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Run On China Bank Gives Consumers Food For Thought

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When The Rumors Aren’t True

Keeping close tabs on our money is an American fact of life. In general, we like to be able to deposit what we have in what we believe to be a secure holding institution and then relax.

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Customers getting money out of the Jiangsu Sheyang Rural Commercial Bank
But what happens when an alarm is sounded and there is the possibility that we relaxed too soon? How do we react when there is even a hint that our particular financial institution could be in trouble and that our share of the money being held could be in jeopardy?

Fortunately, the United States has built safeguards into its banking systems, including federal deposit insurance, and the likelihood of a “run” today is miniscule. But a recent story out of China shows what can happen when rumors run rampant and cool heads do not prevail.

How The China Bank Run Started

A customer in Yancheng, China, went to his bank and requested a withdrawal of 200,000 yuan, the equivalent of $32,200 in American dollars. The story goes (and the details have not been clearly defined) that when the customer’s request couldn’t be immediately honored, he assumed that the bank had run out of money and panic ensued.

Panic Rampant

Soon, depositors arrived in droves, by any and all means of transportation. Though regulators and spokespersons for the central bank assured the bank’s clientele that their money was safe, the flood of customers demanding their full amount kept arriving. The beleaguered bank stacked piles of yuan on its counters to create the appearance of plenty, but even that ploy and the sight of armored cars bringing cash to aid the besieged institution didn’t immediately quell the tide of anxious customers. The run continued for three days.

Customers’ concerns were probably magnified by China’s failure to meet a domestic bond recently. The default was a first in the mega-country’s current financial history, but it lent itself to ongoing itchiness about all aspects of the country’s financial security.

Lessons From The Bank Run

There are many versions of what happened in Yancheng, but the lessons for Americans are the same.

The news of this story spread quickly. All it took was one customer who used a twitter like service to notify his circle of friends. From that point hundreds of people heard about the customer’s experience and soon it gained world wide attention. The Chinese people have a heritage of fearing for the safety of their money. Older generations of people experienced government confiscation of property and wealth. It is no wonder that panic resulted.

So what is the lesson American people can gain from this? When rumors start, don’t panic. Check other sources for the truth to the rumor. Give yourself some time to make the best decision for you and your family. Though time would be of the essence in a real bank failure, it is foolish to over-react.

The bottom line is to look before you leap. Trust in the safeguards that have been built around the country’s financial practices. Certainly you are justified in making immediate inquiries if there is a suggestion that something is wrong, but don’t just assume that the rumors are true. Often, they are not.

Which Should You Use – Credit Or Debit Cards?

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Which Should You Chose?
Which Should You Chose?

In today’s world, where plastic is the most popular mode of making financial transactions, it’s important to know the difference between credit and debit cards. Both are designed to facilitate purchases and payments, and it’s a rare American who doesn’t have at least one of each in his or her wallet. But there are some intrinsic differences that should guide which one you reach for in a particular instance.

Credit Card Purchases

A credit card allows you to temporarily borrow money. Generally that’s the bank or institution that issued the card and you may have to pay interest for the privilege. If you pay your bill off every month you may not have interest charges. You will have some type of fraud protection and if you don’t have cash in the bank, you may have to use credit.

Prompt payment of credit card debt can have beneficial side-effects. Paying on time, staying within credit limits and paying more than the minimum payment can improve your credit rating. That could translate to low interest rates on loans and credit cards. That’s helpful when the big-ticket purchases such as a mortgage or auto loan are on the line.

Some credit card issuers offer grace periods so you can sidestep interest as long as you pay in full each month. Reward points that can be applied to such things as airline miles and hotel stays are awarded by others to their best customers. Some cards have a cash-back offer for on-time payers. Other “perks” may include travel insurance or purchase protection. If you’ve used your card fora large purchase and find the product is defective, having the backing of the card’s issuer may save some of the hassle in resolving the problem. Because the options are so varied from one institution to the next, it pays to know what is offered by the one with which you are doing business. Check.

