OpenBank is an idea I cooked up this afternoon to help combat what I see is one of the biggest problems in the United States today - the debt industry. Consumers are in debt, and while quite a bit of that is due to their own poor finances, a large chunk also has to do with the fact that people either just don't understand how the system works, or make a mistake that they wind up paying through the nose for. College kids are one of the most-targeted groups for credit cards. I'm 21 right now. Not a week goes by that I don't get a credit card offer - many of these I know come from my enrollment at the University, because they spell my name in the exact (wrong) way that the University does. I don't plan on `correcting' the spelling of my name until graduation - I use this tactic a lot to track the spread of my personal information. The state DMV also sells my personal information so that, guess what, I can get more marketing. Most people don't know how mortgages work, how APR works, and a lot don't read the fine print when they sign up for a credit card. My friend onyxruby recently pointed me to the small print on one offer he got - it advertised something like 9% interest, which sounds great... but the fine print told a different story: If you're a day late, you automatically get charged 30% of the outstanding balance. After that, you get 9% on the new total.
Banks almost always have clauses against you using funds you just deposited that day - some are `next business day', others can be up to a week. It just depends on how much the customer is willing to tolerate. There's a solid financial reason for this - banks are the chief source of investment for businesses. By shuffling around millions into accounts that may only exist for seconds or minutes, they can reap very small amounts of profit - sometimes pennies per thousand dollars. And it's all automated. By keeping your money from you, they're allowing it to work for them, if only for a few days. And it adds up - financial institutions like Wells Fargo, or major stock brokers, are a solid investment - they're always profitable.
Another thing - you may have noticed `service fees' for your account. Checks seem to cost an awful lot, especially if you want them customized - either way, whatever you pay, I guarantee it's quite a bit more than the paper it's printed on. Wells Fargo, at least, allows you to `upgrade' your account if you have X amount of dollars in it, with a minute increase in interest. Most people will wind up having a few thousand in the bank for a short while, and if you go in, the teller will pester you to upgrade. Sometimes it's even automatic. But if you keep less than that amount in, you'll be nailed with a small service charge - just small enough that it's too much effort to complain, go in, and fix the problem. But it'll `net the bank $120 over the next year. ATM fees are interesting too - "If you are not a customer of $BANK, you will be charged $X, in addition to the fees your financial institution may assess." Withdraw $40, get nicked with a $2 withdrawl fee. Sometimes you'll even see the machine debit your account two or three times. Illegal, but who's going to take the time to call the bank and open an investigation? An ATM doesn't cost much to maintain - the machine itself, regular maintenance and cash drops, and a phone line is all that's needed. I would say the average ATM at a mall (and have you ever noticed that no mall on the planet will have an ATM that is owned by the bank that gave you your debit card?) will average 600 transactions in a day. If even half of those are not from the financial institution in question, that's $600. Or more. Over a month, that adds up to a nice $18,000. Think it costs that much to maintain the machine? Think again.
This is where OpenBank comes into play.
OpenBank would be a consumer cooperative. It's not a new idea - the Hmong community up here in Minnesota does this, quietly. They pool their cash into the community, and then, when they need money - they ask the counsel for a loan. It's a zero percent interest loan too, if my contacts are telling the truth. When you have a thousand people or more working together, each contributing a small sum of their paycheck together to be part of the cooperative, the net result is that the participants can get a lot more done with their money - and have a reserve to fall back on. It's like insurance, except it applies more broadly. OpenBank wouldn't have large fees levied against you if a check bounced - maybe a couple dollars to send a notice to you and the other party. Not $25. OpenBank also wouldn't have service fees for accounts for things like online banking - those things should be free, because you should have access to your financial information. Instead, consumers with a good history with OpenBank could be rewarded in the form of better interest rates for the money they do put into the bank. How would loans be handled? Organize people into groups of a couple hundred, and then have them vote on it - don't give out the personal details of the person making the request, simply state the amount, the reason for the request, their credit history, and any additional information they care to provide. You can then vote online if you'd like. Or, if that's problematic (technology at the time Openbank goes live may not be up to snuff, it certainly isn't now!), use the standard loan-approval system - but with the interest fees only slightly above what it costs to cover defaulted loans and other financial problems associated with it. And make it an honest rate - one based on the current rates by the fed, for example. It can be adjustable, but it shouldn't be exorbinant.
Expanding things a notch, imagine consumer `unions' implemented en masse to purchase certain goods (food, clothing, etc) at discounted rates - auctioning off a certain number of purchases to the lowest bidder in an open pro-consumer marketplace. OpenBank could be the catalyst for that.
This idea originally grew out of a plan for protesting the `interesting' financial practices of banks in my area - a plan to distribute fliers and mass-mailings to encourage people to discontinue depositing their paychecks for two months and instead cash their checks, and then either hold on to the cash, or deposit the cash instead- deposits of cash often don't have the restrictions that checks do - the funds are immediately available - same day. If a significant portion of people did this for awhile, banks would be deprived of a noticeable amount of money for investment. It won't fly right now with the economy we have because nobody is asking for a loan to expand their business, but in a tight market - like it was a year ago, it could make a major statement. In short, this is one idea amongst many that encourage people to join together in groups and take the bull-head of capitalism by the horns and direct it for their own benefit, instead of the few people who benefit from it now.
The problems with OpenBank
For starters, it's tough, if not impossible, to get a bank off the ground. Everything is owned by a very small number of agencies. These agencies would be very sensitive to such an idea catching on. Our legislative bodies are still very much influenced by `big money' - in the form of campaign contributions. About the worst group to attack on this front would be financial institutions. Plus, the fact that major credit companies like Visa and Mastercard are private institutions means they can simply deny OpenBank card holders access to the financial network, which makes the card useless. How likely this is, I don't know - but it's certainly possible, if you ruffle enough feathers. Secondly, you need a bank already that has solid financial footing before you try to start a political campaign to encourage consumers to switch off of their current banks. Many banks have a clause in their loan papers that state they must be the sole bank that you have accounts with - most people have loans out, so OpenBank realistically could only target people who have little financial assets - the young adults in this country. We're not exactly an economic powerhouse, kids - most of us also have student loans. For OpenBank to work, we'd need enough funding to buy out those loans and put them under our ledger. Often, it would be at a financial loss - we'd be paying the interest as well as the principal. Once banks in the area caught on, they'd put more clauses in place to stop this from being an option for many people.