Tag Archives: banks

Some Mortgage Deferral Details:

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Two weeks ago, we talked about a PR release from the six big banks that they’ll help you with up to six months of mortgage payment deferrals. Reaching your bank may be a challenge as Scotiabank alone has been receiving around 80,000 calls a day to at least inquire about payment relief, according to one of their spokespeople.

As predicated, the rules and criteria are still evolving. One RBC employee stated that they were “changing by the hour” in a CBC interview. With that in mind, this is what appears to be happening now:

You may be able to defer your full mortgage payment for up to six months. It appears all the banks have a notice on their website to point out that your interest will continue to accrue. You are not getting a pause button, just an extension.

The bank will add the interest you are not paying with the deferral and adding it to the principal owing. In other words, if you have a $300,000 mortgage and take six deferrals, that $4,500 in interest is added to what you owe. You will then be paying interest on top of interest since your balance went from $300,000 to $304,500. The increase in your balance will now give you a higher payment when your renewal comes up. You’re adding the skipped interest to the next 15, 20 or 25 years.

As we talked about two weeks ago, the banks aren’t out one cent – in fact, they’ll make a profit on your deferrals. But for those who need the breathing room and help, it’s probably not the time to look gift horse in the mouth…

It is not an automatic approval. A former Bank of Montreal manager was asked to supply a new full credit application to see if he qualified. But the BMO wouldn’t actually tell him what the new approval criteria was! A few days ago, a CIBC customer with mortgage and line of credit was on hold for 11-hours and 5-hours the next day only to be told by their call centre that there was nothing they can do for her. So much for the press release that the banks would “work with Canadians.”

Yes, they will update their information on you first. It’ll take them one second to look at your credit score. Internally, they’ve set a number: If you’re below that, you will not qualify as they deem you too high a risk for a deferral – whether that’s your mortgage, credit line or credit card. They’ll want to know if you’re temporarily laid off or not likely to go back to work. And they’ll look at your other debt levels off your credit bureau report. In other words, it’s not just a quick call and you’re done.

Is Traditional Banking Dying?

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Banks have now spent over 30 years getting us out of the branch and onto using ATMs. They’ve also spend almost a generation slowly getting us to use online banking. Those are certainly big changes to the traditional banking model. But when they don’t see you in the branch, it’s much more difficult to sell you products or services.

On the one hand, that’s great news. You can’t be sold something you don’t need, or that’s not suited for you, if you don’t talk to the commission based people in the bank. On the other hand, banks’ profits keep reaching new highs of billions per quarter. Well, that’s because the service charges increase twice a year now and we just take it without firing them.

But how long can this go on? Here are some insights from the founder of a new U.S. online bank called Bankmobile. They’re U.S. stats, but we’re not much different here in Canada:

The average person goes into a branch twice a year, but does 20-30 transactions a month. What’s even more stunning is that the average bank branch opens between 40 and 50 new accounts in a year! That’s it!

The average online banking customer is 27 years old. And I’d bet most of them have never been anywhere else but online.  I recently talked to a 20-something who had never seen a cheque, never had a cheque book, and had no idea what they are, and what they do. He’s not alone – an entire generation has direct deposit and online everything else.

The millennial generation of 35 and under are actually way smarter than us older people who deal with banks. As of an hour ago, online bank Tangerine (bought by Scotia from ING) has a basic savings account rate of 1.1% vs. TD of zero interest until you reach $5,000. Then it’s 0.5% – same as the other banks. So the online banks are more than double the rate and don’t grab your first $5,000 without paying you a cent of interest.

In the U.S., the branch network has shrunk by 10% over the last few years and is expected to shrink another 20% in the next three. The largest nine Canadian banks have 6190 total branches – no change since 2012. Many fewer visits, but still an incredibly expensive branch network. Small wonder they have the highest service charges, up them twice a year, and literally half the savings returns compared to online banks.

Maybe the under 35 generation is helping us all out by avoiding the physical banks in favour of online banking at vastly lower fees and significantly higher savings rates.

