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Bank of America Set to Overhaul Account and Fee Structures
Martha C. WhiteMartha C. White RSS Feed
Jan 6th 2011 at 5:30PM
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Filed under: Banking, Banking - Checking Account
man walks past bofa atm machine - bank of americaWe've learned not to get too excited around here when a bank executive says they're "very excited" about a new rollout or offering. As it turns out, we were right to hold onto our hats when it came to Bank of America's conference call earlier today. The behemoth bailout recipient says it's overhauling its checking account options, and the results could mean more of us are paying fees.

BofA executive Susan Faulkner spoke about the need for change in the face of "a new economic reality." While other big banks have made changes and implemented new or higher maintenance fees on accounts, as our sister site Daily Finance points out, BofA's sheer size -- roughly half of us have some kind of relationship with the bank -- makes these changes significant. Faulkner wouldn't say, when asked, how much revenue the bank expects to earn by implementing these changes, but analysts have said that banks stand to lose a bundle from restrictions on overdraft and interchange fees, so it's clear that they have to make up that shortfall somewhere.

Bank of America will divide its checking account customers into four categories, with four different types of accounts. Faulkner told reporters that "most of our customers" would fall into the category the bank is now calling "enhanced." This lets a household have two accounts -- helpful for budgeting -- and will cost around $15 a month, although that fee can be avoided if a user deposits $2,000 a month, keeps a balance of $5,000 or uses their Bank of America credit card a certain number of times per month. The bank is also heavily promoting the online-only banking product it rolled out last year, which costs $8.95 a month if a user decides they want to speak to a teller.

For the non-computer-savvy among us who want a simpler product, Bank of America is rolling out a single-account option called "essentials." At $9 a month, Faulkner called it "affordable," but we're betting that many of the bank's customers who opt for this (probably seniors on a fixed income), will think otherwise about paying $108 a year for their checking account. Finally, Daddy Warbucks types will be able to access a "premium" account, intended for those with higher balances and/or a mortgage with the bank. For users who have $50,000 in their Bank of America account or related Merrill Lynch brokerage accounts, BofA will enroll them in a new rewards program called "platinum privileges" that will offer them perks like a dedicated customer service number.

Bank of America is rolling this out as a pilot program to new customers this month in Arizona, Georgia and Massachusetts; it'll start coming to the rest of the U.S. in the second half of this year. If you're a Bank of America customer, read through any material the bank sends you in the coming months very carefully.

Fortunately, it's still possible for many customers to avoid monthly fees, but you have to be savvier about how you use your account to do so. If none of the fee-waiver options -- savings, direct deposit or credit card use -- are an option for you and you don't want to pay a monthly fee, you have a little bit of time to experiment on your own and see if you're comfortable with an online-only banking relationship.

New Year's Resolution: Get Out of Credit Card Debt With a Lending Club Loan
Josh SmithJosh Smith RSS Feed
Dec 29th 2010 at 1:00PM
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Filed under: Banking, Personal Loans
Cutting up a credit cardAs 2010 winds to a close, New Year Resolutions are on our minds and as always, getting out of credit card debt remains a big goal for many of our readers. There are many ways to cut credit card debt, but one of our favorite ways is to get a lower interest rate and a fixed repayment term with a personal loan from a peer-to-peer lender like Lending Club.

Joshua McElravy of Fremont, Calif., recently used lending club to consolidate credit card debt into a personal loan and was able to cut his interest rates from 24% to 26% down to 7.88% with a fixed 36-month term.

In an email interview, McElravy told WalletPop that he chose Lending Club over local banks because the banks all wanted collateral and he didn't want to put up his car, which he had already paid off, for a personal loan .

"I resolved in 2009 to get a hold of my credit card debt. I have been able to refinance about $10,000 total in credit card debt that would have taken several years to pay off, due to the high interest rates," McElravy told WalletPop, adding, "Although my monthly payment is about the same, I will have all of it payed off within the next two or three years. I plan on making extra payments when I can."

