What’s behind the Chase utility bill promotion?

Chase is offering $20 if you simply enroll your debit card in their bill-paying service and pay at least 3 bills.  What is their motivation for doing this?

Chase is one of the banks that has been aggressively pushing customers to sign up for automatic overdraft protection for debit cards.  A better name for this service would be punitive overdraft punishment.  This has been a huge money maker for Chase in the past and they are looking to regain some of the revenue they stand to lose since new government regulations banned them from turning this service on for all new accounts, without customers being aware of it. Fees from overdrafts have brought Chase billions of dollars of income per year in the past.

This so called overdraft protection will allow you to use your debit card even when there is no money left in your account, at the cost of $35 per overdraft.  Chase has been accused in the past of ordering debits and credits to maximize overdraft likelihood and revenue. While the new laws prohibit banks like Chase from having overdraft protection on by default, there is an important loophole:  They can still opt to process automatic/recurring debit card payments, such as for a utility bill, even when it would draw your account below zero.

So why is having you sign up for bill payment with your debit card good for Chase?  Automatic payments to your debit card are likely to cause your checking account balance to be recorded improperly in your checkbook.

Even the most diligent of people is likely to forget to account for recurring debit transactions either before or after the fact, which means that they will likely not plan for a sufficient balance for an upcoming debit transaction for a utility bill, or will forget to record it and assume their balance is higher than it is, causing an overdraft to occur (if they opted in to overdraft protection).  Either way, Chase greatly increases the likelihood that they will capture significant overdraft fee income by getting customers to sign up for automatic payments on their debit card.

This is not a good deal.  If you want to automatically pay your bills, use a credit card, which won’t have the same problems.

More details on Chase’s website crash emerge

From this article, much of this information seems to be from tips from a Chase insider.

There was a subsequent outage on Wednesday, apparently due to the huge number of access retries after the initial restoration of service.

There was a definite operator-error contributing cause, perhaps the error would not have happened if people weren’t so exhausted from dealing with the database outage.

Simply said, Chase’s website was not adequate to handle all the traffic when a larger than normal percentage of Chase customers tried to log on, and many people were unable to successfully log on for much of Wednesday, and that an error by Chase technical personnel exacerbated this problem.

Monash said JP Morgan Chase runs its user profile Oracle database on a cluster of eight Solaris T4520 servers, each with 64GB of RAM, with the data held on EMC storage. El Reg is told that Oracle support staff pointed the finger of blame at an EMC SAN controller but that was given the all-clear on Monday night.

Monash subsequently posted that the outage was caused by corruption in an Oracle database which stored user profiles. Four files in the database were awry and this corruption was replicated in the hot backup.

Recovery was accomplished by restoring the database from a Saturday night backup, and then by reapplying 874,000 transactions during the Tuesday.

For the non-technical folks in the audience, a piece of storage hardware failed and subsequently caused the databases to get corrupted in both the live and real-time backup.  Most databases of this type have many layers of backup, and that was the case here.  In addition to periodic backups, a typical system will keep a “journal” of any activity that is applied so that in a worst case scenario like this, the list of database changes can be applied and the data from the older backup can be updated with all subsequent changes.  But it can take some time.

It seems likely that at some point during the outage Chase must have known what was going on and that they would eventually be able to fully restore the service and no data would be lost, which makes it even more perplexing that they didn’t release any statements to this effect.

This Oracle database stored user profiles, which are more than just authentication data.Applications that went down include but may not be limited to:

• The main JPMorgan Chase portal.
• JPMorgan Chase’s ability to use the ACH (Automated Clearing House).
• Loan applications.
• Private client trading portfolio access.

So, clearly more than just account access and bill-pay were affected.  ACH transactions include things like paying an Ebay auction using PayPal, which comes from your checking account.  They should have released information better telling people what was and was not affected while the outage was occurring.

Chase says not raising rates on small business cards, but is

What can you make of this bit from a recent article on small business lending:

Attorney Eric Dixon sat down at his 23rd Street office last month to check his accounts online, including that of a credit card issued by J.P. Morgan Chase. He was surprised to see that the minimum payment on an account balance of less than $5,000 had jumped into the triple digits.

“That made me look for the rate,” he says.

Mr. Dixon insists he’s never missed a payment—he uses the card for the occasional marketing purchase and as a cash-flow cushion—so what he saw came as a shock: The rate had jumped from 6% to 9%.

J.P. Morgan says it is not raising rates on its small business cards, but could not offer more details about Mr. Dixon’s story. But the scenario Mr. Dixon describes is increasingly common. Small businesses weren’t covered in the new financial reform bill that enacted consumer protections against practices like hair-trigger rate increases.

What makes this a more serious problem is that credit cards have quietly grown into the central piece of the small business financing system. As bank loans became harder to come by and the paperwork more demanding, business owners put their debt on their cards, sometimes at rates that would make consumers’ eyes pop.

A survey by the Washington, D.C.-based National Small Business Association found that among companies with fewer than 500 employees, 34% carried more than a quarter of the company’s overall debt load on a credit card.

More than 70% of owners with a card used for business expenses reported paying interest of more than 10%.

Mr. Dixon—who works for companies and people caught up in state investigations—has a client in the pet care business who financed her company entirely on credit cards. Debt in the six figures, at rising interest rates, is now crushing the company; she is, he says, considering personal bankruptcy.

Classic.  Chase says it isn’t raising rates on small business cards but can offer no explanation.  I’ll offer an explanation:  Chase is raising rates on small business cards despite what it is saying.

