Slimy Bank Practices, and How to Fight Back
There are many ways in which a bank can scam you out of your rights and cheat you out of your money, by skirting the edges of the law and by outright lying. In this issue of the newsletter, we'll let you in on a few of the more common types of dishonesty you'll run into at some banks.
(1) Many banks now have a desk staffed by someone they call an "Investment Counselor". It is in fact a salesperson, who will attempt to entice you into putting your money into investments other than savings accounts or CDs. Be aware that these alternate investments are not insured by the federal government as savings accounts and CDs are. Even if they are insured by some other entity, you could lose some or all of your investment.
(2) A bank employee may ask for information that you don't think they need and don't want to give them, or they might refuse to reveal information that you want, citing "a rule", or "bank policy", or "a regulation".
Ø First of all, they may be lying. Bank employees have been known to invent phony requirements and prohibitions for their own purposes.
Ø If there is indeed a federal or state regulation, banks often have the power to make exceptions. If there is only a bank rule or policy, then a bank officer almost certainly has discretion in the matter.
(3) If a bank decides that you owe it money, it might unilaterally take the funds out of the account in question or out of another account you have at the bank. For instance, if it believes you have overdrawn your checking account, and if you have a savings account or even a CD in the same bank, the bank might withdraw the funds from there. Even if you dispute their claim and you have proof that the bank is in error, some banks will keep the money until they have "completed our investigation". During that time, you lose access to the money as well as any interest that it might otherwise earn.
Almost all banks these days are clients of the FDIC (the Federal Deposit Insurance Corporation) but some few are not. Money in an FDIC client bank is insured (up to a specified limit, as will be described in Part II of this article next month) by the U.S. government. If a bank is not FDIC-insured, ALL your money could be lost if the bank fails.
Banks have been known to calculate interest incorrectly, and the error is often in favor of the bank. The likelihood of miscalculation is highest just after a bank has been taken over by some other bank, because computer systems are being merged and incompatibilities may exist. (The author of this article has personal experience with that situation: A CD, which was supposed to earn a fixed rate of interest, was credited with interest at a rate that varied for several months, sinking as low as one half the proper rate part of the time.)
(6) Banks sometimes offer new services without mentioning that there are associated fees.
Ø The service may be advertised as free or low-cost, noting only in small print that after an "introductory period" there is a cost.
Ø Even if the service is free permanently, there may be hidden associated costs. For instance, although a checking account may have no minimum balance requirement, you might be gouged for such things as printing of checks or deposit slips, or you may be limited to a small number of checking transactions per month, after which you are charged heavily for each additional check you issue.
The above list does not exhaust the repertoire of bank misbehavior, some of which amounts to scam. Also, there are devious minds constantly at work thinking up new ways to mislead you. In the next issue, we'll tell you some protective measures you can take.
W. A. Shapiro