What Wells Fargo's Move Really Means

Wall Street Whispers: What Wells Fargo's Move Really Means

Excerpt:

It's just going to charge more for deposits, stop making risky loans and stop maintaining the employees and branches that it uses to achieve that end. For investors this is a good thing; for consumers it's a bad thing; and for the company and broader banking industry it's a sign of the times.

As of July 1, Wells Fargo began implementing a $5 monthly fee for basic checking accounts that fall below a $1,500 minimum balance. On Wednesday the San Francisco-based bank also announced plans to "restructure" its consumer-finance business by shutting down the Wells Fargo Financial division that has been operating for roughly a century.

As a result, Wells will stop originating subprime mortgages that were once part of the division -- something it indicated in regards to auto finance months ago -- and merge the rest of the division into the broader franchise. The change will result in 638 branch closures and up to 3,800 layoffs. Investors will see near-term charges of $185 million, or less than 3 cents per share, before taxes, which will be offset by cost savings by mid-2012.

Comment: Avoidance of the checking account fee is EZ (check the Wells website). Getting out of subprime is a sign of the times!

Overdraft fees: A common sense ruling

Fed Bans Mandatory Overdraft Protection

Excerpt:

The Federal Reserve announced new rules on Thursday that will prohibit banks from automatically enrolling customers in so-called overdraft protection programs, which charge high fees for exceeding the balance in an account.

The programs have been a large source of revenue for banks and apply to consumers using debit cards or ATMs. Typically, the programs have been pitched to bank customers as a useful service. Under them, institutions like Bank of America, Wells Fargo and Citigroup approve transactions, even if a customer has insufficient funds in his account. The banks then levy fees of $25 to $40 per transaction.

Consumers have blasted banks for imposing multiple overdraft fees when customers exceed balances by as little as 50 cents. Starting next July, banks will have to convince get customers’ consent to opting into overdraft programs, rather than automatically enrolling them.

"The final overdraft rules represent an important step forward in consumer protection," Federal Reserve Chairman Ben S. Bernanke said in a statement. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Comment: No more mandatory "Opt In". Of course for those that Opt Out .... they may swipe a debit card for a purchase and be declined. By the way Wells Fargo has something called Text Banking that is free to Wells Fargo customers. More information here: Text Banking. I don't have a fancy web enabled phone so I cannot use their Mobile Banking at wf.com service. But the text banking is pretty cool and even an old guy like me could figure it out.

"people who pay overdraft fees help subsidize the free accounts of those who do not"

Overspending on Debit Cards Is a Boon for Banks

Excerpt:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Comment: Full article with pros and cons of fees is very good! Not as black and white (eg Banks bad!) as one might think! I would think a good solution would be for customers to have the option (either opt in or opt out) to NOT have automatic overdraft (ie ... debit would be denied if insufficient funds).

MORE:

Most of the overdraft fees are drawn from a small pool of consumers. Ninety-three percent of all overdraft charges come from 14 percent of bank customers who exceeded their balances five times or more in a year, the F.D.I.C. found in its survey. Recurrent overdrafts are also more common among lower-income consumers ...

Bank fees for PIN card transactions

DEBIT-CARD PURCHASERS PENALIZED FOR PIN USE

Excerpt:

"Debit or credit" is a misleading question. While all the plastic in your wallet looks the same, most of us carry around three different ways to pay: a regular credit card, a bank/ATM/debit/cash card that can be used with a PIN code to buy things at retail stores (PIN-debit transactions) and a bank/ATM/debit/cash card that can be used with a signed slip to buy things (signature debit). It's the last two we're concerned with here.

Comments: a good read. I personally think it is borderline unethical to charge customers for PIN-based transactions. Caveat Emptor! For us ... we do not do debit card transactions. Why? We have rewards programs with our credit cards!