This experience is similar to what we found when we looked at what it is like to get a loan from a peer-to-peer lender in our review of Lending Club back in March. After 9 months with a new, lower loan rate and a fixed payment schedule, we are still happy with our peer-to-peer loan.

"As many Americans resolve to get rid of debt in the new year, a Lending Club personal loan offers a refreshing alternative to the traditional lending institutions," said Rob Garcia Sr. Director of Product Strategy at Lending Club. in an email to WalletPop, "better loan rates, instant rate quote, and fixed monthly payments mean our borrower can pay off existing balances faster and more cheaply."

The rates on peer-to-peer loans from Lending Club are favorable when compared to the credit card rates offered from many big issuers. The national average interest rate from Lending Club on a 36-month loan is 9.8%, while it is 14.34% on credit cards as reported on Creditcards.com. There are even greater savings to be had for borrowers with a good credit score.

In addition to the lower rate, we also like the ability to handle the entire lending process online with the exception of one phone call to verify some of the information. When you compare this to other lenders, such as Wells Fargo or Capital One that require you to call a banker or have an invitation to get a personal loan, the advantage is clear.

One caveat that McElravy notes is that you do need to have decent credit to get a loan through Lending Club. Currently, the minimum score is a 660, so not everyone will qualify. Another thing to keep in mind is that if you are a member of a credit union or a community bank, we do suggest you check with your banker because you can often get a favorable rate without lots of red tape or upselling.

If you want to cut your debt in 2011, getting a personal loan that transforms your high-interest rate credit card debt to a lower rate personal loan with a fixed repayment schedule is one of the best steps you can take. Thanks to Lending Club's streamlined online loan process, getting a personal loan is easier, and smarter, than eve

Chase Customers With Small Direct Deposits Will Pay More
Martha C. WhiteMartha C. White RSS Feed
Dec 22nd 2010 at 5:00PM
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Filed under: Banking, Banking - Checking Account
finger with dollar on it - chase small direct depositsBeginning in February, Chase will begin charging a growing number of its customers for basic checking accounts. What might raise some objections is who's being singled out for these new fees: account holders who receive small direct deposits of less than $500. Right now, anyone who gets a direct deposit can have the $6 monthly fee waived, but that's about to change.

If someone -- say a person on unemployment, or a senior citizen receiving government benefits -- gets less than $500 per payment period, they'll be hit with the fee. Multiple deposits that add up to $500 don't count. Consumers who use their debit cards to make five or more purchases in each statement period also can have the fee waived.

For poor or unemployed people on a fixed income, though, the prospect of going out to the store -- especially if they need to rely on public transportation -- to deplete their meager savings five times a month is sure to be stressful at best, and onerous or impossible at worst. A Chase spokesman tells WalletPop via email, "Chase is offering customers multiple ways to enjoy the convenience and value of Chase checking without a monthly service fee." Unfortunately, most of those ways involve having money -- either keeping a high balance in the account or having an over-$500 direct deposit.

The reason banks are putting the screws to its customers is that it's losing money thanks to new regulations. Recent restrictions on credit and debit card interchange fees stand to put a serious dent in the income it receives from merchants when those stores accept your card. As we recently pointed out, one finance executive predicted that banks probably stand to lose about $3.6 billion on reduced debit card fees alone. In addition, banks lost money when the CARD Act went into effect and imposed limits on fees and interest-rate hikes on credit cards.

In general, consumer advocates prefer the implementation of account fees to the pre-regulation status quo; beforehand, customers were often taken by surprise when they were hit with a fee or a rate hike. Now, if customers don't like the new fees, they can evaluate their options in a more equal fashion and switch banks if they don't like the service they're getting. As for Chase, when WalletPop asked how low-income account holders such as senior citizens would be affected, the spokesman replied that only 7% of Social Security recipients receive payments of less than $500. For the sake of those 7%, WalletPop certainly hopes they're not Chase custome

Hundreds of Illegal ATMs Found in Massachusetts
Gergana KolevaGergana Koleva RSS Feed
Dec 22nd 2010 at 2:00PM
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Filed under: Banking, Fraud, Identity Theft, Consumer Ally
illegal atms An unusual investigation of non-bank automated teller machines in Massachusetts has found more than 300 ATMs operating without a license, and another 101 legal ones doing business despite various violations among their owners.

