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Have Bank of America's Managers Lost Their Minds?

Understanding the management of Bank of America is now next to impossible. What makes them want to anger 50 plus million solid retail customers while their entire operation is in damage control? Five million customers from the bank I headed joined this group when B of A acquired it in 1992.

The company's stock is traded at less than 30% of book value and they have become the target of numerous multi-billion-dollar lawsuits and claims pertaining to their mortgage operations. The bank and its management have been characterized in the press and political circles as greedy and heartless and are currently perceived as unresponsive to the expectations of their shareholders, customers and the financial system

Down, but not out, is the best way to describe the challenges facing the number one bank whose footprint encompasses 80% of the U.S. population. Some 57 million consumers and small business customers are served through its 5,900 offices and 18,000 ATMs. The banking giant holds 12.5% of all U.S. deposits, employs more than 275,000 workers and offers a broad range of products and services. B of A is very relevant to our financial future and recovery from the recent financial crisis.

With that sort of size and strength it's hard to imagine that their ability to recover from the mortgage crisis and restore their stock value could be so quickly and decisively jeopardized by this arbitrary pricing policy, but they found a way.

Last week they announced that because the recently enacted Dodd-Frank legislation had inappropriately limited their debit card interchange charges, all customers with less than $20,000 on deposit or a B of A mortgage would have to pay a new fee of $60 a year fee to use a debit card to pay for goods or services.

The direct bank operating costs of a debit card transaction are less than a penny, yet under Dodd-Frank pricing limitations the bank lost a motherlode of earnings from its retail customer transactions. This change has in effect told most Americans with limited balances to go find a better deal someplace, pay cash or revert back to the use of checks and their related account charges. All this after B of A has spent years trying to change customer behavior and personal patterns to eliminate paperwork and labor intensive processing in favor of more technology.

Maybe Moynihan and his staff didn't read what happened to Netflix when they tried to pull off a similar stunt imposing arbitrary fee increases to which their customers have revolted in large numbers. The $5 per month charge doesn't sound like much to many people, but to convey to their customers that their accounts don't matter much anymore is just economic suicide. If they had decided this change was necessary to maintain a fair level of earnings from consumer customers perhaps a modest charge based on a margin of profit over cost would have been acceptable. This move came across as arbitrary and "in your face" to both their customers and the government.

Thinking you can do whatever you want to your customers because you're the biggest and most economically significant bank in the country is reckless and foolhardy. This is especially true when you are under fire for what people feel are a history of mistakes, arrogance and greed.

My advice is to rethink this action in the perspective of the current situation and the necessity of regaining the support of your investors, the public and the government. You cannot be successful without the support of this group or the press. Begin to demonstrate humility, appreciation and understanding to all of those who made you successful in the past and will control those same elements in the years ahead.

Still to be answered in is whether this action caused the B of A website to go down for two straight days or is responsible for the resulting decline in B of A stock or perhaps both. Needless to say these are the only indications of the public response. If customers do speak their minds, it might just inadvertently give B of A new ideas for fees!

Robert H. Smith, the former chairman and chief executive of Security Pacific Corp., is a founder and director of Commerce National Bank in Newport Beach, Calif.


