Voting with Dollars: Banking
I am a firm believer in voting with your money versus having Congress enact laws to protect us. I admit that voting with dollars is not always enough, but it can be very effective. For our own economic health as a country, I do believe that letting the market drive products is the way to go. More precisely, I believe that we as consumers should drive the market and drive the products that are available.
The recent implosion of our banking system and the bailouts are examples where this did not work. But there are things that we could have done and can do to help keep this happening in the future. And we can do this without enacting new laws. Here are some of the things that we all should consider as consumers:
Avoid Debt
Certainly avoiding debt is easier said than done. It is difficult to draw a line between “just enough debt” and “too much debt.” But there is no risk in having no debt. Debt creates a constant revenue stream for banks and lenders, saying loudly “we want more of this.” When consumers take more debt, it completes the cycle to get us where we are today. Do lenders engage in predatory lending? Yes they absolutely do, and a large part is because we let them.
We are in a position to reduce our debt, and it is our number one priority. Within 6 months J.P. Morgan Chase will no longer be receiving money from us. I wish we had learned this one earlier.
Our New Bank
Our New Bank
Switch Banks
This is one may be simpler for some than avoiding debt, but it is still not always easy. Automatic debit and deposit make switching active accounts difficult. However, switching away from the monolithic banks can result in better service, better interest rates, and a vote with your dollars. For example, although it is not a community bank, ING Direct has a very good service record. The interest rates at ING (1.5% APY at the time of writing) are down right now like they are everywhere, but doing business with ING Direct has been a very positive experience for us. So we are moving more of our business to ING’s Checking and Savings accounts.
Another challenge to this approach is that often smaller banks get purchased by one of the monoliths. So this strategy might have to be employed more than once if a bank gets purchased by a monolithic bank where service suffers, or if the bank begins practices that you do not approve of.
We are currently looking for a local community bank or more likely a credit union where we will do most of our non-Internet banking with.
Avoid Fees
If you do stick with a monolithic bank – avoid fees at all costs. Getting caught with overdraft fees, ATM fees, and other fees helps to legitimize them. This might not be easy to do if your situation is paycheck to paycheck. But if you have the means to make sure that the account does not get overdrafted, then do everything possible to avoid the overdraft. If ATMs are not in the right vicinity and you pay a lot of ATM charges, consider finding another bank to pull ATM withdrawals from.
We got caught with an overdraft charge a few months ago that was completely avoidable. I did not pay enough attention to the timing of some of our automatic withdrawals. We have a larger cushion in our accounts now, and I do a better job of budgeting and anticipating automatic bill payments.
Why “Vote with your Dollars?”
So are we making these types of changes, and why should you consider it? First, I am confident that you realize that these all have positive influences on our own finances. Second, we want to send a message that we don’t approve of some of the practices of the monolithic banks, such as:
- Engaging in risk subprime mortgage loans
- Using life insurance policies on employees to fund executive pentions (http://online.wsj.com/article/SB124277653430137033.html)
- Changing interest rates on “fixed” terms for existing balances while not providing the option of closing the account under the old terms
I am sure there are more, but these are enough for me.
What concerns me the most is that we may legislate the competitors out of the market, to the point where we can no longer vote with our dollars. I don’t think we are there yet, but the massive bailouts and new legislation certainly favor the big players rather than the smaller community banks and the credit unions. But while there is still an opportunity, we are doing everything we can to send less money to the monolithic banks.
