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Wednesday, November 16, 2011

Bank Of America Makes Millions Charging Fees To Withdraw Unemployment Benefits

by Marie Diamond

Published on Monday, November 14, 2011 by ThinkProgress

Late last month, a national backlash forced Bank of America to abandon its plan to charge customers $5 a month to use their debit cards. But Huffington Post reports that the corporation has quietly been mining other sources of fees, preying on its most vulnerable customers to rake in millions in revenue:

  Shawana Busby does not seem like the sort of customer who would be at the center of a major bank’s business plan. Out of work for much of the last three years, she depends upon a $264-a-week unemployment check from the state of South Carolina. But the state has contracted with Bank of America to administer its unemployment benefits, and Busby has frequently found herself incurring bank fees to get her money.

To withdraw her benefits, Busby, 33, uses a Bank of America prepaid debit card on which the state deposits her funds…Busby visits the ATMs in her area and begrudgingly accepts the fees, which reach as high as five dollars per transaction. She estimates that she has paid at least $350 in fees to tap her unemployment benefits. [...]

In short, the same banks whose speculation delivered a financial crisis that has destroyed millions of jobs have figured out how to turn widespread unemployment into a profit center: The larger the number of people who are out of work and dependent upon the state for sustenance, the greater the potential gains through administering their benefits.

Millions of jobless Americans like Busby have little choice but to rely on the bank’s prepaid debit cards to collect their monthly benefits. Forty-one states have contracted with Bank of America, Wells Fargo, JP Morgan Chase, and other banks to provide access to public benefits, allowing them to collect unlimited fees, both from the unemployed and state governments. South Carolina, for instance, pays Bank of America a fee for each transfer it facilitates on a debit card, and for handling direct deposit of unemployment benefits.

Families who are living hand-to-mouth are outraged to discover that banks worth trillions of dollars are taking such a big cut of their benefits, when they depend on every penny. The New York Times reports today that banks have been quietly raising fees on everything from replacing lost cards to monthly maintenance. BofA customers can be charged $1.50 for speaking to a customer service operator more than once a month, $1.50 for using an “out-of-network” ATM, and $0.50 for entering the wrong PIN number too many times.

Bryce Covert at New Deal 2.0 reported earlier this month that, “big banks are making a tidy profit by acting as middlemen for what should be publicly provided services.” U.S. Bancorp made $357 million in revenue from its unemployment benefit card division — more than one-fourth of its total revenue. Meanwhile JP Morgan “made $5.47 billion in net revenue for most of last year in the division that handles food stamp cards.”

Fed up with big banks’ exorbitant and never-ending fees, customers have been flocking to credit unions. One survey found that credit unions gained at least 650,000 new customers since September 29, the day Bank of America announced its debit card fee.

© 2005-2011 Center for American Progress Action Fund

    Also republished to Commondreams.org

Tuesday, November 15, 2011

NY Times Previews Life in America under Romney

By Dartagnan       Sun Nov 13, 2011

And America under Romney gets, well, screwed.

In exploring the machinations of Bain Capital, Romney's private equity firm,  which Romney holds out as a cornerstone of his campaign to convince Americans of his business savvy, the Times obliquely opens a window into what we all could expect from a Romney Administration.

Mr. Romney’s career at Bain Capital, which he owned and ran as chief executive, is a cornerstone of his campaign for the Republican presidential nomination — a credential, he argues, that showcases the management skills and business acumen that America needs to revive a stalled economy. Creating jobs, Mr. Romney says, is exactly what he knows how to do.

The White House, though, is already preparing a less flattering portrayal, trying to frame Mr. Romney’s record at Bain as evidence that he would pursue slash and burn economics and that his business career thrived by enriching the elite at the expense of the working class.

If that latter paragraph sounds familiar, it should. Although they may not have pitched tents in Zuccotti Park, the Obama Administration's campaign team knows full well that Americans are seething right now, and are unlikely to be enamored with a candidate who made his fortune performing the same function as a corporate raider.

Bain Capital's behavior towards the Illinois medical supply company Dade International is a perfect microcosm of what Americans feel has been done to their country over the past twenty years.  While Romney's firm netted 242 million dollars, eight times its original investment, the company ended up laying off 1700 workers and filing for bankruptcy.  The only word that adequately captures what Romney and Bain did here would be "looting:"

They extracted cash from the company at almost every turn — paying themselves nearly $100 million in fees, first for buying the company and then for helping to run it. Later, just after Mr. Romney stepped down from his role, Bain took $242 million out of the business in a transaction that, according to bankruptcy documents and several former Dade officials, weakened the company.