(14) Comments



Comments (14)
Joseph, we are in agreement 100%. Michael L.,it is important that you understand that most of the Mortgage Loans that bank of America Services are not owned by them. They are in securities owneb by either Private Investors or the GSE's like Fannie Mae, Fredie Mac & GNMA. In addition to that many of these First Mortgages also have second mortgages attached to them. Believe me when I tell you that B of A can not just do whatever they want to help the customer. They need approval and instruction from the Investor and in many cases from the second trust deed holder. They are making every effort to help where and when they can especially when they own the loans and hold them in their portfolio, which is an insignificant # compared to the entire Servicing Portfolio of Loans. Also, the negative environment they are in of constantly being under attack from every regulatory institution, all the Attorney Generals of each State, The Congress of the United States etc. makes it that much more difficult to deal withn the day to day operations, especially when they and the world know that those very same institutions were just as responsible for the current economy and housing mess that we are in. On top of that this stupid obsession with the Robo signing issue is basically not relevant to the Foreclosure issue at all. Sure it was unethical in a way, but it did not cause anyone to be foreclosed on that should not have been foreclosed on as far as I know. Also keep in mind that Fannie, Freddie and other were well aware of the Robo Signing and did nothing about it fo years, thus giving, what some would feel in the Mortgage Industry, was their approval of the process. Also the MERS Registry system is another waste of time, speaking from a legal prospective, because all it did was make the mortage securitization and foreclosure process more efficient. This basically lowered the cost to Service and also the cost to originate a loan and thus lowered that cost to the Mortgagor, the Customer, You & I. Did one out of 100,000 loans get missed in terms of the proper ownership transfer, possibly, but that number is probably high. In my humble opinion, all these lawsuits are a direct result of an Administration that has created a we verse us environment, wealthy verse not so wealthy, corporation verse the people, for political purposes only. It is time to realize that without industry leading the way and creating jobs and making credit available to you and I, we will not pull out of this recession sooner rather than later. Historically it has been either a world war or the housing industry that has helped us pull out of a recession. More regulation is not the answer. We had alll the regulation in the world when the bubble burst. It was many things that led to this nightmare, but not enough regulation was not one of them. Not properly taking the existing regulations and processes and properly utilizing them and managing them was one of the key problems. Unfortunately, I know that new regulation will be the outcome of this, I can ony hope that when people calm down and think, they will realize that any new regulation must be flexible and allow business to flow, to grow and to feel free to create new and better ways to expand and serve both industry and thus job creation.
Posted by robrose | Thursday, October 06 2011 at 4:15PM ET
I encourage B of A to continue to be at the cutting edge of the business decisions that drive clients away from an organization such as theirs to seek a banking relationship from a company that truly cares about the needs of the customer and works on a win-win relationship. Community Bankers across the country applaud BofAs self-centered, customer unfriendly strategic decision. "Too Big to Fail"? How about Too Big to Care?
Posted by NJSearle | Thursday, October 06 2011 at 8:33AM ET
Posted by | Wednesday, October 05 2011 at 6:51PM ET
Perhaps the thing that BOA has forgotten is that each customer that leaves because they are changed a $5 fee has friends and relatives. Good customers that may not routinely use a debit card are very likely to also leave the bank if their child, mother, brother or other relative is charged. Many people will put up with or figure out how to get around this fee, but they will not put up with it for their close relatives. I've seen this happen where whole families left the bank because a child's account was assessed a fee that the family didn't feel was fair.
Posted by AZuser | Wednesday, October 05 2011 at 5:48PM ET
The bank has lost sight of the most important asset they have, and that's their customers! Both in the debit and mortgage missteps, they're ignored the major opportunity to act like the premier bank they want to be and instead are acting like a greedy uncaring institution.

They still can turn things around, but they need to address the huge PR blunders in the debit and mortgage problems today, and immediately go directly to the U.S. public and tell them they were wrong and that they are dropping the debit card fee and that they are willing to work with all mortgage clients that are in foreclosure and/or underwater to resolve their problem, even if that means the bank does a principal reduction plan. If they take this approach to working directly with all their clients and trying to help them instead of making money off of them, they will success and the stock price will rise.

Be bold, creative and aggressive in leading the way out of our countries economy problems and they will grow beyond any plan that current management is trying to do. Try to be the leading bank by example of helping their clients out of this mess we're in, and they will see their profits grow and foreclosures slow. Think how to help their customers instead of their bottom line and make this front page news across the country and be frank that they need help as well, and I bet they will turn things around.
Posted by mleav20297 | Wednesday, October 05 2011 at 5:27PM ET
Very good points Robert, but I was amazed two days after BofA pulled their knucklehead act to receive a letter from Citi telling me my new fee for Online Banking would be $15/month, yes, FIFTEEN DOLLARS A MONTH!

Granted they offered a couple of ways to dismiss the Fee, but even though I can afford, two of my 20'Something children probably can't, and I wouldn't blame them.

I'll find a nice local Bank here in Chicago to give my business too, to hell with Citibank!!!
Posted by e1wood | Wednesday, October 05 2011 at 5:19PM ET
B of A is all about return to the shareholders, and in a faltering enconomy, their value is continually falling. The management has foistered a culture of sell, sell and sell more - widgets first, value second. Because the widgets will overdraw their accounts, thus becoming a source of huge NSF and overdraft revenue, but the widgets have been pushed to alternative delivery sources - i.e., debit card, online banking, ATMs for cash and deposit - they represent income, not value. In fact, didn't B of A institute a policy of charging customers who wanted to actually interact with a live person at the teller line? Customer value doesn't make the bank any money. Customer behavior does, and B of A is banking on the fact that in the process of driving customers to direct deposit, ATMs, online banking and bill pay and other electronic delivery methods, they have made those customers so dependent upon them that they will give up one Starbucks Venti Non-fat Chai Latte each month to pay for the privilege of using a debit card.