Non-bank ATMs are typically located in convenience stores, service stations and sometimes in communities where there are few banks. Under Massachusetts law, they must be approved and registered with the state, and must disclose withdrawal fees, owner contact data and other information to consumers.

Renegade machines that don't follow the rules may expose consumers to ATM skimming. That's when thieves attach hard-to-detect reading devices that copy debit card numbers, and hidden cameras or overlay keyboards that record users' tapping in their PIN. From there, fraudsters can burn the data onto a blank card to access account holders' cash.

"A consumer sees an ATM standing in the middle of a shopping mall and they assume it's legitimate. Some of these machines are ghost ATMs, they're just a shell," said Robert Vamosi, a security, risk and fraud analyst at Javelin Strategy & Research, in an interview. "Ghost ATMs" are boxes designed to look like the real thing, but they don't contain internal hardware to encrypt, send and receive data from a financial institution.

Vamosi pointed out many fake ATMs mimic the computer circuitry of real ones, so they're not easily recognizable. Skimming attacks have also evolved from basic card-data theft to sophisticated attacks on the software inside ATMs and networks. "This is the means which criminals have started to employ to capture PIN numbers -- by tricking you into going to a dummy machine," Vamosi said.

According to the Massachusetts governor's office's Division of Banks, which conducted the investigation, the number of non-bank ATMs in the state tripled the last 10 years, to approximately 5,600. Observers say it may be indicative of a wider trend.

"The growth of non-bank ATM companies is happening across the country. The problem is that not every state requires the registration of non-bank ATMs," said David Cotney, a spokesman for the Division. He noted consumers must have a high level of trust and protection when using a non-branded ATM, and the only way to ensure that is to register and bring into compliance all unregistered machines.

The 300 illegal ATMs in Massachusetts are required to cease operations until they are properly authorized. Click this list for locations.

In addition, 101 authorized non-bank ATMs inspected in Massachusetts also stood in violation of various state rules. The most common included failure to provide a 24-hour, toll-free contact phone number as well as contact information of the owner and operator. Failing to post the Division's contact information for consumer inquiries and unresolved complaints also was common.



The Risks and Rewards of Payroll Cards
Martha C. WhiteMartha C. White RSS Feed
Dec 17th 2010 at 9:00AM
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Filed under: Banking, Extracurriculars, Career
a woman swipes a card into a machine - payroll cardsThe era of receiving a paper paycheck is rapidly becoming as distant as the days when we relied on landlines for all our communication needs. To make things easier on workers -- and save a bundle on administrative costs in the process -- companies increasingly have been relying on electronic payment methods. Many workers now are paid via direct deposit to a checking or savings account.

But for those who don't have, can't get or don't want a traditional deposit account, the option increasingly comes down to a single choice: a payroll card, which is a reloadable debit card onto which a worker's funds are loaded. According to the nonprofit organization Consumers Union, nearly $16 billion was loaded onto payroll cards in 2007, and it's very likely that the numbers have climbed since then.

"With the advent of technology surrounding gift cards and prepaid cellphones becoming so prevalent, individuals are more comfortable accepting payroll cards," says Bob Howe, former CEO of payroll card company Directo. These cards can be helpful in that they're safer than carrying around potentially hundreds of dollars in cash and may help users avoid as much as a 3% fee charged by a check-cashing storefront. But they're not perfect, and the legal gray area in which they exist has some consumer watchdogs worried.

Sean Panizzi, branch manager at Teamtemps Personnel Staffing in Valdosta, Ga., says payroll cards were a lifesaver at his business, which employs around 700 temporary staffers who work for clients in several Southeastern states. Paper checks got lost in the mail or were sent to the wrong addresses, and they sometimes needed to be canceled, reissued and overnighted -- at considerable expense -- when a client submitted the temp worker's hours incorrectly. About a year ago, Teamtemps started offering the Global Cash Card, issued by MasterCard, to workers who didn't opt for direct deposit. Panizzi says that workers loved the option, so much so that about 50% of them now opt for the cards.

Panizzi's company did a few things right when it started issuing payroll cards, according to the consumer advocates we consulted. First, Teamtemps scouted out a card that even those without access to a bank could use without paying hefty fees. This was a crucial step in picking a card provider, Panizzi says, since the company has many employees in rural areas who would need to rely on ATMs to access their cash. (One problem with both prepaid and reloadable debit cards is that there can be high fees for users who want to withdraw cash.) Teamtemps also got information about the card translated into Spanish so workers who didn't have English as a primary language wouldn't struggle to understand how the card worked.

Another card benefit? Howe says that they're much cheaper for employers to administer than the paper checks they replace. In addition, for those Americans who are part of what watchdog groups dub the "unbanked," they can be a less-expensive option. "We were focused on the workforce that didn't or couldn't get a bank account," Howe says of his days at Directo. "This lets get them out of the world of check-cashing fees."

While this is true, the cards can come with plenty of their own fees, a prospect that worries some people like Jean Ann Fox, director of financial services for Consumer Federation of America. While the initial purchase price of the card is often borne by the employer, workers may be subject to fees when they withdraw cash at an ATM, make a purchase in a store, call to check their balance, request a paper statement or need a card replaced if it's been lost or stolen.

Prior to the passage of the Overdraft Act this July, some cards would even let users overdraw and incur hefty fees, which is like extending a short-term loan -- at a payday loan prices. Given that these cards are specifically targeted to workers who are financially unsophisticated, this could add up to a whole lot of trouble.

A big part of the problem is the relative lack of regulation around prepaid and reloadable debit cards. "Our position is that they're legally nebulous," says Angie Wei, legislative director of the California Labor Federation. "There's no oversight or regulatory framework."

California has better laws than many states when it comes to payroll cards, but Wei says that the lack of a national framework to regulate these cards puts cardholders at risk of falling through the cracks. This legal gray area is troubling to many consumer advocates, who point out two main trouble spots with the cards.

First, there aren't many limits on the types of fees and the amounts of those fees that a card issuer can charge the user. A total of 11 states have laws on the books saying that a worker has to have the right to access their pay without paying a fee, so most payroll cards permit one free withdrawal per pay period. If the cardholder doesn't have a bank account, though, this isn't really practical; they'd be in the same unsafe situation -- carrying around piles of cash -- that you'd imagine they got the card to avoid. In reality, using the card can cost the worker his or her hard-earned money. Even Howe acknowledges, "Some of the programs out there even today are very expensive for the worker."

A potentially bigger problem has to do with FDIC insurance. Under FDIC rules, if you have a bank account with less than $250,000 in it and the bank fails, you get your money back. If an entire company's worth of payroll deposits are lumped into a single account, though, there's no legal guarantee that all the money would be returned to its rightful owners if the bank goes bankrupt.

"You and I take for granted that if your bank folds tomorrow, we're going to get our money back," says CFA's Fox. This also is a problem with general-purpose prepaid debit cards, which we've discussed before on WalletPop.

Gail Hillebrand, financial services campaign manager at Consumers Union, says employees further need to be aware that the rules are very different between an employer-provided payroll card and reloadable debit cards onto which workers elect to have their pay transferred. The Electronic Funds Transfer Act gives a holder of a payroll card the same liability protections as a holder of conventional bank debit cards. So they have the same safeguards if the payroll card is lost or stolen, and the same rights to dispute unauthorized charges and to get their money back if the card is used fraudulently.

However, there's a big catch: These protections don't apply if workers go out on their own and pick a card that they want to use as a payroll card, in the absence of a formal program from their employer. In other words, if you like the idea of a payroll card and your company doesn't offer it, talk to human resources about starting a program rather than trying to create the equivalent on your own. Your money isn't nearly as well-protected otherwise.

One final wrinkle with payroll cards is that they can be limiting or inconvenient to use for some purchases. When a vendor puts a "hold" on a card purchase -- such as for a gas station fill-up or a hotel booking -- the cardholder could find his or her funds essentially frozen for days.

An employee with a payroll card instead of a bank account also might find it hard to pay rent, since most landlords won't accept card payment. The user would be forced to get money orders every month at his or her own expense. Fox says that some employers are now working with payroll card issuers to offer specialized products that function like checks for this very purpose, but it's still the exception rather than a rule.

Consumers Union has drafted a "model law" that's intended to cover all the ifs, ands and buts surrounding payroll cards, their protections and their fees. Unfortunately, it's not set to become law anywhere, anytime soon, so it's up to consumers to remain vigilant and -- if your workplace offers you a payroll card -- read the fine print before signing up.

The bottom line, Hillebrand says, is if you have a bank account, stick with direct deposit if you want to ensure the safety of your money while incurring the least amount in fees. "If your employer is offering the card, the first question is, why not get a bank account?" she advises.

Readers, what do you think? Have you been offered a payroll card at work? Do you use one now or have you in the past? Was it convenient, and did you have to pay fees? Tell us about it in the comments section below.


Fed Proposes Dramatic Cuts to Debit Card Interchange Fees
Martha C. WhiteMartha C. White RSS Feed
Dec 16th 2010 at 4:30PM
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Filed under: Banking, Shopping, In the News
a hand holding a debit card - debit card feesThe Federal Reserve Board proposed rules Thursday that may dramatically cut the interchange fees that banks charge merchants for debit card transactions.

The Fed suggested capping the fees at 12 cents a transaction. Currently, banks charge merchants 1% to 2% of the dollar value of the transaction.

Small banks would be exempt, as would issuers of government benefit debit cards and prepaid cards.

The proposed changes are likely to be welcomed by merchants and railed against by banks. (The American Bankers Association has already fired off an angry retort.) Stores say they're more or less forced to pay whatever fees the banks set, and it's a lucrative source of income: Fed vice chairman Janet Yellen observed in the meeting that banks earned a whopping $16 billion in interchange fees in 2009.

What does this mean for consumers? Fed rulemakers acknowledged that it's impossible to predict exactly how this will impact cardholders, but there are a couple of likely possibilities: Banks are likely to cut back or eliminate their debit rewards programs, and they may add fees or create less favorable terms for accountholders who have and use debit cards.

While this may sound onerous, itmay not actually be so bad. Right now, all of us -- whether we pay by card, check or good old cash -- bear the brunt of high interchange fees because merchants pass them along to all of us in the form of higher prices. With the new fee rules in place, only the people who want the convenience of using a debit card will pay for it.

It's also worth noting that banks predicted they'd raise fees and cut cardholder benefits when the CARD Act was passed, but in reality, this didn't actually happen. Banks want to keep their customers, so they're going to be forced to be competitive with their rates, terms and reward programs.

The Fed voted to open the proposal up to public comment and set a target date of April 21 by which new rules must be set; banks will then have another three months before it goes into effect on July 21 of next year. The meeting also addressed debit transaction routing, a thornier issue the Fed aims to have a new set of regulations for by July 21, 2011.

The Fed acknowledged that its proposals still let banks profit from interchange fees, since the financial reform legislation that led to this round of rulemaking only specifies that fees have to be "reasonable and proportionate," not that banks can't still earn money from them. However, the structures of both of their suggested options have built-in incentives for banks to conduct their debit transactions more cost-effectively.


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