Rational Outrage

There’s little dispute regarding the damage the major banks have done to our economy. Yes, there’s plenty of blame to go around, but even those who would place primary responsibility at the doorstep of greedy consumers or government regulators or China generally acknowledge that the bankers haven’t behaved responsibly.

Many Americans are outraged that the banks have been “rewarded” for their negligent—and in many cases outright criminal—behavior with bailout funds, while others view the bailouts as a necessary evil. The one thing you never hear anyone suggest is that the banks are great organizations that deserve a helping hand or that their executives should be rewarded for a job well done. And yet, virtually every one of us continues to reward those banks with our business—and not just by keeping our accounts open.

• Checking account fees
• Credit card annual fees
• Credit card interest
• Loan origination fees
• Foreign ATM fees
• Wire transfer fees
• Overdraft charges

And that’s without taking into account the benefits to the bank of having our money in hand when we’re not using it and the charges paid by merchants every time we use a credit or debit card for a financial transaction.

Yes, some of these are useful services and yes, if we’re making use of the services then the bank should receive some compensation for providing those services. But it’s time to reconsider which of those services is really a necessity and how often. We need, in short, to think before we involve a bank in our business, and to question why we continue to pay for the privilege of using systems that create opportunities for the banks we don’t trust to charge us and the merchants we deal with still more money.

The answer, in a nutshell, is convenience. Many of us, of course, feel we “have no choice.” You can’t make most purchases online, for example, without a credit or debit card. You need a credit card or a bank account to set up automatic withdrawals rather than having to send in or drop off your monthly bill payments. You have to leave a larger deposit and provide pages of documentation to rent a car without a credit card. The net effect of that changing system is that as we grow increasingly distrustful of and dissatisfied with our financial institutions, we also grow increasingly dependent on them. Our use of cash declines every year, with a projected additional drop of $101 billion annually by 2015. It definitely takes more work to operate in cash, but “it’s harder” is a far cry from “I have no choice.”

Recently, in the wake of Bank of America’s announcement that it will soon begin charging consumers a monthly fee for debit card use, some advocacy groups have been encouraging individuals to take their money out of banks and place it in credit unions. And that movement seems to be gaining ground—more than 650,000 new members have reportedly joined credit unions since late September, and it’s estimated that more than $4.5 billion has been moved from banks in the past month.

Overall, making the move to a credit union is a step in the right direction, but why not go one step further? Why not stop and think about all of the many ways we insert financial institutions into our daily lives and cut them out where we can?

The inconvenience of doing business without a credit or debit card is self-perpetuating: we’ve not only sanctioned but participated in creating a system in which financial institutions have become indispensable parties to much of our private business. And, in doing so, we’ve given the banks a tremendous amount of power and a mind-boggling amount of our money. Even as our use of cash has declined, our use of ATMs is increasing.

In 2010, Americans paid $7.1 billion in ATM fees, about $3 billion of that to their own banks. While the $3.74 average charge consumers pay for foreign ATM transactions may not seem significant in the context of a single transaction, the aggregate is very significant for those banks we’re so unhappy with. Yet, we reward them with those fees again and again instead of just keeping cash on hand.

The same is true every time we walk into a store. Though the consumer typically doesn’t pay a fee for using his credit or debit card in a retail transaction, there’s a reason or that—the banks are getting their money from the retailer. So much money, in fact, that when a consumer uses a credit card to make a small purchase, the seller sometimes actually loses money on that transaction. And these fees are critical enough to banks that it was a new law limiting the amount they could charge merchants for each transaction that triggered Bank of America’s announcement that it would institute a $5 charge for debit card users.

Most Americans are too accustomed to the convenience of debit card transactions to go all cash, but every transaction counts—as illustrated by that $7.1 billion in ATM fees the banks are raking in.

Imagine that you make 20 retail purchases with your debit card in a week, and two visits to an ATM. On average, that means you’re spending $7.48 on ATM fees each week and your merchants are paying about $4.20 in interchange fees. On an annual basis, you pay the banks $388.96 for these transactions and your merchants pay 218.40. That’s $607.36 you and your merchants pay each year simply because you’re carrying a debit card instead of cash in your wallet. Multiplied, of course, by millions of consumers.

Is it worth it, for the convenience or the security of not carrying cash or whatever other benefits you might realize? Perhaps. That’s for you to decide. But remember that it’s not just about what you’re paying—it’s about what the banks are receiving, and how you’re encouraging a culture of reliance on institutions that have proven themselves untrustworthy. The strongest message you can send to the banks is simply to buy your groceries and your morning coffee and even your new refrigerator with cash—cash you didn’t obtain from a foreign ATM machine.