benefits. So our customers have made relatively well-considered decisions as opposed to just picking our card off a rack at the front of a drugstore.

Is RushCard really better than a checking account overall? I looked at your numbers and definitely, if someone's making a lot of overdrafts, it's going to be cheaper to go with the Rushcard, but now with changes to Regulation E, overdrafts are opt-in. Do you still see the RushCard as a cheaper alternative to a checking account?

The fee structure in the banking system remains in disarray. You had BofA, who was going to charge a $5 fee in any month in which a debit card was used, and trust me, you had other banks lined up ready and waiting if BofA had survived that debacle. So suffice it to say, this is a customer that typically cannot maintain the average balance required to avoid entirely a monthly maintenance. So you're talking about a customer that is incurring anyway $10 to $15 a month in these account maintenance fees. And to your point, fewer of our customers now are incurring the overdraft fees, but you've got to remember that there's a host of fees that are still sitting in the banking system.

What I'd say to you is, the reasons to get our card are relatively basic. It's about safety, convenience, peace of mind, ability to segregate funds, ability to get access to my funds early if I direct deposit. So, to your point, if I'm someone who never incurred NSF fees or who opted out, then I may be in a better place (with a bank). But understand that for our customers, NSF fees have been a way of running their lives, and so one of the reasons we think the card is right is it prevents you from even incurring an NSF fee. Trust me when I say that our customer, if given the option, is still going to opt in to an NSF fee and should not be. It's a bad thing; it's a bad way to live.

Do you think that having no bank branches or ATM to access funds and do other business is a disadvantage? Or do you see not having that overhead is an advantage for you?

I think the answer's probably both. From the perspective of cost structure, there's no question we don't have to find a way to recoup the $350 a year that Jamie Dimon says it costs for Chase to provide checking to any customer.

On the flip side, there's no question that customers need to be able to load their cards and so the best way to make that convenient and easy and cost-free is for the customer to direct deposit. If the customer is unable to do that, then they're going to incur some kind of fee -- the Western Union fee or the Green Dot fee -- and that's not zero, so obviously it's better for us and better for the customer if they direct deposit.

But if you sign up for direct deposit, many banks, including Bank of America, will waive some of these account maintenance fees. So what it seems like you're saying is that maybe right now, if you don't run up NSF fees, free checking might be cheaper, but you're expecting higher fees in the future?

We do feel right now that by and large we are cheaper than most of the accounts offered by the Big Three, because the Big Three have quietly been imposing fees. The CEOs of those companies are on record as saying, one way or another, they're going to have to recoup the fees they just gave up. So while, for example, the BofA $5 debit usage fee has gone away, we don't think that the customer suddenly got a break.

I wanted to ask you about RushGoals, because that was kind of the catalyst for our conversation today. So it's not a savings account?

It's not a savings account. We're not a bank at the moment. We enjoy the services of a bank through a company called Bancorp. But basically, this is a reward product right now, and it was developed in response to feedback from customers that they have trouble segregating their money and what they're looking for is help with their money management.

The RushGoals product makes it easy for you to establish a goal, to segregate the funds in one or more subaccounts. The two dollar a month benefit is just a rebate; it's a small reward for behaving wisely and achieving your goals. But customers told us it's not the reason why they're doing it; they're actually doing it because of the need to set aside funds.

Now, that said, you're right. If you hit the nail on the head and you set aside $500 a month and you keep it aside on average every month for the 12 months, you do earn $24. That equates to 4.8 percent, although to be clear, it's not considered bank interest. Certainly, we'll look at, over time, the appeal of savings to these customers and how we might provide it logistically. But this is something we're able to launch fairly quickly and in a way we think is very appealing to our customers from the standpoint of how they set it up on the Web. It's very intuitive and it's very easy to understand.

So you're planning on going into savings later?

We look at everything and we're always trying to understand, you know, what it is we need to do next to justify our customers' loyalty.

Is Richard Cordray's appointment at the Consumer Financial Protection Bureau going to affect your business at all?

It's always hard to know what an appointment will mean. This is a category that has never been unscrutinized. People do look at it all the time. The category in general is trending toward much greater levels of transparency, uniformity and consistency. Coming from the credit card business as I do, those have been very important factors to me, and I apply the same filter to every business I play a role in.