George Boelcke – Money Tools & Rules book – yourmoneybook.com

Bank Staff Speak Out: You’re the Prey

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This past week, CBC Go Public did an investigative report on the incredible pressure front-line bank staff have to sell products. They mentioned two banks, but this isn’t about those two – they all do it. I have a friend that worked for a third one until she got out, and she confirmed the accuracy of the story. Plus, a few weeks ago, we talked about a fourth bank that charged a Kelowna couple over $25,000 in life and disability insurance on their credit line for more than 20 years.

So don’t focus on the bank, focus on the story. The what, why, how to protect yourself, and what to do is a full chapter in the Money Tools book. It really is worth the trip to Mosaic and the $20 – this is just another of many reasons.

Front line bank staff have always had a bonus or commission for sales. But low interest rates have now put a major squeeze on them. One described it as: A choice between keeping my job and feeding my family or doing what’s right for the customer. That starts with selling basic chequing accounts that they have for four bucks but jamming the customer into the $29 monthly fee. It means pushing credit cards right at the teller, and the constant drive to sell the really bad financial traps of overdrafts.

It starts when you show up at the teller with your ATM card. The screen will come up with their so called “Advice Opportunity” to sell you something. One teller shares that “customers are prey to me. I will do anything I can to make my sales goal.” A number of employees confirmed that elderly customers are their common target because they’ve grown to trust their bank for years.

Go Public did a number of hidden camera tests in Vancouver. They found one teller offering to activate overdraft coverage without saying anything about the fees. Another opened a $15 a month chequing account, never mentioning that the $4 one would have done the same thing and suggested opening two more accounts. And so on and so on…

Longtime employees shared that they feel like used car sales people. The story also covered a number of long term staff who have quit because of the incredible pressure to sell, sell, sell.

I guess almost $2 billion in profits each quarter just isn’t enough. It’s sick, sad, and bad. Banks are not your friend – I’ve talked about that for decades. And a note to the professor who stated this will come back to hurt the banks: I wish you were right, but you’re not. There are only five major banks. They all do it. Unless someone moves to a credit union, they’re in for the same treatment across the street at the other four.

Here is the link to the CBC story: http://www.cbc.ca/news/canada/british-columbia/td-tellers-desperate-to-meet-increasing-sales-goals-1.4006743

Change Of Plans: Your Bank Wants To See You Again

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With new credit card legislation a couple of years ago, card issuers can’t increase your credit limit without your consent. Remember that their main goal is to have you owing the most amount of money and making the smallest payments. THAT is how they maximize their interest income.

These days, you’ll get a notice on your statement that you qualify for a limit increase – you just need to call. Or they’ll send you a separate mailer, and may even phone you from their call centre. Don’t do it – unless your limit is really low, it generally becomes more temptation.

The trend of getting you out of the bank and to the ATM machines is changing. Think about it: They can’t solicit or sell you very well if they can’t see you!

When I was at one of the big no-service banks last week, I overheard the teller next to me tell people: My screen just showed that you qualify for a limit increase on your card. Want me to go ahead and put that through? Is that clever or what? And in the few minutes I was there, this teller was three for three. She converted all three people she asked to a higher limit. Great for the bank…often not so great for the person thinking they’re being flattered. Scotiabank does it through their ATM machines. If you’re up to bat, they’ll have a screen that advises you that you qualify for a Visa limit increase and just click here. However, it’s not as effective as seeing you in person.

What the banks want to do is to make you sticky. That’s bank slang for having you deal with them on as many products as possible. The more diverse business they get from you, the lower the odds are that you’ll ever leave them. If you have an RRSP, your mortgage, savings, a term deposit, your checking account, and a credit card, they’re betting you’ll never go through the hassle of shopping around and moving somewhere else.

Three Things I Didn’t Know

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Wal-Mart, the world’s largest retailer has their own MasterCard. That’s something probably everybody knows as we keep getting pitched at the cash register. But I didn’t know that it is handled by Wal-Mart Canada Bank. Yes, Wal-Mart is a bank, something they got approval for in 2010. As of now, it isn’t a deposit taking institution but I wonder if they’re still working on that.