Do you need to be in the news to get a loan mod with Chase?

This story is so typical Chase.  Family falls on hard times, in this case because they have a gravely ill child.  Chase has initiated foreclosure proceedings in parallel with the homeowners seeking a loan modification and days before the foreclosure sale is scheduled, Chase tells them that they have been approved for a HAMP loan modification.  But, the papers never arrive and the house is sold back to Fannie Mae.

The reason this case didn’t stop there is that the Washington Post wrote a story on this particular family and their plight, and Chase decided that they would take a second look at the families situation.

For one thing, under Fannie Mae protocols (Chase just serviced the loan) the family should have been offered other modifications options.

So the publicity put pressure on both Chase and Fannie Mae and they discovered the case had not been handled properly.  The foreclosure has been reversed and the family is being offered other modification options.

Is this really the only way to get treated fairly by Chase contact the press?

Should “big” and “bank” be in your vocabulary together?

Bank of America (largest bank in the US) CEO Brian Moynihan, new on the job, shared his vision for the bank’s long term strategy on Tuesday.  Banks are being closely watched as they start to outline the ways in which they plan to recapture revenue that they are losing due to stricter regulation from the Credit Card Act of 2009, which has limited quite a few fees.

Some banks, like Chase, plan to get sneaky and use tricks to regain the lost income.  BofA showed some early indications that it might be heading down the straight and narrow path when it announced (in a splashy WSJ ad) it was doing away with its overdraft protection for debit cards entirely, having decided that it just wasn’t in the best interest of customers to continue the program.

So it was with some hope that I read about the new BofA CEO’s plans for the bank.

• The main focus is going to be making existing customers more profitable rather than seeking new customers.  They plan to do this by cross selling their various products to their existing customer base.  My concern is that this means customers can probably plan to be bombarded with mailings and harassed by bank staff constantly.  If they can pull this off without annoying people, perhaps getting different services from a single institution can be more efficient and cost effective for customers.
• BofA will focus on more modest and less volatile profits than before.  I read this to mean less focus on risky customers which likely means less focus on practices that make customers unreliable, like sudden and drastic interest rate increases, credit line decreases and punitive overdraft type fees.

But in general he completely missed the opportunity to talk about serving customers better.  After all, that is really what has changed over the last few decades with banks – they have gone from being institutions that were boring yet predictable in their financial results, and primarily focused on serving customers.  There is a huge need for one of  the large banks to lay claim to really serving customers, not just the lip service banks provide and then turn right around and screw you.  Only time will tell what type of bank BofA will be.

Granted, Brian Moynihan  was talking to investors, so perhaps it wasn’t the time and place to talk about the customer.  Still, I was disappointed and it made me wonder if there is really any use for big banks for people who want to be treated like a valued customer.

Chase changes debit card PINs with no warning or notice

We received this report from a reader today:

A couple of months ago, I tried using my debit card at a merchant and was told that the PIN was invalid.  I have two Chase cards so tried using the second and was told that that PIN was invalid as well.  I thought that I had made a mistake and forgot about it until a few days later when I was trying to deposit some checks and was unable to do so, again being told that the PIN was wrong.  Since I was at a branch, I went inside and had the PIN reset.  Yes, somehow, Chase had changed and re-set the PINs on both checking accounts!  I re-set the PINs but the PINs were then switched. Account A now had Account B’s PIN and vice versa (I mark the two cards so that I don’t mix them up).  I tried explaining this to my branch but they didn’t believe me.  No funds were missing but it really shook me up.

Chase is somewhat infamous for small technical screw-ups, at least according to all the stories we’ve come across.  Technical diligence doesn’t seem to be one of their strengths and this weeks 3-day outage has highlighted that in a big way.  The initial problem at least could be easily explained as a technical problem, but the reversing of the PIN numbers on the two cards probably not.

Or the initial problem could be explained another way.  Chase is also notorious for lack of communication.  When they change your credit card limit, they do it and send you a letter a month later.  When they have a major outage, they tell customers almost nothing.  When they take money from your account to satisfy an old debt that may or may not be valid, they say absolutely nothing.

Perhaps they thought they had some good reason for resetting the PIN numbers but felt communicating that was not important.

Dealing with zombie debt

An excellent article in the October issue of Consumer Report discusses what they call zombie debt – debt that is very old and may have been resold many times to many debt collection agencies.

Importantly, the article has some information on debt that you may not know:

Statutes of limitations exist on the length of time a collector has to sue a debtor, as do restrictions on reporting the debt to a credit agency. But there’s no time limit on the sale of debt. And many states let debt collectors revive a debt that’s past the statute of limitations if they persuade the consumer to make a payment.

The fact that various statutes of limitations apply to old debt makes it even more troubling to see Chase confiscating funds to satisfy old debts, valid or not, without any warning, notice, or opportunity to challenge the validity of the debt.  Often times this old debt is from companies that Chase has acquired over the years and the details of the debt may not be recorded properly.

If you have funds confiscated by Chase I urge you to challenge them as to the validity of the debt and investigate the statutes of limitations that may apply in your state and at a federal level.  Every challenge to this practice makes it less profitable for Chase.

NY TV news story on Chase abruptly raising minimum payments

Now that the outage is over, back to the real Chase-Sucks news – the stuff that Chase does to customers every day.

While extortion is a pretty strong word, how would you describe it when Chase knowingly puts people into an impossible situation by raising minimum payments.  Great story.