So I think, in general, we'll watch and wait. But a uniform set of practices means that everyone has to behave in an appropriate way and what's good for the customer should be good for the business.

What do you mean when you say the business has been scrutinized before, who in particular are you talking about?

I'm talking about the fact that there are attorneys general that look at this business all the time.

That idea that you don't see a lot of banks in the neighborhoods that you feel like RushCard serves is interesting. It sounds almost like the banking equivalent of "food deserts" -- areas where there aren't any grocery stores. So the idea is you're trying to bring financial services into areas where there aren't a lot of options?

Yes. I can't speak to our competitors' demographics, but we really do serve an urban customer that traditionally is ignored by the banking system.

It seems like RushCard customers might still need to use a check cashing store. You do cash checks, but it takes up to 10 days, right?

It does, and as a result, (check cashing) is the least used, least effective way to load your card. And it's simply because we have to go through a certain amount of verification to make sure the information the customer has given us matches up. Certainly we'd like to do a better job of that, but because of the customer we serve, it hasn't been an area of focus because we really are focusing on the unbanked.

Saving with Suze: Orman's Offering Co-opts Bank Relationships

2012-01-10T21:02:27Z

Prepaid cards have struggled against the perception that they are disposable and predatory. A card designed around the teachings of personal finance guru Suze Orman is aiming to break those stigmas -- and may displace long-term banking relationships in the process.

Whereas most prepaid cards are focused around spending, the Approved card, which Orman announced Monday, allows the user to move money into six other buckets for long-term savings. It also provides continuous access to TransUnion credit reports for a year and encourages "sticky" banking habits such as online bill payment.

"For some consumers, prepaid cards represent an alternative to a traditional bank account," said Mark Schwanhausser, a senior analyst for Javelin Strategy and Research, in an email.

The long-term savings accounts are meant to accommodate an emergency fund for eight months of expenses -- something Orman constantly urges her television audience to do.

The card might appeal to the so-called Gen Yers, people between the ages of 18 and 35, who are less committed to having a dedicated bank relationship because they don't like the fees and big account limits associated with such accounts, experts say.

About 43% of prepaid card users are Gen Yers, according to November 2010 survey by Aite Group. And nearly 40% of prepaid users who describe themselves as underbanked said they had used a prepaid card in the previous seven days, according to an October survey from Javelin.

"Younger people are not interested in traditional checking accounts, they don't write checks, and their need to write them has diminished, particularly with fees on checking accounts," says Patricia Sahm, managing director of Auriemma Consulting, of New York.

The card, which is a MasterCard Inc. product issued by Bancorp Bank of Wilmington, Del., also provides users with a dashboard for reviewing spending trends and setting up notifications and alerts.

The Approved card's pricing may also set it apart from other celebrity-endorsed cards. The infamous Kardashian Kard shut down after it was criticized for charging up to a year's worth of fees up-front, even though its monthly pricing was in line with mainstream prepaid cards.

In contrast to the Kardashian Kard, the Approved card is affiliated with a personality who represents financial responsibility, not excess, experts say. (Neither Suze Orman nor her representatives made themselves available to comment.)

"This is much better priced than trendier cards, such as the Rush Card," says Brian Riley, a research director in the bank cards practice at Towergroup, referring to the card offered by media mogul Russell Simmons' UniRush LLC. Representatives from UniRush did not respond to an interview request.

Though the Approved card's fees are low, it still has nearly two dozen of them. It is free to load for those who set up direct deposit, but it has an initial $3 purchase fee and a $3 monthly fee. It also charges for calling a live agent more than once a month, for receiving a paper statement and for issuing payments to billers by check. It also charges $30 for payment inquiries.

ATM withdrawals are free for consumers using machines on Cardtronics Inc.'s Allpoint network. For other ATMs, consumers pay $2 plus any fees from the ATM's owner.

Still, the pricing is impressive because it compares to Wal-Mart Stores Inc.'s card, which has much wider distribution and scale, says Bart Narter, senior vice president of Celent's banking group.

