Brian Moynihan, CEO of Bank of America, belatedly rationalized the Bank's announcement of a $5 per month fee for use of debit cards (which was later rescinded) by saying that the fee was "completely clear and transparent." Silly defense for such a grotesque blunder.
The bank's earlier elimination of overdrafts on debit card transactions was also much less nuanced than what the industry did. B of A unprofitably denied consumers a choice that, judging from industry data, 3/4 of them would have wanted to make.
Even now that overdraft initiative is sometimes thoughtlessly lauded as consumer friendly, which it wasn't. Transparent, yes, but not consumer-friendly.
Buying an automobile isn't simple and transparent. Most of us nonetheless do it — and we don't ask the CFPB to protect us when we do. Buying a college education is messy too, but this immoderately complicated service nevertheless sells extremely well — with price increases that greatly outrun inflation. Big colleges, unlike big banks, don't tend to go broke. Maybe that's because they market with imagination and flair, appealing to aspirations.
Purchases of cars and college educations are considerably more expensive and irrevocable than choices of checking account--difficult as some people may find switching banks. But across virtually the entire range of consumer purchases, from medical services to candy bars, the market has optimized at a dramatically diverse set of products and product descriptions.
Since when are financial services such as checking accounts required to obey a unique imperative to be simple and transparent? Ever since this extraordinary notion emerged from that long-time teacher of bankruptcy law (simple, isn't it!) — who is now campaigning for the Senate. Or, only since this childishly reductive imperative was at least verbally embraced by an increasingly cowed and guilt-ridden banking community?
Sorry. The charm of buying consumer goods and services, and the mystique of marketing them effectively, are largely the product of an exceedingly widely shared desire to see only what we want to see — and to imagine much more than we can reasonably expect to get. That's what credit card rewards are about.
Most of us in our personal choices are often unreasonable optimists, thank goodness. If we weren't, then there'd be fewer marriages and kids. And economic growth and employment would be even worse than they are.
Who was it that maintained the steadfast conviction that all advertising was waste and humbug, and should be illegal? Joe Stalin. Advertising is not about standardizing services to fit simple molds. It generates sales largely by hinting and gesturing on the positive side, which lawyers sometimes refer to as "normal puffery."
Contrariwise, the $5 monthly fee for ever using a debit card for a purchase is like a kick in the butt. It proposes to make customers pay for a well-established and convenient habit, widespread only because banks marketed it assiduously for decades. It's like charging for using the escalator in the bank, or for using the bank web site. Yes, escalators and web sites also have a cost, which is increasing.
Adding $5 or more to the checking account fee, offering several different checking plans, giving customers three or four ways to avoid the fee — the approaches followed by a great many banks — encourage customers to hope (therefore, to expect) that they will be able to hold a larger balance, make enough debit transactions, or otherwise avoid the fee. This suggests an aspirational choice, rather than sheepish obedience to B of A's arbitrary fiat. Who knows what's "best" for the customer? B of A, the CFPB — or the customer himself?
How to confirm that what many banks are doing is directionally correct? Test. B of A seemingly disdained to do this, even though almost 18 months elapsed between the passage of Durbin and the regulation's effective date. Alternative pricing structures can be tested fast and at negligible cost on the Internet, against customers who are deciding where to open a checking account. Pricing can be tested in branches against new or current customers — objectively, accurately and without risk.
I'm not a fan of old-fashioned marketing research (paper surveys, phone calls, focus groups). It's often irrelevant and unreliable, and most new products and pricing continue to fail. Still, this isn't rocket science. Any way you measure them, the relevant consumer preferences make themselves blindingly obvious. Sure, there can be limited differences between channels, geographies or demographics. But consumer preference for retaining "free" debit cards at the price of greater exposure to increased checking account fees is strong and pervasive.
Andrew Kahr is a principal in Credit Builders LLC, a financial product development company, and was the founding chief executive of First Deposit, later known as Providian. He can be reached at firstname.lastname@example.org.