Why Big Banks Are Like Drug Dealers

A banker explains why debt is an addiction and should be treated as such .

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Dan O'Malley is CEO and cofounder of PerkStreet Financial. He was formerly an executive at Capital One.

Are you addicted to your bank? If you're paying off credit card debt right now, the answer is more or less, "yes."

And you're not alone. Americans are paying $328 million in interest to banks every day. Every single day, just to keep from going deeper into banks' debt. Many in the personal finance blogosphere already view debt as an addiction, and, when you consider that gambling is now widely accepted to be an addiction, it's not a far stretch to see that getting things you can't afford with money you don't have could provide all the requisite habit-forming euphoria you need to become "addicted."

Kicking the Habit is Already Cool

Most Americans prefer to spend their money the debt-free way, with a debit card. It's true: debit card transactions outnumber credit card transactions 2 to 1. This a big part of why I left one of the biggest banks in the country, Capital One, to found a new company designed to deliver the best debit card in the world. I believe Americans who choose to spend their own money and avoid debt deserve to be rewarded. They're making smart decisions. Many of them have moved to debit in the last few years because the debt hangover they were feeling at the beginning of the recession was simply too painful to bear any longer.

[Rick Newman: How Corporate America Is Damning Itself]

Make no mistake: The rise of debit cards before and during the recession has improved the lives of Americans. More debit means less credit, and less credit means fewer families in debt. But it's bad for big banks. If they get fewer people into debt, they make less money.

Thanks to the Durbin Amendment, a new regulation reducing the amount big banks can earn on debit cards, these institutions need to adapt their business models. Guess what they're doing?

If you guessed, "Finding innovative new ways to add value and make a profit," you're wrong. If it weren't for the most vociferous public outcry in the history of fees, which happened last month, these banks would have standardized a fee for just using debit cards. What's the plan being hatched in the marble-clad offices of big bank execs this month? Push customers towards their most addictive drug--debt.

And big banks believe you're so hooked on them that you'll take it.

The Next Step: Getting You to Inhale

Yes, we all know by now that JP Morgan Chase, Citigroup, Key Bank and other major banks reversed their stance on charging debit card fees. And once those banks made their decision, even Bank of America had no choice, but to scrap their best laid debit fee plans. Don't be fooled. While the American people clearly communicated that they won't stand for a "debit card usage" fee, the only message big banks heard was that they need to find a less directly off-putting way to boost their profits.

[Read the U.S. News debate: Should the Dodd-Frank Act Be Repealed?]

This is the panacea in my industry: If internal problems cannot be solved, pass them along to the customer.

Watch for interest rates on checking accounts to drop even further. Watch for new fees and increased fees on basic services. Even now, many banks charge a monthly fee on basic checking accounts, and banks like Wells Fargo already charge customers to use online bill pay if your balance is below $5000. It's inevitable. You will pay more or lose value from your checking account if you are with these institutions.

A little food for thought: If your bank is making your checking account more expensive but still offering you a "free" credit card every week, what do you think they're trying to motivate you to do?

Banks that increase checking account fees are trying to discourage you from spending your own money—from spending responsibly. They want you to spend on credit. Bank of America charges some customers $7 to maintain a checking account. Their credit cards are free. And keeping credit cards free isn't the only effort big banks are making to get you to take the risk of unsecured credit card debt.


Corrected on : Corrected 12/12/2011: An earlier version of this article misstated U.S. Bank’s stance on debit card fees. U.S. Bank does not, nor has it ever planned to charge fees on its debit cards.