"I am impressed by [Orman's] ability to have such low pricing given her lack of volume currently," Narter says.

Wal-Mart Stores, Inc. : Walmart's "free" offer could come with a price

2012-01-10T20:57:39Z

Reuters) - As tax season begins, a decision by Wal-Mart Stores Inc to offer some free and discounted tax preparation in conjunction with its check-cashing services at more than 3,000 U.S. stores is less about giving back and more about bringing in, experts cautioned.

"No company does anything altruistically," Morningstar analyst Michael Keara said.

Now that the holiday shopping season is over, the retailer is looking for new revenue sources, he said. The company's latest offer allows consumers to have their tax refunds deposited for "free" onto a Walmart cash card. In addition, the company is working with major tax preparation firms to provide free "assisted" form 1040EZ filings.

It will take a while to see how lucrative the new service will be, given that some people will choose to pay down debt from their previous round of spending with their tax refunds, Keara said. Either way, it's going to put more money into Walmart stores and is another play to reach millions of Americans who don't use traditional banking services.

"It just locks in that they'll spend their rebate checks at Walmart," Keara said. "It's pretty smart."

Walmart already is a big player in the marketplace to cash checks for those who don't use traditional banking services and who often face steep check cashing fees. Walmart charges a flatrate price of $3 or $6 (depending on the size of the check) rather the 3 percent to 5 percent fees at check cashing services. For a $500 check, that means paying $3 at Walmart or $15 to $25 at a check cashing service.

The new program, which kicked off on Monday, come as Walmart tries to reach "unbanked" consumers, who typically don't have credit cards, either. About 85 percent of transactions at Walmart stores are paid with cash.

Some 2,800 Walmart U.S. stores have a Jackson Hewitt location, and another 250 or so stores feature H&R Block Inc.

Those providers will offer free 1040 EZ filings with tax preparation consultants in Walmart stores, said Daniel Eckert, head of Walmart financial services. Prices for other tax preparation services will be about 7 percent to 10 percent lower than at both companies' other locations, he added.

Jackson Hewitt and H&R Block already offer free basic tax return preparation through their offices and websites. It also is free to file the simplified 1040EZ on your own, or even through one of the online services, such as Intuit's TurboTax.

More than 60 million Americans do not use traditional financial services such as credit cards and checking accounts, Eckert said. Last year, these consumers paid billion of dollars in fees and interest to financial services providers. Within the next few months, they will be looking to cash more than $31 billion in tax refund checks and many could pay up to $90 for such check cashing services, he said.

"It's money that we want to make sure ends up in the right place, which is back in their pocketbooks," Eckert said.

Walmart, whose core customer has a household income of $30,000 to $60,000, has been trying to stand out to those with limited financial means. The world's largest retailer brought back holiday-season layaway on toys and electronics, letting shoppers pay in installments for a modest fee, a move that appears to have been a success.

Tax preparation is just one offering in Walmart's "MoneyCenter." The retailer also offers Walmart credit cards and money cards, money transfers, money orders along with $3 check cashing.

Ed Mierzwinski, consumer program director for U.S. PIRG, cautioned consumers to look at skeptically at Walmart's proposition.

"Consumers who are considering the Walmart offer should understand that Walmart is not your friend," he said.

One area of concern is the company's offer to allow consumers to have their tax refunds deposited for "free" onto a Walmart cash card, which Mierzwinski pointed out comes with a lot of fees. Some of the fees include $3 if $1,000 isn't added to a card in a given month, $2 to withdraw cash from an ATM, $1 to check your balance and $3 to replace a lost or stolen card.

"You put your refund on their card, so you're more likely to spend your refund at their store than save your refund," he said. "And you're more likely to be an impulse shopper." (Editing by Lauren Young and Beth Pinsker Gladstone)

By Mitch Lipka and Jessica Wohl

Why 2012 will be the Year of Prepaid Credit Cards

2012-01-10T20:51:20Z

Prepaid cards have something of a bad image -- hidden fees, no protection if they're stolen, not a method of building credit -- but mark my words, that image is going to improve.

If you've been pondering the pros and cons of getting into a prepaid credit card, and you're still on the fence, read on. Chances are, the benefits of prepaid credit cards are going to increase as we get deeper into 2012.