It seems clear from some of Romney's more infamous statements on the campaign trail that while he may have left Bain in a physical sense his spirit remains entwined with the philosophy of his beloved company:

Romney the candidate can still frequently sound like Romney the C.E.O. On the campaign trail, he has taken a tough-love approach to the economy, suggesting that the best remedy for the housing market is to allow foreclosures to “hit the bottom”; railing against wasteful spending by the government-backed solar company Solyndra; and arguing that companies with poor strategies, like General Motors, should be allowed to go bankrupt, without a federal bailout.
It was the same approach he took with Bain, as he explained in an interview with The New York Times in 2007, when asked about layoffs at the companies he bought.

Sometimes the medicine is a little bitter,” he said, “but it is necessary to save the life of the patient.”

Except in Dade's case, the patient died.  The history of the Dade acquisitions shows that it was less "business acumen" than Romney's personal greed guiding Bain's actions.  Perhaps in the context of a private equity firm whose goal is to make money for its investors, those terms are interchangeable. But as a philosophy of government, the consequences of adopting this kind of mindset  are obvious.

The story of Dade is a familiar one. Aided by a 450 million dollar influx from Goldman Sachs, the company began making acquisitions of its own.  Its annual sales doubled.   But so did its debt. And when the tipping point was reached, the workers were treated to the "mantra" of cost-cutting while Bain, Goldman, and Mitt Romney continued to rake in the profits. 

Pensions were replaced by 401k's. Salaries were cut. Workers were laid off. Plants were closed. Sound familiar?

By 1998 Mitt and his Bain buddies were looking to cash out. So what did they do?  Why, they increased the company's debt. Because no one could foresee how that would turn out.

Bain settled on a common tactic in private equity: In April 1999, it pushed Dade to borrow hundreds of millions of dollars to buy half of Bain’s shares in the company — and half of those of its investment partners.

Bain pocketed the $242 million. Goldman received $121 million. Top Dade executives got $55 million, records show. The total payout to shareholders reached $420 million — nearly as much as the purchase price for Dade.

The money was hard to resist, acknowledged Mr. Brightfelt, the former Dade president. “We were all glad to get some cash out,” he said, “and we thought we deserved it.”

The money was "hard to resist."  They "thought they deserved it." Coincidentally, things then went south for Dade:

With the amount of money that Dade owed to creditors and vendors at nearly $2 billion, some executives worried that the company would have little maneuvering room if its financial situation suddenly deteriorated.

Soon enough, it did. Interest rates rose, increasing Dade’s debt payments. The value of the euro, then a new currency, slid, reducing Dade’s European revenue. And a new distribution center had unexpected delays.

Creditors, unsettled by deteriorating finances and high debts, began to pounce. More layoffs followed. And in August of 2002, Dade filed for bankruptcy protection.

The creditors threatened litigation against Bain and its investment partners, accusing them of “professional negligence” and “unjust enrichment,” according to bankruptcy documents. Bain and the other investors argued that the claims were baseless, but agreed to forgo about $68 million owed to them by Dade. And seven years after buying the company, Bain forfeited its remaining ownership stake.

After going through  Bankruptcy, Dade was bought by Siemens. And the cycle goes on.

The article describes the emotional and financial problems faced by many of Dade's workers as they faced relocation and layoffs while Romney began to hone his political ambitions.      This is apparently the "bitter medicine"  Romney is talking about:

Arsenio Muñiz Rosado, a 51-year-old father who had spent 23 years at the plant, starting out as a groundskeeper, sank into a debilitating depression. Still jobless six months after he was let go, he tried to commit suicide with a bottle full of Xanax pills. It was the first of several attempts.

For all intents and purposes, he said of the plant, “I died in there.

This story is why I cringe when I hear these candidates suggests their CEO experience provides them with the tools needed for good governance. In fact it would appear that for a good many CEO's the experience provides exactly the wrong message. By all indications, Romney's brand of "business acumen" would simply accelerate the downward spiral of the middle class and sharpen income inequality.  It would fatten the investor class at the expense of the people who do the actual work for these companies that people like Romney buy and sell like Monopoly pieces. Because that's what he knows.  That is his primary source of funding. And he hasn't demonstrated a shred of empathy towards anyone else.

Originally posted to Dartagnan on Sun Nov 13, 2011
Also republished by ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement.