Is The Business Model for Banking Viable?

I ask this question in the title because every where we turn we find that banks can't make enough money to sustain themselves. This has been true for a long time. Back in the 1980s, Citibank almost went under because they were paying out higher interest rates for money than they could lend. That was when they invented issuing credit cards and exporting interest rates across state lines to get around state usury laws. It saved the banking industry.

Even though they have difficulty making money, they open numerous branches with plush offices within a few miles of each other all across the country. The corporate offices are built out with only the highest quality materials and the furnishings are only the best and most expensive available. Bank salaries for management and executives is as good or better than at the most profitable corporations in the U.S., many times much better.

Yet, with all of this, we have a serious banking crisis throwing our economy for a loop. What is their solution? Not to cut back on their overhead at a fundamental level in their business model, but to find new ways to charge customers more for their services. BofA and other banks are now preparing to charge fees for basic checking services. This is also true of credit cards, as they start attaching annual fees to accounts. Every business deserves to make money, but only for value they provide. Banks are trying to make money using a seriously flawed business model. They need to start providing more value for what they provide, not just start charging their customers more. They need to cut back on their lavish offices and branch facilities and become better stewards of our money.

That is why I recommend moving all your accounts to a credit union. They are non-profit entities and are owned by their members. You aren't just an account holder, you are a member. You participate in the business of the credit union. Banks are trying to make way in congress to put greater burdens on Credit Unions because they are giving them tough competition, not by adding value, but by legislation that will cost consumers more. This is being done in the financial reform bill being considered in congress now. Write your congressman and representatives and stop this madness.

TeleCheck

Did you know there is yet another company collecting information on your spending habits and telling retail stores whether or not they think your check is good? They operate much like a credit bureau except they collect information on the spending patterns in each one of your checking accounts. They don't have access to your balance, but they judge your risk by your check writing history in the account you are using to make a purchase. If they have no history, and the check is too large of a risk for them, they will tell the retailer to reject the check.

So if you try to purchase a computer, for example, with a check from your money market savings at an Apple Store where they use TeleCheck, you will be rejected since you have no check writing history in that account. If you call TeleCheck afterwards and get an explanation they will tell you to write some small checks at Walmart, (check out this link for why you should never write a check at Walmart) or one of their other clients to build a history with them. It is kind of like a credit history. Then they will let you buy a computer with your own money in your money market account after you have proven creditworthy. TeleCheck is angering a large number of consumers by embarrassing otherwise creditworthy people by rejecting their checks.

Here is one complaint I found which is chilling when you think about it:

Telecheck, TRS, Inc., is harassing me for money I do not owe them. They have made a huge mistake that is costing me $100. I went shopping at Wal-Mart and presented my check. For whatever reason, the check machine would not work right. I got my check handed back to me with a slip that said my check was not used and my account was not charged. Well, I began getting calls from Telecheck saying my check to Wal-Mart bounced. Of course I did not have a check at Wal-Mart, being that I did not get any merchandise. I have been to Wal-Mart and been presented paperwork showing that Wal-mart received no money for that transaction, yet Telecheck wanted me to pay them for it, not once but twice!!! Telecheck ran it through AGAIN costing me another $35 for a total of $70 that my bank wants back for the NSF charges. Telecheck wants $18.63, plus $80. No one at this company will listen to me on this and they will not do what they need to do to end this. They just want me to pay them off. And I will NOT do that!!! I wish some one out there could help me on what to do to get this resolved and to stop Telecheck from harassing me.

What bothers me the most about this is that TeleCheck will embarass consumers into playing their check writing history game to build up their database, and start acting like a new kind of credit bureau. At the same time, they collect on bad checks, and have been trying to collect from innocent consumers. Eventually, if everyone plays along, you won't be able to write checks without first establishing a check writing history with them once they have dominated the marketplace. However, if you get rejected, you can use your debit card to complete the transaction. Does this encourage the use of credit cards, or what? Make it difficult to pay with a check so you'll use your credit card or debit card instead. (You know better than to use credit cards, right?) Also, what is even worse, if your checks are stolen, TeleCheck will approve checks on your account based solely on your checkwriting history, then if a thief writes a check, TeleCheck will come collecting from you if the check bounces. It seems from the complaint above they can draft your account without your permission.

You have a right, under the Fair Credit Reporting Act, to get a free copy of your consumer report from them. You just go to their website for instructions. They'll ask you for a deluge of sensitive personal information to prove your identity. They claim they'll use it to establish a positive history with them, but after speaking with a representative about this I found that they will establish a spending limit and you have to build up to a limit for that new Apple computer.

So if you think you might like to buy a new MacBook down at your local Apple Store. Don't use your credit card. You do better to stop by the bank and withdraw the cash for the purchase first. Start asking before you write a check if they use TeleCheck, if they do, pay cash instead and file a complaint with the store manager and let them know how TeleCheck is treating consumers and if they continue to use TeleCheck you'll shop elsewhere.