Why? This is just speculation for the moment, but the moment seems right for prepaid cards to better themselves. Here are three reasons I'm thinking prepaid credit cards are due for some improvements this year.

Recent rumblings in Congress: Last month, U.S. Senator Robert Menendez (D-NJ) introduced the Prepaid Card Consumer Protection Act, which, if it ends up being passed into law (something of a long shot in an election year, granted), the act would eliminate the worst hidden fees and, most importantly, make it crystal clear to consumers what the fees are.

"Unsuspecting consumers are finding out the hard way that prepaid cards often give you much less than the dollar amount you load onto them thanks to unnecessary fees," Menendez said in a December press conference. "We need to ensure that families who rely on prepaid cards are not surprised by hidden charges."

Even if nothing happens on the government front in 2012, banks that issue prepaid cards certainly have some incentive to make their prepaid products more consumer-friendly, to take some of the urgency in Congress to enact a law overseeing the cards.

Recent changes at the Consumer Financial Protection Bureau: This week, Richard Cordray was installed as the head of the CFPB, which is mandated to ensure that consumers are protected from deceptive practices, concerning virtually every financial product out there from credit cards to auto loans and mortgages and payday lending loans.

It's too early to tell what will happen this year, of course, but prepaid cards are a booming business. Last year, about $460 billion was put on prepaid credit cards, according to research done by the Mercator Advisory Group, and by 2016, that's predicted to expand to almost $685 billion. This hasn't gone noticed at the CFPB, and the more popular prepaid cards become, the more reasons the consumer watchdog group will have to step in.

The growth of prepaid cards mean more problems are coming to light: Finally, customers, I believe, are going to start demanding fewer fees and especially more protections. Consider the story that just came out of Plano, Texas, reported by WFAA-TV. Karie Anderegg purchased three prepaid credit cards with $100 on them as a Christmas gift for her son. She bought them at a Walmart in Plano.

So a few days later, her son attempted to use the cards to buy a new suit, and the cards were declined. The mother went online to the prepaid card's website and found that the balance remaining -- apparently for all three cards -- was $1.96. Evidently, some con artist managed to clone a prepaid credit card using the same information that was on the prepaid cards that Anderegg bought.

"I was shocked," she told WFAA-TV. "I mean, they're in packages. I thought they were safe. Obviously, they weren't."

And Walmart, at least so far -- we'll see if they change their tune as this story gets publicized -- hasn't offered up a refund for Anderegg's purchases. And legally, they don't have to, whereas if this happened with a credit card, the most someone can lose is $50. Even a debit card, the maximum liability is $50 -- if the theft of a debit card is reported within two days. In Ms. Anderegg's case, so far, she's out $300. No, wait, sorry, make that $298.04.

There are plenty of reasons why some people like prepaid cards. Some consumers are squeamish about being weighted down by credit card debt; others, with their credit score down in the dumps, believe that they can't get a credit card, although there are secured credit cards and credit cards for bad credit, and feel that the prepaid cards are a solid alternative. And, indeed, for some consumers, the cards probably are a reasonable alternative. But mark my words -- because banks realize that there are eventually going to be plenty of other Karie Andereggs out there -- sooner rather than later, the terms attached to prepaid cards will become more reasonable.

Bank accounts- More fees are coming. How to fight back-or flee.

2012-01-09T15:54:30Z

People say they're furious at behemoth banks, for myriad reasons: lending practices that helped sink the economy, government bailouts, foreclosures, huge bonuses for CEOs, and now higher fees and tougher account requirements.

Get ready to vent some more. Here's what's industry experts and our own analysis suggest you'll find now and in the coming months:

Fee hikes and tougher account requirements will probably continue, especially while the economy remains weak. For example, some banks, like Chase and PNC, are now charging a $25 fee even to close certain accounts.
Customers with a lot of accounts at one bank might avoid some fees, but they're not immune. Banks may try a spectrum of charges even for good customers, including fees for paper statements and higher safe-deposit costs.
You're more likely to find lower fees and better rates at community banks, larger credit unions, and online institutions.

