New debit overdraft rules start!

Federal Reserve rule E took effect yesterday (July 1st) for new account holders, and August 15th for existing account holders.  Rule E directs banks to only enable overdraft protection for debit card purchases if customers specifically opt-in.

As we have previously reported, Chase trying very hard to convince customers to sign up for overdraft protection through letters and an advertising campaign, and have apparently signed up about 1/3 of their customers using their deliberately confusing and fear-based, like the following advertisement:

There are few things more embarrassing than standing in line with your purchases all bagged up and being told your card has been declined. Besides the embarrassment…

This is no deal for customers as a small purchase, which is often the cause of an overdraft, can cost a whole lot more when you tack on a $35 overdraft fee.  This works out to be thousands of percentage points of interest for borrowing a little bit of money for a short time, and WAY higher than the fees charged by the heavily criticized payday lending industry.

A better option would be to apply for a small overdraft credit line to be attached to your checking account and is used whenever either a debit or check causes your account to go negative.  I have personally done this for years, and the occasional checkbook balancing error which causes an overdraft costs me $7 for a draw from the line of credit, a much more reasonable fee.

Chase calls their new opt-in protection Chase Debit Card Overdraft Coverage, and you can find the details here.  Their existing overdraft protection program still exists and is a much better deal, as it allows you to connect your checking account to a line of credit, savings account, or credit card for overdrafts, and it will only cost you $10 each day that overdrafts are covered this way.

Also somewhat alarming if you read the fine print, is the fact that overdraft protection doesn’t actually always “protect” you, as the fine-print specifies that Chase can choose not to cover an overdraft anytime they don’t want to.  The fine-print also specifies that automatic payments may continue to be paid (and rack up an overdraft charge) when your account goes negative even if you have NOT opted-in to their program.

Chase to target affluent customers

As reported in this Wall Street Journal article, Chase hopes to target more affluent customers, those between the average Joe and the high net worth individuals targeted by its private client services group by naming a new head to its Retail and Affluent Investment Services group, which oversees 2,700 financial advisers in its 5,100 branches.

Chase is doing this because it realized that these types of customers, while around only 8% of all banking customers, represent 2/3 of all deposits and investments at retail banks.  I can only think that by specifically targeting these customers, Chase is admitting they don’t have their fair share of them right now.

That is all well and good, but the real kink in Chase’s strategy is its inability to get basic customer service working properly.  With all the nightmare stories of pure ineptitude and systems failures (or poor design of systems) reported by a wide variety of Chase customers, I an easily imagine a scenario where affluent customers are signed up but then quickly depart when the realize that their most basic banking needs are not well handled. It is no secret that wealthier individuals put more credence on good customer service and less on pricing.

On the bright side, Chase’s desire to court such customers might actually force them to improve operations (make less mistakes) across the board, although I doubt it would cause them to change the way the actually treat the average customer.

Good luck Chase.

Chase Blueprint – good or bad?

When I started reading about Chase Blueprint, I thought I had finally found something Chase had done right.  Blueprint is what Chase calls a financial management tool that is attached to a subset of their credit cards and allows card holders to create plans for paying off various things they have charged on their credit card.  There is no additional charge for using Blueprint.

But, like most things with Chase, I decided to dig a little deeper and see if there was anything fishy behind it, and there was.

The first thing that struck me odd was the fact that Blueprint is being presented by Chase as a financial management tool.  Hey, that’s great, I am all for people learning how to manage their money better.  When it comes to your money, there are two main things you can do with it, save it or spend it.  Well, Blueprint fails overall as a financial management tool because in order to manage your finances with Blueprint, you have to first spend your money, which, isn’t exactly one of the cornerstone principles of good personal financial management.

When you spend money, you can either spend money you have, or money you don’t have.  One of the whole premises behind Blueprint is that it help you break up your credit card bills into subsets of spending so that you can make plans to pay off various things in various time frames, all the while happily paying interest to Chase.  Because it only applies to the spending of money you don’t have, once again it fails as a good financial management tool.

What is Blueprint really for?

1. To make people feel more comfortable keeping balances for longer periods of time.
2. To help Chase customers who tend to rack up large balances on their credit cards be more diligent about paying it ALL off eventually.

Yes, it is a tool to help Chase get people to hold onto their balances longer, and be more likely to pay them off eventually.  Yes, it is a tool that primarily benefits Chase.  On the one hand, you have to give Chase credit; Blueprint does make good business sense for them.

