How Bank of America and Illinois are cashing in by squeezing the poor

If you’re poor and have to write or cash checks, life got tougher this week, thanks to Bank of America and the state of Illinois.

The two entities are out to boost the fees many low-income people pay for using personal and government-backed drafts, including benefit checks.

Bank of America is ending a free customer checking account that doesn’t require a minimum balance. Gov. Bruce Rauner’s administration is inching closer to implementing higher check-cashing fees for currency exchanges, which are often the only retail banking option in some neighborhoods.

It’s an outrageous “one-two” punch that’s aimed directly at people who can’t afford fee hikes. These faulty decisions promise to hurt thousands of low-income households and economically disadvantaged groups throughout the Chicago area and the state.

“People who don’t have bank accounts and cash checks at currency exchanges are disproportionately low-income, people of color, people with disabilities, older adults, immigrants, and other vulnerable populations that are least able to pay more,” said Dory Rand, president of the Woodstock Institute, a research and public policy group that tracks retail banking trends, in an email to me.

Bank of America is getting grief for dropping its free checking product for customers with low balances and shuffling them into accounts that charge a $12 monthly fee — unless the customer has a monthly direct deposit of $250 or more, or a minimum daily balance of $1,500.

The free checking account, which began in 2010, was meant to entice customers into using only electronic banking, like ATMs and phones. The no-monthly-fee component applied if customers refrained from using tellers and got statements online. The bank started phasing out the product in 2015.

Yet is it any wonder the Charlotte, N.C.-based banking behemoth’s decision was greeted with boos and hisses?

Check out the online petition on Change.org that’s calling on the bank to reinstate the free checking option. As of Wednesday afternoon, it had more than 84,000 signatures, compared with 50,000 on Tuesday.

I find Bank of America’s decision to automatically funnel its electronic banking customers into that higher-fee checking account questionable. The nation’s second-largest bank, with over 100 branches and ATMs in the Chicago area, does have a more reasonably priced checking account called SafeBalance.

I asked Bank of America why it didn’t move its no-fee clients into that account. Spokeswoman Betty Riess said clients were made aware of SafeBalance and encouraged to “talk to us about the account that best fits their needs.”

Let me get this straight: The very customers who were encouraged never to go into a branch and chat with tellers are now supposed to track someone down and talk about this important banking decision.

By the way, this isn’t the first time Bank of America has faced a customer backlash. In 2011, it dropped plans to charge a $5 monthly fee for debit card purchases.

Maybe the lender will backtrack again, but don’t count on it.

Should Bank of America — and the country’s other big consumer lenders — be offering no-fee checking options to those with low, or no, account balances?

At the risk of incurring the wrath of free-market types everywhere, my answer is: You bet.

At the end of the day, these are still community banks, chartered by the government and backed by taxpayers when they get into trouble — as we saw in 2008 when the federal government bailed out the nation’s largest lenders, among them the Bank of America.

They should strive to serve as many people as possible. Believe me, they’ll still make money in the long run, particularly as some no-fee customers become prosperous small business, auto loan, mortgage and credit card customers.

This lack of banking options forces the un-banked to use other financial services, including currency exchanges — a business that’s poised to get a very nice raise from the Rauner administration.

As this column has reported, the agency that regulates currency exchanges — the Chicago area has about 400 outlets — has enthusiastically approved double-digit percentage increases of the industry's state-sanctioned check-cashing fees.

Under the plan, cashing a check of $100 or less will cost $1 and 2.5 percent of the check's face value. That's a whopping 46 percent increase over the current rate. Checks between $100 and $1,250 will cost 2.5 percent of the face value, an 11 percent jump; checks of $1,251 or more will be charged 3 percent of the draft's amount, a 33 percent hike.

Yes, the currency exchanges have been operating without a rate hike for many years. But this blanket increase goes too far, outweighing the risks these businesses take in cashing payroll or government checks, which are virtually risk-free compared with personal checks.

Following state protocol for implementing the increase, the Rauner team this week gave a panel of lawmakers second notice that it continues to back its plan. Woodstock, other advocates and opponents in the General Assembly hope to alter the rate schedule through legislation.

Put all these moves together and it’s a bad situation, one with lots of checks but very little balance.

roreed@chicagotribune.com

Twitter @ReedTribBiz

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