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October 2000

Flee from Fleet!
Recent mergers harm consumers.
by Shai Sachs

The Death of Winter
Global warming: scarier than you thought.
by Julia Silvis

Napster Got My Gnuts
The mp3 debate gets out of hand.
by Brad Hershbein

Talkin' $acrifice
Americans don't appreciate public service.
by Nikhil Jaikumar

Feelin' Important!
PERSPECTIVE's voter registration guide for Election 2000.
by the PERSPECTIVE staff

Introspective
Starvation Chic
by Liz Thornberry

Salmagundi

Scraps

Backpage
Scooterdo's (and don'ts)
by Julia Silvis

The above is a response to my simple question on abuzz.com: "I’d like to know whether the Fleet/BankBoston merger helped consumers?" Although my question was anything but a scientifically sound poll, the response I received, similar to the responses I received in other forums, indicated widespread, fairly bitter dissatisfaction with the newest, biggest bank in town, FleetBoston Financial.

When Fleet and BankBoston merged on October 1, 1999, they produced FleetBoston Financial, or Fleet to most of its customers. It’s the eighth-largest bank in the country, with assets of about $185 billion.

The merger passed its first test on September 3, 1999, when the Department of Justice approved the deal. Fleet and BankBoston agreed to sell off 306 branches and Automatic Teller Machines (ATM) around New England, with the stipulation that 28 of those branches go to local community banks. Meanwhile, a large "primary buyer" Sovereign Bancorp of Pennsylvania would buy the remaining 278 branches and ATMs. After the dust settled from the Fleet merger and a concurrent merger of Citizens and US Trust banks, Sovereign would be the third largest bank in the Boston area, according to The Boston Herald and the Associated Press.

"These historic divestitures will give the primary buyer [Sovereign] a platform to compete for all customers in New England," Joel Klein, the head of the Justice Department’s Antitrust Division, said at the time. In considering the merger, as with most mergers, Justice focused on maintaining competition in the Boston area. But Klein sounds more like a Sovereign executive than a Boston consumer advocate.

Perhaps Klein’s perspective reflects the Division’s conception of competition: large banks battle for customers, all the while buying up smaller banks. Certainly the Division could have done a better job on the divestiture.. Representative Michael Capuano (D-Somerville) complained that the deal gave too little to community banks, and that most of the branches slated for community banks were located on Cape Cod, far away from the main battlefield of Boston.

Whatever the theory behind this conception of competition, the practical implications are severe. "Big Banks, Bigger Fees," a 1999 US. Public Interest Research Group (USPIRG) survey of banks and banking fees found that bigger banks charge higher fees than smaller banks, meaning that low-income customers suffer from the "battle of giants" model that Justice seems to support.

Eventually, perhaps inevitably, the merger cleared the remaining barriers, approval from the Federal Reserve Board and the Massachusetts Board of Bank Incorporation. Perhaps the most vocal critic of the deal, Connecticut Attorney General Richard Blumenthal, declined to file lawsuits to block or delay the merger after Fleet agreed to sell a few more branches in his state. Federal endorsement was a key in his decision. "The sad, stark fact is that an antitrust lawsuit was critically undercut by two key federal agency approvals," he said in a statement.

Throughout April 2000, Robin Washington, the transportation and consumer columnist at the Herald, wrote a series of articles explaining that the merger would yield higher fees for some BankBoston customers. The first story appeared on Page 1; subsequent stories ran inside the paper. According to Washington, several stories were later killed by Herald editors; and on April 23 he was told to stop writing about Fleet. On April 25, Washington was reassigned to general assignment, according to The Boston Globe.

The Globe staff must have viewed the ensuing crisis in journalistic and racial (Washington is black) politics with some glee, as its main competitor floundered in public. First came Washington’s charge that the Herald had been affected by the fact that Fleet held its mortgage, and by the way Fleet managed its advertising account with the newspaper. In a Globe article, the managing editor of The Bay State Banner recalled that Fleet canceled an advertising campaign after the paper ran a series on the bank’s mortgage underwriting practices in low-income, minority-dominated Roxbury and Mattapan.

Washington’s union, the Newspaper Guild, circulated a petition protesting the "unethical influence of advertisers," which 70 employees signed.

Before long the Herald was mired in racial politics. Washington was the paper’s only African-American columnist, and he had been suspended under suspicious circumstances. The Boston Association of Black Journalists, of which he is president, organized a protest. The National Association of Black Journalists, of which Washington is a board member, declared that it would closely monitor the diversity of the Herald’s news room in the future.

Eventually, after a two-week suspension without pay, the Herald reinstated Washington. But Washington’s stories could not be un-published, and Fleet would not lower the high rates that incited them.

"Welcome to Fleet Telephone Banking."

Bell Atlantic won’t charge you for hearing these words, but Fleet might. After four staff-assisted phone calls in one month, a Basic Checking customer at Fleet pays $2 per staff-assisted phone call, according to Fleet propaganda.

After her first ten transactions of any kind, that same customer will pay a whopping $1 per transaction. A transaction includes "all checks paid, ACH debits, ATM withdrawals, and Fleet Total Access card debits and all point of sale debits" — just about everything. On the bright side, the monthly fee is $2.50, a courteous gesture to the customer choosing the "affordable" option.

FleetOne Classic customers make off like bandits, however. They pay only 50 cents per check or ATM transaction, after the first 50 in a month. All they have to do is maintain a minimum balance of $2,000. If they don’t? They get slapped with a $10 monthly fee and an additional 25 cent fee for every check or ATM transaction.

To be honest, students actually do pretty well under the merger. The monthly fee for a Student Self Service checking account is $5, or $3 if you use direct deposit; the comparable fees under BankBoston were $1 higher. Don’t call them, however: every staff-assisted call is $2.

Of course, all of these packages come wrapped in countless atrocious customer service stories like the one above. BankBoston accounts were switched to Fleet accounts on May 12, 2000. The conversion created a nightmare as customers confronted long lines at banks, long waits on the phone, problems activating their ATM cards, and difficulties with the web site, according to the Globe. Some consumers gnashed their teeth as they found that they had been unceremoniously dumped in the lap of Sovereign bank, whose closest branch was sometimes far away.

So what?

The fees are relatively small. The ATMs are everywhere. People should enjoy the convenience and shut their trap for once.

So goes the renegade streak of pro-Fleet posts at ihatefleet.com, a web site made specifically to protest the merger.

For one thing, the fees add up quickly. I challenge anyone to avoid paying $1 per transaction per month or even 25 cents. And guess who gets hit the hardest? The poorest customers, those who choose the so-called "affordable" checking package, or those who can’t manage the FleetOne Classic minimum balance, suffer harshly.

For another, a cornucopia of ATMs does not a good bank make. A bit of foresight and planning can prevent most ATM emergencies. Using the "cash back" options that most stores offer with debit cards can fix most of the rest.

And where that fails, there’s the SUM network, a collection of ATMs sponsored by small banks that have banded together to offer a broader selection to their customers. The ATM of any bank in this network is available to any customer of any other bank, fee-free. Since US Trust was a member of the network, and Citizens purchased US Trust, all ATMs owned by Citizens, the area’s second-largest bank, are now part of the SUM network.

Many unhappy Fleet customers, including myself, have switched to other, smaller banks. The creators of ihatefleet.com, and their users, suggest Wainwright Bank. Considering Wainwright is tucked away in Brattle Square, I chose Cambridgeport Bank, right across from Widener. I couldn’t be happier with the customer service, and the free checking is the icing on the cake. I’m not alone: even Perspective’s president, a self-avowed ‘blood-sucking capitalist’, banks at Cambridgeport.

The Quincy Patriot Ledger called the merger a boon for small banks, because a flood of customers was leaving Fleet. Perhaps the biggest winner in that story was South Shore Savings Bank, which had seen a 100% increase in new account openings in the first three months of 2000. And that was before the conversion of BankBoston accounts made Fleet seem about as responsive as a brick wall.

