From: Black Unicorn <unicorn@access.digex.net>
Date: Wed, 9 Aug 95 16:06:07 PDT
To: Cypherpunks List <cypherpunks@toad.com>
Subject: Bank Fees and E-Cash
Message-ID: <Pine.SUN.3.91.950809190129.17834A-100000@access5.digex.net>
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- - - Bank Fees and the E-cash Niche.

Banks have gorged themselves on rocketing fees for the last five 
years.  The result is that typical bank customer currently pays 
150% of the amount of interest collected on accounts in a given 
year in the form of fees.  My prediction, and my hope, is that e-
cash will cut through the pretense upon which the rationalization 
of many of these fees is based, and even market itself on this 
point- Lower Fees.


- - - New Fee Schemes

"Overdraft Assistance" and the Myth That Only Irresponsible Bank 
Customers Bounce Checks or Overdraft.

Banks have begun to implement policies intended to help the 
customer overdraft.  They may, for example, cash the largest 
checks first such than an overdraft will hit with several small 
checks rather than one or two large ones causing multiple 
overdraft fees.  Banks have begun to routinely delay crediting 
checks for 48 and 72 hours, and out of state checks for anywhere 
from 3-14 business days.  ATM cash deposits are typically subject 
to 24-48 hours delay.

The "Unofficial Credit."

Many times the delays in crediting various transactions are hidden 
by the "unofficial credit."  Most noticeable in ATM deposits, a 
credit is given but should demands on the account draw into the 
"unofficial credit" an overdraft will be posted on the rationale 
that an "official credit" has not yet been posted and the funds 
are thus not "officially" available, this despite the fact that 
the funds will appear available to ATM balance requests and 
statements.  Of course the bank will profit from the "unofficial 
credit" to "official credit" interest float regardless of what 
overdraft fees might be charged.
The "wire credit" and "official wire credit" are another example.  
Banks receive a wire transfer on Monday, send a "electronic 
payment advice" the same day, but post the credit to the account 
"officially" on Tuesday.  The original intent is for the bank to 
be able to take advantage of the interest "float" between the 
receipt of funds and its credit to the account.  The result is an 
additional overdraft potential.

The Separate Wire Office Hours.

Often times the bank's "wire" office will close hours before the 
branch closes.  Wires received some hours before closing on Friday 
will not be credited until the following Monday.

The ATM Processing Time Table.

Many bank only begin processing ATM deposit transactions an hour 
before closing, crediting only as many deposits as can be 
processed in this time, the remainder are not processed until the 
next morning.  ATM debits are, of course, processed all day.

Check Processing Time Table.

In a given day, debit checks are processed on an account before 
deposit checks are processed.  Obviously, an account that 
overdrafts overdrafts only because of the order in which checks 
are processed.


- - - The Created Convenience Fee

A great many bank fees fall into what I call "created convenience 
fees."  Really created convenience fees resemble airport customs 
bribes in third world countries.  The customs officer makes what 
should be an easy passage terribly difficult, then demands a "fee" 
to make travel as easy as it should have been to begin with.  The 
net effect is for the traveler to pay to dispense with a problem 
created by the party receiving the fee.

Nigeria is a prime example.  Upon arrival the average traveler 
will find him or herself embroiled with licensing deficiencies, 
visa fees, entry fees, the threat of quarantine, seizure of 
expensive equipment for "inspection" and other such invented 
requirements.  Some hours into the "negotiations" the customs 
official will offer to "overlook" these transgressions for a 
"fee."  This is a created convenience fee.

Banks fall into this category by such programs as "overdraft 
insurance" whereby banks enact policies which, as we have seen, 
make it painfully easy to overdraft and then charge a monthly fee 
to avoid the overdraft charges.

- - - The Result

Bob is a sort of combination of my own experience and discussions 
with other bank customers in D.C.

Bob has an account in Washington, D.C. with $1500.00 in it.
Bob Receives a wire at 3pm Friday for $1700.00
Bob writes five checks on Friday, one for $1400.00, one for
  $200.00, one for $150.00 and two for $100.00.  Totaling
  $1950.00.
Bob deposits 4 checks totaling $2000.00 in the night depository
  Saturday.
Bob deposits $50.00 in cash in an ATM on Saturday Night.
Bob checks his ATM balance ($3250.00) and withdraws $50.00 from an
  ATM on Sunday Morning.

Bob's wire arrives after the wire office has closed for the day - 
  an "unofficial credit" is posted Friday before closing anyhow.
Bob's bank processes the $1400.00 check first, leaving Bob's
  account with an "official" $100.00 and $1700.00 in "unofficial
  funds."
Bob's bank processes the $200.00 check, notes a $100.00 overdraft,
  charges $25.00 for this check, refuses payment on the remaining
  three checks and drops a $25.00 overdraft fee plus a $10.00 "bad
  check" fee for each.  Total charges:  $130.00
Bob's bank processes the $50.00 ATM withdrawal, which overdrafts.
  $25.00 fee is posted.  Total fees so far:  $155.00.
Bob's balance for the majority of Monday:  -$255.00.

Bob's bank begins to process deposits, notes all the checks for
  deposit, $1000.00 of which are out of state.  No checks are
  credited.
Bob's bank notes the ATM transaction at the end of the day on
  Monday, but does not credit it immediately despite the fact that
  it is cash.
Bob's bank credits the ATM deposit to Bob's account on Tuesday.
Bob's balance is now -$205.00  Middle of the day Tuesday, Bob's
  account has been below its required minimum $500 balance for 24 
  hours.  A $50.00 fee is charged.  End of the day Bob's wire is 
  "officially" credited - a $10.00 fee is charged for receiving 
  the wire. (No, I'm not kidding)
Bob's bank credits the $1000.00 of in state checks on Wednesday
Finally, on Friday, Bob's out of state checks are deposited.

Bob will likely be liable for $50.00-$75.00 fees for each of his 
bounced checks as vendors will probably charge hefty fees.

Telecheck will have Bob on the 10 most wanted list for $350.00 in 
bounced checks.  Bob's check writing ability is about nil in D.C. 
for the month it will take him to clear it up.

Bob gets a mailing a week later telling him of the advantages of 
his bank's newest "overdraft insurance" program.  $150 a year.

Bob, for what would literally be a series of very responsible 
transactions, is looking at over $215.00 in bank fees, and at 
least $150 in bounced check fees from vendors because of violation 
of technical rules the bank has designed to cause fees to be 
charged.

- - - E-Cash

I cannot believe that e-cash won't be able to solve some of these 
problems, and I hope it will limit its own fees to usage.  To me 
this is a classic argument for small house e-cash shops.  Citibank 
and Mastercard are going to fight for their fees.


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