Virgin Money is Sir Richard Branson’s bank. Branson is best known for Virgin Air, Virgin phone, etc. He isn’t in Canada, but keeps talking about it, mostly because our pathetically small number of banks that automatically mean zero competition and huge fees and interest charges. I would love to have him come to Canada.

The one thing you know about Bronson is that he enters industries and everyone gets very nervous. Because Bronson is a huge believer in customer service and always approaches businesses from a totally different business model perspective. One of the features of Virgin Money is that it has facilities to quarterback family and friends’ loans. If you’re making a loan to a family member or someone you know, Virgin Money will do all the set up, paperwork, contracts, filing, signing and collections. I am absolutely dead set against family loans, but anyone who ignores me would have a great formalized way of doing it.

With new credit card legislation a couple of years ago, card issuers can’t increase your credit limit without your consent. Remember that their main goal is to have you owing the most amount of money and making the smallest payments. THAT is how they maximize their interest income.

These days, you’ll get a notice on your statement that you qualify for a limit increase – you just need to call. Or they’ll send you a separate mailer, and may even phone you from their call centre. Don’t do it – unless your limit is really low, it generally becomes more temptation.

What I didn’t know is that the trend of getting you out of the bank and to the ATM machines is changing. Think about it: They can’t solicit or sell you if they can’t see you!

When I was at one of the big no-service banks last week, I overheard the teller next to me tell people: My screen just showed that you qualify for a limit increase on your card. Want me to go ahead and put that through? Is that clever or what? And in the few minutes I was there, this teller was three for three. She converted all three people she asked to a higher limit. Great for the bank…often not so great for the person thinking they’re being flattered.

The Giant Banks Are At It Again

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If you’re really quiet, and listen closely, that sucking sound you’re hearing is your bank ripping you off for some more, and bigger, service charges this month.

I’m looking at the notices from two banks. The others are pretty much in lockstep with each other, so there’s no point singling out these two. If you listened last year, this is now the second increase. It used to be once a year, now they’re changing the fees twice a year. Why? Because we don’t complain, and we don’t take our business elsewhere. So why wouldn’t they, if you think about it.

By the way, the reason they do it in February is because you got the notice for these in December. There’s an internal banking industry newsletter called the Fee Income Report. It had a story that the two times a year banks should give notices for increases are in August and December. Why? Because in the middle of summer, and just before Christmas, we are least likely to take the time to read our bank statements, or the inserts to give us notice.

Here are some of the highlights of the latest increases:

Different types of chequing accounts are increasing their service charges around 20 to 30 percent. That’s an insane increase, and it’s the second time in the past year!

On one account, with a couple of banks, it looks like the service charge went down, or was eliminated. Well, not really. It’s a shell game, because they drastically reduced the number of free transactions before you have to pay for each additional one.

There’s a bunch of accounts that will now also add a $1 charge to send your statement. Yes, you have to PAY to find out what the transactions are. For on-line statements, you won’t have a charge, but now you have to pay to get it by mail.

The carrot to get your monthly service charge waved just got a lot further away. The minimum monthly balance went up by 25 to 50%! So if you have $1,500 or $2,500 in your account, the fee is waived. But then, that’s billions of dollars the banks get to use for free, if you add up all the chequing accounts.

On savings accounts, the per-transaction fee increased by 25 to 50% as well. And that’s for EACH transaction on savings accounts.

Heavens forbid you ever bounce a cheque by mistake, because that’s now $40 to $45. Or the can trap you with an overdraft which changed with a number of banks from prime plus a bit to a fixed 19% or so. With Scotia, for example, that means the overdraft rate has more than doubled.

I would bet almost nobody knows this, or has read the notification. You have to look at your statement, and get in touch with your bank. Better yet, move your business to the credit union. Because the only way things will change is when you complain and vote with your feet! Until then, the banks know that THE most loyal clients are people with basic savings and chequing accounts. That’s also a large quantity of people, so $2 or $3 in added fees, twice a year, is billions of dollars of pure profit.

