How Bank Fees Are Nudging Us to the Right Answer

The Recession, the Law and now Consumer Activism

My wife and I recently received two form letters from large national banks. Household names, these institutions informed us we were not using our checking accounts in a way that made them money, and starting now we would be assessed a monthly fee. Both were very pleasant letters.

The letters were not a complete surprise. I felt a knock on the door was coming. I recognize access to a “free” checking account, even an online one, is not a constitutional right. Further, I am aware of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) passed by Congress in response to the recent financial recession. Seeking to protect society from potentially aggressive banking practices, the law created the Consumer Financial Protection Bureau, among other accomplishments.

I also realize these laws and the resultant oversight create even more back office overhead and compliance costs for large financial institutions. The business environment has changed. The simple act of maintaining a checking account that complies with all the regulations and notifications costs them money. Even if I never walk into a branch office, call a single toll-free number and accept the 0% interest rate on the account — a result of the Fed’s quantitative easing policy — financial speaking, we may not be a “good” customer for them.

How do we tune this machine?

So despite parking emergency savings balances at both banks — out of sight, out of mind — money we do nothing with each year, management concluded they needed to find ways to make us financially attractive. Options available to them include lower interest rates (negative?) on savings and checking accounts, fees for low dollar accounts, higher non-network ATM fees, and cross-selling other bank products and services to us, to name a few.

Out of curiosity, I asked a friend and senior executive at a different retail bank, a competing household name, what to make of this. Somewhat surprised in light of the balances we maintained, he thought perhaps we were in some premium account with features we are unaware of, and therefore never use.

Alternatively, he suggested, we may be test subjects in a business model A/B trial, with the bank attempting to determine our response to fees. Information is valuable. Whether we pay the fee, increase our balance, close the account, etc. — could be important demographic insight, an informational gift for data miners.

So now, as we close our accounts with these two institutions and move the funds elsewhere, I sincerely hope they recognize the spirit in which our parting data “gift” is intended. For the second act, and perhaps unknowable to them, is the potential brand damage were I to share my (fun?) story — names disclosed — to friends and family. Though I’m sure Facebook is standing by to help banks A/B test that as well.

Thanks for reading. Comments and suggestions for other topics welcome.

Within the behavior genre, my review of Duhigg’s bestseller, “The Power of Habit: Why We Do What We Do in Life and Businesshere. Within the investment area, my review of Ric Edelman’s bestseller, “The Truth About Money: Everything You Need to Know About Money” is here. My review of John Bogle, the co-founder of Vanguard, book, “The Clash of Cultures: Investment vs. Speculationhere.

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