Banks are trying to make up billions in lost revenue due to the bad economy, new regulations, and in some cases perhaps even their own inefficiencies. But you don't have to be the one to pay the price.

Does it make sense for you to switch banks? We'll show you what to expect and what your options are.

Escalating fees

For David Bookbinder, a computer technician from Peabody, Mass., the decision about whether to ditch his megabank was an easy one. When Citizen's Bank imposed tougher requirements in 2010 for customers who wanted to maintain no-fee checking, he transferred his personal and business accounts to East Boston Savings Bank, an institution with a fraction of Citizen's assets.

"I didn't have the time/patience or attention span to waste on watching my accounts so as to avoid the fees," he wrote to The Consumerist, one of Consumer Reports' websites.

It's a common refrain. Bank experts say that institutions are increasingly depending on fees from traditional bank accounts and other lines of business.

Bank of America, which recently dropped plans for a $5 monthly debit-card fee after an uproar, is charging some customers $5 to replace lost debit cards and $20 for rush replacement, which had not been extra. It also charges e-banking customers $8.95 each month they use a teller to make a transaction. In December TD Bank began charging $15 for incoming domestic wire transfers. And in February Chase imposed a $12 fee on its standard checking account, which had been free for most customers.

Some banks even charge fees if you close an account too soon after opening it. For Chase, it's $25 if the account is closed within 90 days. U.S. Bank and PNC charge $25 if it's closed within 180 days.

You're probably paying more and getting less. Fewer than half of the noninterest checking accounts are now free, down from 76 percent just two years ago, according to a 2011 survey by Bankrate.com.

And the average fee banks charge noncustomers to use their ATMs rose to a new high for the seventh consecutive year, from $2.33 in 2010 to $2.40. Add your own bank's fee for using an out-of-network ATM and the charge climbs to $3.81 on average. The average fee to cover insufficient funds hit a record $30.83, up from $30.47.

More to come

Experts predict that banks will continue to experiment with fee increases, tougher account requirements, cost-cutting, and new sources of revenue, such as sharing customers' marketing data.

"Banks are closely examining what costs they can eliminate and where they might be able to charge, and what the market will bear and not drive customers away," says Beth Robertson, director of payments research for Javelin Strategy & Research in California.

It's likely the megabanks will lead the pack, as small institutions wait to see whether they should follow along or court angry customers by offering better deals.

Here's what to expect:

More relationship accounts. Banks will probably dangle more carrots and brandish more sticks to get you to consolidate your accounts at a single institution, which will mean more fees. But you can avoid them by, for example, having direct deposit of your paycheck or linking your savings and investments. Mike Moebs, an economist and CEO of Moebs Services, an economic research firm in Lake Bluff, Ill., says customers with multiple accounts are the most profitable for banks.

Move toward electronic banking. Banks save when you serve yourself, just like gas stations do when you pump your own. So expect them to push computer and mobile-phone banking. That means you might pay more if you use a teller or speak with someone on the telephone. Some banks might present the changes as a perk, not a fee. TD Bank offers customers a $1 discount off their monthly checking maintenance fee if they agree to online statements instead of printed ones.

Higher penalty fees. Do something wrong, such as overdraw your account, and you'll probably pay more. It costs banks just a few cents to handle a debit-card transaction, but when an account is overdrawn and the bank has to figure out what happened, the cost can escalate to $13, Moebs says. Because 87 percent of Americans don't balance their checkbooks, he says, there could be lots of fees.

Big credit-card push. Banks are likely to encourage the use of credit cards, says Bill Hardekopf, CEO of LowCards.com, a consumer resource for credit-card information in Birmingham, Ala. They get a swipe fee when someone uses a credit card, and so far those fees have escaped regulation that has made debit cards less profitable for banks. Moebs predicts that banks will shrink the grace period on credit-card purchases, now around 20 days, and eventually eliminate it. So even customers who pay their bill off every month could be hit with interest charges.

Less-favorable rates. Banks could try to reduce their losses by increasing the interest-rate margin--the spread between what they pay to borrow money and what they charge to lend it. That could mean higher lending rates, especially on credit cards and other unsecured loans, as well as on auto loans.

Higher loan fees. Don't be surprised if you're suddenly charged a fee when you apply for a car loan, Moebs says. And fewer banks might offer to drop origination fees on mortgages.

Charges for premium services. Customers could see new or higher charges for premium services, such as safe-deposit boxes, online budgeting tools, or person-to-person payments, such as Chase's QuickPay service, which allows you to send money to someone else using just an e-mail address or mobile-device number.

Quirky new features. Check your account statement these days and you might notice retailer ads or coupons. With so-called transaction-driven marketing, banks have begun allowing marketing and data-mining companies to sift through customer transactions and tailor offers based on what they find. Fifth Third Bank's Prewards program provides digital coupons that automatically apply a discount when you swipe the bank's debit card at a specified retailer.

Big banks have higher costs, so they charge more, an analyst says.

Why this is happening

Banks are fighting pressure on several fronts. Lending is down, interest rates are at historic lows, and there's been a decline in investment income.

"Fee income really has served to stabilize revenue in light of the volatile interest-rate environment of the past dozens years," says Greg McBride, Bankrate.com's senior financial analyst.

Big banks are also struggling with out-of-control costs, Moebs notes.

He says banks with assets of around $50 billion or more have exceeded their optimal efficiency level, which he places between $500 million and $5 billion.

"The big banks have gotten themselves in the mess that they're in, and it's a cost mess," he says. "And that is something the average consumer and government officials don't see. They're always saying bigger is better. Bigger is not better."

Taking all expenses into account, including salaries, buildings, and equipment, Moebs estimates that it costs a megabank $350 to $450 to maintain a checking account annually, compared with $175 to $240 for community banks and credit unions.

That "translates to higher fees, higher balance requirements, higher loan rates and lower deposits rates," he says. That's why, he says, overdraft fees for big banks average $35, compared with $28 for small banks and $25 for credit unions.

Scott Talbott, senior vice president of governmental affairs for the Financial Services Roundtable, an industry group, says it's hard to compare institutions of such different sizes. "Banks compete with each other on a daily basis, and those competitive forces result in a wide-variety of products and services being offered to the consumer," he says.

Analysis performed for Consumer Reports by Informa Research Services, a market-research firm in Calabasas, Calif., found other differences among the more than 1,000 financial institutions it tracks. For example, among those that charge a monthly fee for noninterest checking, the average was $10.27 at the largest 10 banks, compared with $7.45 at banks with less than $4 billion in assets and $6 at the 10 biggest credit unions. The fee was higher ($6.91) at credit unions that had assets below $4 billion than at the largest ones.

An Informa study published in The American Banker in July found that interest rates at community banks were lower than national averages for credit cards, home-equity loans, and lines of credit. But they were higher for five-year auto loans.

Bank of America's debit-card-fee attempt caused particular outrage because customers didn't like the idea of having to pay to get their own money, Hardekopf of LowCards.com says. "There's no charge for writing a check, so why should there be a fee for me to access my own money to buy that tank of gas?" he asked.

David Darnell, co-chief operating officer of Bank of America, says it recognized customers's concerns regarding the debit-card fee. "As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so," he says.

But a study by the Research Intelligence Group, a market-research company in Fort Washington, Pa., found that customers don't easily forgive. Almost a third of the respondents said they would leave their bank if it charged for debit-card payments, and two in five would harbor ill feelings even if the bank reversed the fees.

Matt McFarland, an attorney from Nashville, Tenn., abandoned Regions Bank last fall for a smaller bank when Regions imposed a monthly $4 charge on debit-card transactions. The bank reversed its decision and refunded charges to customers, but he isn't eager to go back. "They said everyone is going to do this, which turned out to be wrong," he says. "They were trying to put it off on Congress."

Changing landscape

At a time when banks are relying more on fee income, federal regulations have indeed clamped down on fees in several areas. The regulations are intended to stop what consumer groups and government officials saw as banking-industry abuses.

The latest rule, which took effect in October, limits the so-called "interchange" fees that large banks--those with more than $10 billion in assets--can charge retailers when people swipe their debit cards to pay for a purchase.

They're now capped at 21 cents to 24 cents per transaction, about half the average amount banks had been charging. (The actual cost of processing a debit transaction requiring a PIN is 8 cents on average, and one requiring a signature is 13 cents.) That change alone is expected to cost banks $6.6 billion a year, Javelin says.

It follows other rules that took effect in 2010. One limits the ability of credit-card issuers to raise interest rates on cardholder balances. The Boston Consulting Group estimates that new regulations will cost banks about $18 billion a year. Another provision bars them from charging overdraft fees in connection with ATM and debit-card transactions unless customers opt for overdraft protection. Javelin estimates that will cost banks $5.6 billion a year.

It's not surprising that banks are reacting by raising fees in areas not regulated, says McBride of Bankrate.com. "If the government came along and said you can only charge so much for a hamburger, you'd charge more for soda and fries," he notes.

John Hall, a spokesman for the American Bankers Association, says that as with any business model, when you reduce income, banks are going to rethink their strategies.

Others question bank tactics. Jean Ann Fox, director of financial services for the Consumer Federation of America, says, "All kinds of adverse financial changes have struck banks, and it appears that they are turning to their captive customers to make up that revenue, knowing how difficult it is to switch accounts."

Your other options

Suze Orman, personal finance expert and TV host, says everyone should size up their bank and check out the fees they're paying, but many won't. "People barely open up their statements because they don't want to see the money they don't have," she says. "You're now asking people to open a statement and try to find the fees they're being charged."

There's a lot of business at stake. Moebs estimates there are 132 million people who have checking accounts with banks and credit unions. The Credit Union National Association says its members have 45 million checking accounts. But the association noted in a 2009 report that its members are much smaller in asset size than the biggest banks. (About 650,000 accounts were added in the four weeks following Bank of America's announcement of its since-rescinded debit-card fee, CUNA says.)

Credit unions were originally organized to serve small groups of customers from a workplace or community. Gradually, regulations have been loosened. In 1998, for example, Congress allowed credit unions to offer membership to people in well-defined geographic areas.

Specialized credit unions have been able to offer services on a wider scale. For example, the Pentagon Federal Credit Union, at www.penfed.org, was set up to offer services to members of the military and their families. Now, you can join for $20 even if you don't have military connections.

Many credit unions have expanded services to match what you'll find at a bank. Since they're nonprofit institutions that exist solely for the benefit of their customers, fees tend to be lower. Larger credit unions have consistently lower fees than smaller ones, according to Informa data.

While some credit unions might not have as many branches and ATMs, a number belong to cooperative networks. You can search for credit unions that might be a good fit for you at the CUNA website locator, at www.creditunion.coop.

Sorting through the terms and conditions in banking agreements can make it hard for consumers to comparison shop. There's an effort under way to make it easier. Sens. Dick Durbin (D-Ill.) and Jack Reed (D-R.I.) have asked banks to adopt a one-page, easy-to-read disclosure form developed by the Pew Charitable Trust, a nonprofit policy group.

They've also asked the Consumer Financial Protection Bureau to require financial institutions to post a concise, consumer-friendly disclosure form on their websites. Consumers Union, the advocacy arm of Consumer Reports, supports this move as a way for customers to shop for the best deals in banking.

Stay or switch?

If your bank plans to stick you with new fees or tougher account requirements, your first thought might be to find a new one. That might be your best option, but switching banks can be a hassle. So it's important to weigh your options before making a decision to move.

Check the terms. If you're facing a single new fee, see what it would take to avoid it. Increasing your account balance by a few hundred dollars or signing up for direct deposit might work.

Change your habits. For example, plan a weekly visit to an ATM in your bank's network to withdraw cash instead of going out of network. And check your statements more carefully so you don't rack up overdraft fees.

Try to negotiate. You might be able to get a fee waived if you tell your bank you're thinking about moving your accounts.

Consider convenience. Banking is about much more than rates and fees. It's also about the day-to-day banking experience. Does the bank have adequate ATM locations and local branches with convenient hours, or give you privileges to use out-of-network ATMs?

Do your homework. Check with competing banks and credit unions, starting with their websites. That's where you'll find complete information about rates, fees, terms, and conditions.

Plan your getaway. If you've decided that moving your money is the best solution, make the process as smooth as possible. Check to see whether your new bank offers a "switch kit" to help you streamline the process. Or you can download a PDF of our step-by-step guide.

Make your move. Open up the account in your new bank or credit union with a small deposit. Then you can transfer funds from your old bank to the new institution electronically. Arrange to switch over your automatic payments and deposits to the new account.

The grand finale. Leave at least a small amount of cash in your old account and close it once you're sure all checks and transfers have cleared.

'Free' Checking That Isn't Has Cost Banks Their Reputations

2012-01-09T15:51:45Z

Neil Weinberg's article, "Why I Love Bank Fees and Regulators Should Too," presented an amusing exposé of the banking industry's pretense of offering "free" services, which are anything but free.

I submit that this pretense helps to explain why the efforts to herd "unbanked" consumers into bank accounts continue to fail miserably.

First, checking accounts are too expensive to maintain for low-balance customers. Second, consumers are regularly disappointed when they are drawn into accounts portrayed as "free" and then wind up being socked with fees and charges. Third, disappointed customers tell geometrically more people about their disappointing experience than satisfied customers tell about their satisfying experience.

Instead of questioning the "financial literacy" of consumers who use nonbank providers, bankers should look at the situation from the consumers' point of view.

Check cashers and other money service businesses offer their services on a fee basis.When customers use their services they expect to be charged fees - and they are.

Bankers portray their services as "free." When customers use their services they do not expect to be charged fees - but they are.

As banks - especially big banks - seek to rebuild their franchises and the public's trust, I'd like to suggest they try a long-forgotten strategy: Honesty.

If it costs $350 a year to maintain a checking account, don't tell people that it is "free" and try to sneak in an assortment of nuisance fees and charges to bridge the gap. It shows dishonesty from the start.

If you want to offer a "free" account, then develop one that doesn't cost much to operate. If you don't know how to do that, then hire someone who does.

Lastly, transparency does not trump stupidity.Publicizing the imposition of a capricious debit card usage fee or a bill payment convenience fee doesn't make it acceptable.It just exposes more people to your folly.

Can You Survive Without a Bank Account?

2012-01-09T15:24:30Z

At the start of last year, Smart Money asked, "Can You Really Go Cash-Only?" The article noted that the FDIC Survey of Unbanked and Underbanked Households pegged the number of households without bank accounts at 9 million, comprising 17 million people, in 2009.

In June, a Gallup poll showed a record high 36 percent of Americans declaring "very little" or "no" confidence in banks. And that was before Occupy became a household world or Bank Transfer Day took root late last year.

If you're thinking of joining the 17 million people who've chosen not to use banks, here are some things you should know:

* Alternative payment methods to checks include cash, money orders, wire transfer, online payments via Paypal (until the limit requiring a verified bank account is reached.) Not all of the options work everywhere, so it's likely a no-banker would have to use more than one method.

* Prepaid credit cards are issued by banks, so using them is tantamount to banking but does not technically require maintaining a bank account or banking relationship. The purist might reject using them, but they do represent one way to make online purchases or pay certain bills without a bank account.

* Paychecks can be problematic but don't have to be. USA Today explored this issue back in 2007, noting that check-cashing outlets may be cheaper than paying bank account fees for consumers who aren't diligent about avoiding overdrafts and other fees. Moneyland noted that big box options like Walmart can lower the cost of check cashing services considerably. As of November, the cost to cash a check at Walmart was $3; as a result, the retailer is becoming, as the New York Times described it, "a force among the unbanked." Under Dept. of Labor guidelines, an employer may not force an employee to receive wages by direct deposit.

* Sticking points: two areas typically mentioned as hard to navigate without a bank account are the car rental outlets and online buying. Many car rental companies allow a cash deposit as an alternative to a credit card deposit but it may take checking with multiple companies to find one offering satisfactory terms, Creditcard.com noted. For online buying, Moneyland suggested buying a prepaid card, but there's also the no banking option Boku, which bills your mobile phone provider.

* Savings and investments without banks require more effort. But traditional savings vehicles like real estate, shared ownership of small businesses, and even home safes are out there, so it is possible to save and invest without relying on banks. On the investing end, it may take some research but it isn't out of reach.