Friday, February 20, 2009

Banks, benefits, and story bias

This story has got a lot of people up in arms--as they should be--but for almost all the wrong reasons.

Here's the gist:

For hundreds of thousands of workers losing their jobs during the recession, there's a new twist to their financial pain: Even when they're collecting unemployment benefits, they're paying the bank just to get the money — or even to call customer service to complain about it.

Thirty states have struck such deals with banks that include Citigroup Inc., Bank of America Corp., JP Morgan Chase and US Bancorp, an Associated Press review of the agreements found. All the programs carry fees, and in several states the unemployed have no choice but to use the debit cards. Some banks even charge overdraft fees of up to $20 — even though they could decline charges for more than what's on the card.

"They're trying to use my money to make money," said Santa-Maria, a laid-off engineer who lives just outside Albuquerque, N.M. "I just see banks trying to make that 50 cents or a buck and a half when I should be given the service for free."

The banks are handling this with their usual flair for interpersonal relations:

The banks say their programs offer convenience. They also provide at least one way to tap the money at no charge, such as using a single free withdrawal to get all the cash at once from a bank teller. But the banks benefit from human nature, as people end up treating the cards like all the other plastic in their wallets.

As somebody asked earlier today: Is your blood boiling yet?

But wait. The shorter versions of this AP story conveniently concentrates on the plight of the victims and the rapacious nature of the banks, and omit this:

The U.S. Department of Labor allows the fees as long as states create a way for recipients to get their money for free, spokeswoman Suzy Bohnert said.

"Beyond that, the individual decides how to manage his drawdowns using the debit card," she said in an e-mail.

A typical contract looks like the agreement between Citigroup and the state of Kansas, which took effect in November. The state expects to save $300,000 a year by wiring payments to Citigroup instead of printing and mailing checks.

Citigroup's bill to the state: zero. The bank collects its revenue from fees paid by merchants and the unemployed.

Let's parse this, shall we?

1) The Labor Department specifically allows these fees.

2) The States are saving big bucks by sending the money to the banks instead of writing checks.

3) The States knew going in that the only way the banks could make any money was by charging fees.

So essentially what happened here is that the States decided to transfer the cost of delivering unemployment benefits to the recipients..

Not the banks--even though they certainly haven't protested the opportunity to gouge a few more fees--the States.

The State governments.

You have to wonder if Kansas had said to Citigroup, Hey, we'll give you $150,000 of the $300,000 we're saving as your handling fee if you don't charge any fees on these cards, what might have happened.

But the State bureaucrats who certainly knew it was legal for the banks to charge those fees decided that saving money in their budget was more important than insuring that unemployed people received all of their benefits.

My question: how come I've seen this story about six bazillion times and nobody ever criticizes the government bureaucrats who decided to balance their budgets by stiffing the unemployed?


Bowly said...

My question: how come I've seen this story about six bazillion times and nobody ever criticizes the government bureaucrats who decided to balance their budgets by stiffing the unemployed?

Because government is wonderful and corporations are evil.

Anonymous said...

If you get a paper check, cashing it once is free.

*If you get an electronic card, dumping all the money into your pocket once, or making one transfer to your checking account is free.

*Using the card at a retail point of sale is free. As often as you want. FREE.

The fees only come into play when you go out of the banks ATM network. If you had a paper check, many banks wouldnt cash it at all if you are not an account holder, which drives people to check cashing stores who charge a % of face value. That dwarfs the cost of using the card at a non network ATM. They dont run stories about people getting mugged carrying $800 out of a check cashing store, and crying out for the govt to provide a secure means of moving money. they also dont do stories about how many checks are scanned and copied 10x and cashed 10x in a 10 minute window, geometrically increasing the burden on taxpayers and agencies.

Lessons learned:

The media sells stories, factual analysis is irrelevant.

Know the details before you post.

Anonymous said...

no one criticizes them because the savings can be used to extend UI benefits for a few more weeks. Banks get the money whether its on paper or plastic. Just another example of a culture driven by convenience.

Steven H. Newton said...

RE Anonymous in comment 2:

Thanks for the completely unneccessary lesson in avoiding bank fees, and way to go in missing the point of the post.

Ztroilo said...

the truth behind the world today. and a solution...the only viable long term solution