e-Vents

[ Saturday ]

No Sympathy for Big Banks

Once upon a time, banks were the anchor of small communities. They created deposit accounts for customers and small businesses, cashed checks, provided credit and loans, and over time, joined networks to provide credit cards and other financial instruments to their customers. Their spreads or margins on loans was often in the single digits. Outside of credit unions, they were usually the next best source for low interest rate loans in a community.

Today, that has all changed. And the change has been very apparent to long-time customers, even if the government did not notice until recently. Credit card rates offered zero or near-zero APRs as promotional rates, then jumped to double-digits (even up to 35.99% in some cases) after the promotional period ended.

Balance transfers were offered to entice customers to pay down other bank's credit accounts and switch to the offering bank's account. At first, no transaction fees were charged. Then, approximately one to two years ago, big banks began charging transaction fees of 3-4% up front with a minimum charge of $10 and no cap on the maximum amount charged (i.e.: a $10,000 balance transfer would cost the customer $300-400 for the privilege of accepting the offer), as if the major banks had colluded over lunch to simultaneously set the new policy. Not a word from the Office of the Comptroller of the Currency, but many complaints apparently were lodged by customers.

Today, the major banks are bleeding red from greed and mismanagement, and are systematically upping their default rates on credit cards to their customers. Much of this is in anticipation of a new law which will go into effect in 2010, but due to strong lobbying efforts by the banking association, does not prevent them from continuing to offer the predatory policies at present.

Small banks have a golden opportunity at this time to steal away customers from the major national institutions. Good customer service, with people who live and work in the community and have established personal relationships with their customers...not an interactive voice response system that asks customers to 'Press 1 for English', then directs them to someone in Bangalore.

The small banks might be able to live with a 3-5% spread on personal loans, and probably don't need the corporate jet to fly to Hollywood premieres. Perhaps the big banks should look at 'It's A Wonderful Life' sometime, and prioritize customers over greed.

MM [20:07]