Perhaps you have overdraft protection for your checking account. I do. The Roanoke City Public Schools have had it since 2008.
They arranged for $10 million worth with Wachovia Bank, and they’ve renewed it each year since then, though like me they’ve hardly ever used it.
The first year, the “administrative fee” to have the account was $1,000, not counting the interest the schools agreed to pay if they used it.
After Wachovia failed in the 2008 financial crash, it was taken over by Wells Fargo, one of the largest banks in the country.
The next year the overdraft fee also was $1,000. Then last year it doubled, to $2,000. In June, when school officials sought to renew it again, Wells Fargo demanded $35,000, exclusive of interest.
This raises a number of questions including “Why?” but first let’s back up a little.
The school system obtained the overdraft protection because it seemed like the fiscally prudent thing to do, School Board Chairman David Carson told me.
The schools’ annual budget is around $140 million and almost every dime comes from the city government, the state government, and the federal government.
The school system cannot control when those payments arrive, nor can they easily control the dates that they must pay teachers, administrators, etc. Payroll is by far their largest single cost.
If a payment to the schools came in late, then hundreds or thousands of paychecks could bounce, and so could the checks employees wrote believing they had money in their accounts. So that’s why the schools established the overdraft. They have never had a balance on it for more than one day, Baker said.
Now $1,000 or $2,000 a year for such convenience is one thing, but $35,000 is quite another. Especially for a financially strapped school system that has been closing schools, laying off teachers, selling its buses, raising class sizes, cutting health insurance benefits and more to save money.
$35,000 equals a little more than half a teacher (including benefits), or a little bit less than half a school bus, or almost the cost of a head janitor in a school, or nine of those “smart” blackboards that are cropping up in classrooms, Carson told me.
The question isn’t, “Can the schools survive without the $35,000?” Of course they can. But there will be a bit less instruction or perhaps a dirtier school or more strain on the transportation system or nine fewer of those whizbang blackboards installed this year.
Now back to the other question: “Why? What’s the justification for the 1,650 percent increase in the fee?”
Because that’s an eye-opener. It’s kind of like paying $50 to fill up your gas tank one day, and then finding out the next that a fill-up costs $875 at the same station.
Carson and Deputy Superintendent Curt Baker Baker each said Wells Fargo blamed the increase on recent financial reform. Baker provided me with an Aug. 11 letter from Wells Fargo that said so.
“I cannot underscore enough that the new cost structure of the line of credit is a direct result of higher current and expected capitalization requirements of the banking industry,” Patrick Dixon, senior vice-president for government and institutional lending, wrote. “Any year-over-year changes in our cost structures, policies and internal guidelines are reflective of our adaptation to the evolving financial landscape and regulatory changes.”
What he’s talking is the Dodd-Frank Wall Street Reform and Consumer Protection Act, which passed Congress last year.
That was designed to prevent debacles such as the 2008 financial crash, which required taxpayers to bail out Wall Street and the big banks because of wildly irresponsible bets they had made with their customers’ money. Wells Fargo got at least $25 billion in the bailout, which it repaid with interest.
Bankers have been squealing loudly about how awful the law is and how much money it will cost them and how they would have to pass those costs along their customers. They want you to believe it’s the source of every problem in the banking industry.
You see, it is “regulation,” one of the dirtiest words in certain circles around Washington and on Wall Street these days. Even though a lack of regulation is what led to the 2008 crash.
Harry Gural, a spokesman for Rep. Barney Frank, D-Mass., told me it’s “complete nonsense” that Dodd-Frank mandates such wildly increased fees.
I also put the “why?” question to a Wells Fargo spokeswoman, Kristy Marshall. Her answer was somewhat different from her company’s senior vice president. Here is what she wrote in an email:
“This is customary when clients have large unused lines of credit, such as $10 million. Capital is reserved and if the client does not use the line, we charge an unused fee. The usage is reviewed at the annual renewal period.
“These costs existed pre-Wells Fargo, but the bank was “subsidizing” the costs for Roanoke City Public Schools because of the City and Schools relationship; however, that is no longer a sustainable business model given the present financial landscape.”
I later asked Marshall specifically whether the financial reform bill required the bank to charge the higher fee, and what section did that. She responded she didn’t know the legislation well enough to answer the question.
The city has not renewed the overdraft protection. Baker is shopping around for a better deal.
I’m not sure what conclusion you have drawn from this, but here’s mine:
Wachovia was headquartered much closer to Roanoke, and had much longer ties to our region than Well Fargo, which never really cared much about doing business in Roanoke, or they would have expanded here before they bought Wachovia.
Now that they’re here, Well Fargo figured they could squeeze some extra profit out of our schools. They announced Wednesday that they will try something similar to checking account holders in five states: a new, $3-per-month charge for the privilege of having a debit card.
So it seems like it’s all about making more money, but they’re pinning the blame on financial reform, and meanwhile the bank seems to be having some trouble getting their stories straight.
If I was their spokesman I’d lay it out more bluntly. I’d say:
“You’re darn right we want more money from you dumb taxpayers. That’s part of our business model. And by the way, thank you for the no-fee $25 billion loan back in 2008.
“But seriously, didn’t you know you can’t shake hands with a rattlesnake? That we bite? That’s what we do!”
Such bluntness would probably not go over well with bankers, though. So I guess I’ll stick to writing.
Carson said he had received word Thursday night that locally-owned Hometown Bank was willing to grant the schools $5 million worth of overdraft protection for a $2,500 annual fee.
I reckon that’s a signal Hometown Bank cares more about our kids, this community and its schools. Perhaps Hometown will wind up with all the city’s business, though it’s too early to say.