A Step Back

We don’t often think of banks. After all, our balances are often quite depressing, and our needs are generally simple. The problem is, people with a lot more power and money than us think about banks all the time. That’s how they get away with things like the Fleet/BankBoston merger. So we need to take a step back, to wrestle with the banks until we have subdued them.

The Interstate Banking Efficiency Act of 1994 promoted interstate banking and opened the floodgates of bank mergers. In my hometown of St. Louis, NationsBank bought Boatmen’s; Bank of America bought NationsBank. In Boston, BankBoston bought BayBank; Fleet bought BankBoston; Citizens bought US Trust. And this might only be the beginning.

Welfare reform legislation provided another boon to the banking industry. After Congress ended the national government’s commitment to welfare, many states chose to implement welfare reform by providing recipients with ATM cards through which they would receive payments. It didn’t take long for banks, including New York’s Chase Manhattan, to figure out that they could leech off even the most needy by extracting tremendous ATM fees from recipients who had no choice, according to reports from the New York Times.

But all of this comes in the middle of a larger scuffle over ATM fees, which is still being played out. On April 1, 1996, Visa and Mastercard’s ATM networks lifted their ban against member banks imposing surcharges on non-account holders. Added to the fees many banks imposed on customers who used other banks’ ATMs, the new developments meant powerful penalties for consumers, especially low-income customers, who used "foreign" ATMs. According to the U.S. PIRG’s 1999 report, "ATMs: Always Taking Money," 93% of all banks surcharged by 1999. Its companion report, "Big Banks, Bigger Fees," suggested that over 12 million families can’t afford bank accounts.

ATM fees don’t just hurt little incomes, they hurt little banks. Because big banks have more ATMs, most ATM fees end up feeding big banks, disproportionately helping them advertise and improve services. Trying to avoid ATM fees, consumers naturally huddle under the cover of big banks, figuring that the more ubiquitous a bank’s ATMs, the less likely they are to be far from their particular bank’s ATM. Thus, ATM fees are the boxing gloves of big banks, knocking out both competing small banks and low-income consumers with a solid one-two punch.

Consumers obviously didn’t like ATM fees, and neither do their state representatives. The legal battles began. In 1997, the Massachusetts Senate unanimously approved a surcharge ban; it was killed, however, by House Speaker Tom Finneran. Connecticut and Iowa enacted bans which seem to be surviving court challenges. San Francisco issued a city-wide ban which was subsequently struck down.

In the meanwhile, the PIRGs provide some relief. Both USPIRG reports offer suggestions for avoiding ATM surcharges and other bank fees. As part of the Community-Based Alternative to Banking (CBAB) project, the Quebec PIRG (QPIRG) issued several reports about redlining in Canada, and past experience with alternatives to mainstream banking, including "barter networks, lending circles, loan associations, credit unions, and community banks."

Banks are the quintessential nameless, faceless bulwarks of capitalism. What we are seeing in the merger may be evidence of a larger theme: capitalism is not democracy. With no pretense at equality, capitalism allows some people to have more cash — ludicrously more cash — than other people. Big banks seem to be catering, increasingly, towards bigger wallets, perhaps because that’s where they can gain the most money. This trend is almost flaunted in the FleetOne Classic checking account, whose policies benefit those who can afford a monthly balance of $2,000 and siphon money from those who can’t.

Yet there is something repulsive, unsurprisingly, in hearing a bank tell its customers that it doesn’t want them. The suggestion that 12 million families cannot afford bank accounts is unthinkable. Without a bank account, a person can’t hold her own. She can’t really keep control of her finances, she can’t make large purchases practically. In fact, it’s fairly difficult to make small, everyday purchases. Forget the fact that marginalized customers, from students to minority and low-income consumers, face unfair burdens as it is. The bottom line is, without a bank account, they can’t compete.

Questions? Comments? Please contact perspy@hcs.harvard.edu