Banks Should Welcome Bank Transfer Day
This Saturday is Bank Transfer Day, the Facebook-organized grassroots movement in which customers of big banks plan to move their accounts to local credit unions to protest fees and bad customer service, and banks should be glad. Buoyed by the Occupy Wall Street protests (but not formally associated with them), the campaign has gotten lots of media attention and more than 41,000 "likes" on Facebook. On Thursday, the Credit Union National Association reported that 650,000 people had joined credit unions since Bank of America introduced its $5 monthly debit card fee at the end of September (which it has since dropped). Sounds like a groundswell of support. But come Monday it's unlikely banks will be reeling from the loss of business, and many may find they're actually better off.
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Unless you're rich, banks don't want your business: Banks make money from lending their customers' capital. If a customer doesn't have lots of money in the bank, then their business doesn't help the bank. As The New Republic's Simon van Zuylen-Wood starkly puts it:
In fact, many small-fry checking account customers may end up costing, rather than making, banks money. Hank Israel, a finance consultant at Novantas, told me the average checking account costs banks somewhere around $200 a year to maintain, just to pay for staff and infrastructure.
With a combination of last year's Dodd-Frank legislation reducing overdraft fees and the so-called Durbin Rule reducing swipe fees for merchants, banks have fewer options to recover the overhead they lose while waiting for you to get a better-paying job and start storing money with them. In fact, as the Motley Fool's Morgan Housel wrote on Thursday, some banks actively try to discourage small-time customers away by dropping interest rates on CDs.
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Customers must be unusually dedicated to make the switch. If you don't like your bank, it's safe to say your bank probably doesn't like you (see above). Valuable customers who keep lots of money in an institution are far less likely to get charged the myriad little fees. Bank of America, for example, only charged the ATM fee to customers with balances less than $20,000 who didn't have mortgages with the bank. So those who the fees are driving away will have to be very, very dedicated in order to make the switch this weekend. The Wall Street Journal reported on some of the logistical problems inherent with switching on a Saturday:
Industry executives say credit unions—not-for-profit financial cooperatives that are owned by their members and are prohibited from selling stock or assuming debt—often aren't well-staffed on Saturdays. That means new customers might encounter long lines. Some branches aren't open at all.
Then there are technical issues. For one thing, money can't be transferred between institutions on Saturdays because the Federal Reserve is closed.
Kristen Christian, the woman who started Bank Transfer Day on Facebook, says those who planned ahead have already opened their credit union accounts and will simply remove their money from large banks on Saturday. But those inspired to make the switch by the recent rush of Bank Transfer Day coverage will find their window has all but closed.
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Returning customers are at banks' mercy: Just as some banks are good and some are evil, not all credit unions are the bastions of financial ethics we make them out to be. And when longtime customers leave banks, they forego whatever privileges they might have grandfathered in. That means that if a customer gets burned by a credit union and returns to their old lender, their whole package gets reset. In a Mother Jones article arguing in favor of Bank Transfer Day, Josh Harkinson touched on that very issue as he described a Wells Fargo banker's attempt to get him to stay: "He scans my debit card and tells me that I'm lucky to have an account originally opened in Texas with no minimum balance requirement. California Wells Fargo accounts don't offer that." The absence of a minimum balance requirement wasn't enough for Harkinson to stay, but regardless of that, if he decides to go back, he'll lose that perk. And as the Huffington Post points out, just because it says credit union on the sign doesn't mean it's one of the good guys. Harkinson refers to a San Francisco credit union that one Yelp user called "probably the worst bank on the planet," and the Huffington Post pointed out that some even engage in high-interest payday lending, which can "lead borrowers into a destructive cycle of debt." By the time you've been with a new institution long enough to realize you hate it, you once again face the huge annoyance of changing banks, and whatever perks you gained will be lost.