On the other hand, we in the community banking world are eternally grateful to B of A because we are now free to cherry pick their customers. Sen. Durbin himself even encouraged B of A customers to leave the bank because of the fee! In B of A's defense, they are not the only "big bank" that has instituted this fee - they are simply on the radar screen of almost every person in the US because of their history of arrogance and "we are the biggest, we will own the world one day" mentality. Well, let me remind them of that age-old adage: The bigger they are, the harder they fall.
Posted by lputnam | Wednesday, October 05 2011 at 5:06PM ET
My son is a BoA customer. I told him to go back to the old fashioned way of paying for things. Cash for every day expenses and charge everything else knowing how to pay off the charge bill at the end of the month so that their is no interest.
Posted by Tom White | Wednesday, October 05 2011 at 5:05PM ET
This is why we have such a great country. We get to have opinions that are different from each other. We get to decide who we do business with. Businesses get to price their products and services in a way that they believe will benefit their stockholders and employees. The customer gets to decide who they give their business too. This is our FREE ENTERPRISE SYSTEM. It works! Mr. Smith is free to share his opinion and Bank of America is free to run their company the way the management and board deem best for their company. The customer gets to choose weither they will accept the $5 monthly fee or not. This is why the rest of the world wants to immigrate to the US. In the US we get to choose. If someone charges us too much we take our business elsewhere. No government agency knows what is right for a consumer better than the "free market" consumer. In the United States we show our feeling by going elsewhere. As Mr. Smith related to all of us, he will probably leave B of A and bank elsewhere. This opens the door for other banks to provide debit card services to this group of consumers. Their gain, B of A's loss.

Joseph Gillen, CEO
Pinnacle Financial Strategies
Houston, TX
Posted by jvgillen | Wednesday, October 05 2011 at 5:03PM ET
As a bank customer, how do you balance the mixed messages over the past few years? On one hand, virtually every communication sent has had a message around using cards and electronic channels for transacting business. You are told that you can save money and save the environment at the same time. You can even 'keep the change' by using your card and have the funds deposited into a savings account. Then many are told that their credit card lines have been reduced and the costs of using credit will be increasing. As an option, you are encouraged to use your debit card where you can receive rewards. Now you are told that unless you maintain a very healthy balance in your account or have a qualifying account you will be charged for using your debit card.

It definitely feels like 'bait and switch' from the customer's perspective. Is the cost of bad press worth it? With a website that hasn't been up consistently for 4 days, it must feel lke a perfect storm. A storm that could have been avoided.
Posted by jmarous | Wednesday, October 05 2011 at 5:01PM ET
True to the dance analogy; however, when the bully steps in to disrupt your dance you have to take some steps to limit your losses for the overall health of the relationship.
Posted by dougroma | Wednesday, October 05 2011 at 4:43PM ET
If B of A management wanted these customers they woud not be charging. This is a business. I am sure an analysis was done including a data check on who these customers are and what they mean to the overall bottom ine across all business units. They must have then come to the conclusion that if these customers left, then so be it, fine. And if that is a good business decision then it is a wise choice. This is not a beauty contest or a running for political office. The company is traded publickly and has investors and has a legal and moral obligation to mange the businesses to the best of their ability. This is not a Charitable Contribution Organization.

I do feel for these customers, don't get me wrong. Many will grow into better financial prospects and, in fact, may already be worth more to a different banking franchise. This is what Capitalism and choice and America is all about, or should I say, was all about!
Posted by robrose | Wednesday, October 05 2011 at 4:35PM ET
Whoever came up with the idea in the bank should be fired!And the top chief officer as well for approving it. Desperation brings foolishness.
Posted by george f | Wednesday, October 05 2011 at 4:34PM ET
It's the customer who brings you to the dance. Unless you want to go home by yourself you have to dance with the customer.
Posted by | Tuesday, October 04 2011 at 4:27PM ET
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