Happy New Year – For Some More than Others

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Next year, a bunch of businesses, including American Express are going to be reinvented as banks. GMAC, the ex finance arm of General Motors, just made it yesterday. No, of course they’re not a bank. It’s just a neat way of getting in on the bailout money!

This was a hugely profitable company until they took stupid pills and got into sub prime mortgages in a huge way through their mortgage division Ditek.com that you see advertising on TV all the time. Two years ago, they made billions of dollars, last year they lost about $8 billion and now finance only about 2% of GM vehicle sales. How sad…but it was either deal with it, or get a bailout. I know I’d pick the free $6 billion…

In the U.S., the car loans 60-days in arrears is up 17% for the 3rd quarter. That just came out – and that pain will continue to worsen. If people can’t pay their current car loans there isn’t going to be any relief for the Little Three formerly known as the Big 3.

For the coming year in Canada, get ready for a ton more marketing of prepaid Visa and Mastercards. They’ll make the same profit, along with an administration fee, and have no chance of delinquency. After all, you can’t go in arrears if it’s all pre-paid. But right now they’re all freaked out since their internal rules require expiry dates and a number of provinces have outlawed that rip off.

Did you get any gift cards for Christmas? In our family there were none – OK, other than Tim Horton but if they go under we can likely shut down the whole country.

If you did, get out there and use them. The sooner, the better. It’s a real crap shoot if that merchant or restaurant will still be in business to honour the card and that isn’t worth the risk. Last week, a U.S. report showed that an estimated 148,000 retail businesses will go under in 2009. Someone paid real cash for that gift card but until you use it up, all you’ve got is an I.O.U.

Here’s one more prediction for 2009: As the economy gets worse, there’s a business that’s up 30% as a result: It’s on-line psychics. Yes, for about two to four bucks a minute, or $100 an hour, psychics are doing very well predicting your financial future on-line.

I’m going to do that free for you. Think of it as your late Christmas present: One on-line psychic was quoted as saying he tells people (that’s code words for: he tells everyone the same thing) your finances really won’t improve until about the middle of next year.

Now aren’t you glad you didn’t have to get on the computer to get that?

Have a happy New Year and we’ll talk about the “real” New Years resolutions in the coming weeks. You and I both know that today is not the day for any resolutions which will survive beyond a week or two…

Is There A Problem Here?

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Last week, the Royal Bank released their annual survey of Canadians’ spending and savings habits. Now, any survey gets huge media coverage. In most of the major newspapers across the country it was a full five column story whereas I can’t get one column talking about the insights into credit and debt. But more complaining in a minute.

The survey shows that our savings are dropping and our debt is growing. Yes, it’s all backwards. 83% of us worry that we don’t have enough savings and even more than that say they can’t save as much as they would like. Less than half of us have any emergency savings and under 25% have three month’s worth of savings – and that has to be a minimum rainy day fund! Here’s what I’ve been saying for years and now there’s an actual stat: 67% of us think of our credit cards and line of credit as our emergency fund!

Now onto the whining part: Is it just me or is there some huge conflict here? The survey by Ipsos Reid was sponsored by a bank. Banks are in the business of lending money. That is where they make a profit. When we borrow and go broke – they get rich. When we save money – they pay US interest and on their financial statements, that’s a bad thing!

So am I right to be suspicious that banks are preaching savings while all their ads focus on selling their credit cards and debt? Their Sr. VP of Banking was quoted all over the story that us Canadians should save more, rely less on credit and be ready for financial emergencies. You bet, it’s totally right. But does that mean he will change the whole focus of the bank away from debt and onto marketing savings, lowering service charges and expense ratios on their mutual funds, make GIC easier to obtain and stop charging service charges on savings accounts? I’m thinking not! For me, actions always speak louder than words.

If I’m too harsh or out to lunch – I’m two clicks away from sending me a note, because my purpose and passion is not to be right but to make you think!