Ok, so, big deal, it benefits Chase.  It’s free anyways, so who cares.  Right?  Wrong.  The Blueprint service only applies to a subset of Chase credit cards, the Platinum, Slate, Freedom, Sapphire, and Chase business cards.  Almost all of these cards have much higher APR’s or an annual fee than other cards many customers have from one of the many institutions that Chase has acquired over the last five or more years.  The majority of the cards that have Blueprint have a VERY HIGH initial APR if you have only average credit scores.  You would have to have PERFECT credit scores to get the lowest advertised APR of around 13% on most of these cards, which itself is not a very good rate anyways.  And if your credit score goes down for some reason (for instance because Chase lowers your credit limit on another card) they can move you to a higher interest rate despite the new rules in the Credit Card Act of 2009, because the tiered interest rate is built into most of these cards from the start.

So, in order to benefit from Blueprint many Chase customers would have to switch to a higher cost card.

If you really want a tool that improves your ability to manage your finances, try one of the great online personal financial management tools like GreenSherpa, a service that allows you to aggregate financial information from not just your credit card, but your bank and other accounts as well, all in one place.  You are much more likely to practice proactive financial management (i.e. BEFORE you spend) with a tool like GreenSherpa than with Blueprint.

Also, read the book Your Money or Your Life to get a handle on what you spend your money on and why.

DO NOT GO INTO THE LIGHT!

Just a not-so-subtle reminder, that when Chase contacts you, either by email, letter, or phone, to warn you that you will be at risk if you don’t sign up for overdraft protection, JUST SAY NO!  The only ones that win when consumers have debit-card overdraft protection are banks, to the tune of $38 Billion industry-wide per year.  If you don’t have it, you pay nothing as when you try to use your debit card and have no funds, it won’t work (which is how most people think it is supposed to work).

If you don’t believe me, just listen to a bunch of consumers groups say the same thing.

Chase aims to cherry-pick best business customers

We all know that Chase has been slashing and burning its customer base, especially among small-business customers, who often finance their operations in the short term with credit cards.

Well, Chase is showing again that rather than being a community bank that is committed to fair and reasonable lending practices, it is only looking to cherry-pick the creme of the crop of customers.  At least, that is how Bloomberg Business Week sees it.  Their latest volley, a seemingly innocuous promotion that offers companies a reduction in interest rate on credit lines for hiring new employees.  Business Week thinks they are trying to attract the best strong (financially speaking) customers from other banks.  I read it a little differently.  Perhaps they are trying to identify which of their current customers they want to hold onto, or conversely, which additional customers they will motivate to leave them.

What it is like to work at Chase

The definitely NSFW video (profanity) represents what it is like to work for Chase bank.  Most interesting though, are all the comments that go along with the video on YouTube and financemoz.com, which appear to mostly be from current and former Chase employees that definitely don’t like it there.

Chase trends – where have the customers gone?

Take a look at the graph of average daily visits of our site for the last 10 months.

Daily average site visits (per month)

This would seem to indicate that more people, not less, are looking for information on problems and difficulties with Chase.

When it comes to posting Chase-related stories and information on this blog, I don’t exactly go out of my way to find them; I post what people send me or what Google Alerts finds for me.  Now look at the trend in posts over the last 10 months.

Posts per month

Holy cow!  That is about a five fold increase in posts per month.  Clearly, more and more people are posting their dissatisfaction with Chase online.

I realize this information is very anecdotal and could mean different things.  When reported incidents of disease go up, you have to ask, is the disease spreading, or are just a higher percentage of people reporting being sick?  This could mean that Chase is getting worse, or that Chase has been bad enough for long enough that more people are reaching that boiling point where they want to do something about it.

What about number of retail banking customers?  That would surely be a good indicator of whether people are leaving Chase.  Well, Chase doesn’t make those numbers available, but they do make their total deposit numbers available.

• 4Q2008: $1,009 Billion
• 4Q2009: $938 Billion
• 1Q2010: $925 Billion

Hmm.  Ok, well that seems to be yet another trend for Chase in the wrong direction.  Either all Chase customers have become 8.3% poorer over that 15 month period, or Chase clearly lost some customers.  Let’s take a look at the US savings rate and household net worth over that period.

Household net worth

Sorry Chase, not only has the personal savings rate been very high during that period, but household net worth went up 6%, even as housing prices went down, meaning personal savings probably went up considerably more than 6%.  And with lots of individual investors sitting out of the stock market in the last couple of years, this can only mean the money is in mattresses or banks.  Apparently, it isn’t in Chase bank.

So, if we add up a 6% increase in household net worth and an 8% decline in Chase deposits overall, my best guess is that they have lost at least 14% of their depositors.  Wow!  No wonder they don’t include those figures on their financial statements.

What’s the rush Chase?

Like Washington Mutual before it, Chase has been offering a $100 bonus for signing up for a new checking account (with minimum deposit of $100, recurring electronic deposit, account must remain open for six months minimum) pretty much forever.  So why does their latest campaign say hurry, offer expires 6/30/10?  This sounds suspiciously like the rug store down the street with a perpetual going out of business sale.