The downside of credit card use is the sense of security that having such a resource engenders. In a word, it’s too easy. If you don’t keep track and act judiciously, you may find yourself in trouble. Credit card companies charge big fees for those who overstep their card boundaries. They also may apply late fees, which seem to be a common symptom of credit card over-use. It can become a very costly lapse in good judgment.

Transactions could be viewed as short-term loans. You are borrowing from the bank that issued the card to make your purchase or payment. In emergencies, such as a broken pipe in the basement or a car problem far from home, when you haven’t the cash to resolve the situation, a credit card is mighty handy to have. Or when a necessary item is too expensive for a one-time payment, that’s when credit should be (judiciously) used.

Debit Card Purchases

A debit card, on the other hand, is tied to your own checking account. The money you are spending with your card comes directly out of your checking or savings account. No interest is attached but you should have cash in your account to cover your transaction.

The benefits of a debit card include ease of purchasing. The card becomes a substitute for cash, so you don’t have to carry cash with you. Purchases and payments are easy to track because you have access to your online checking account. Or you can check your balance at an ATM. It is simple, too, to access cash at an ATM with your debit card, as long as there is money in your account to back your request.

The downside to debits is that if you are not careful about keeping sufficient money in the supporting account, your card may be denied. Some banks allow overdrafts, but charge a fee, which cancels out the interest savings. Be aware of the policies at your financial institution.

Debit Cards That Process As Credit Cards

With debit cards you can also have the transaction itself processed through the credit procedure. When you choose this option, the merchant pays the credit card company for processing the transaction. That can cost the merchant money which can be recouped in higher prices charged to the customer. The advantage for you choosing credit is that usually that takes several days so you have a little time to get money into your account.

About The Usage Of PINs

Many stores allow the option of using your PIN to get cash as you are shopping and there is usually an ATM close at hand, so the debit card option is handy. Remember that using your own bank’s ATM avoids the fee that is charged at “generic” ATMs or those attached to other banks.

The card offers some security. Even if you should accidentally leave it at the place where you are doing business or lose it in the haste of everyday living, anyone who picks it up is not likely to be able to access your account because of the PIN requirement. That makes safeguarding your PIN very important. It is possible in some instances to bypass the PIN, so fraudulent use is not totally out of the question. The same cautions you would apply when using cash should apply here. Be careful. Most banks have fraud protection policies in place to help when things go wrong.

Bank Of America Improves Customer Relations

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America’s largest banks know that customers with a good understanding of basic financial principles are among the best with whom they deal. In an effort to improve customer satisfaction, Bank of America has partnered with the Khan Academy to provide educational materials that add to personal financial education.  The partnership was announced in 2013 and since that time a lot of progress has been made.

The Khan Academy is the brainchild of financial guru Sal Khan, who developed a series of videos that helped people learn high school mathematics. With his expertise in finance and creating interactive, engaging videos and Bank of America’s expertise in helping customers they have created a phenomenal collection of personal finance learning videos.

To showcase the learning videos, they have launched a website called Better Money Habits. The finance lessons feature 50 videos, each focusing on a bite-sized topic in language easily understood by non-experts. They are crisp, visually attractive, fun to watch and give succinct directions as to how to apply the information for better personal money management. Among the topics are easy ways to save, how to get out of debt, setting and sticking to a budget, understanding mortgage issues and other aspects of personal resource management. Though created with bank customers as the target audience, they are available free to anyone who has an interest in enhancing his or her understanding of grassroots financial matters.

“At Kahn Academy, our mission is to provide a free, world-class education for anyone, anywhere and we believe that financial understanding is now an economic imperative for all, said Kahn. He said the bank partnerships will help the academy “reach a significantly larger group of people searching for unbiased information on personal finance and other topics we teach.”

Surveys made by the National Foundation for Credit Counseling in 2013 indicated there is fertile ground for basic, easily accessed financial education. When asked to grade themselves on their understanding of personal finance issues, 40 percent of the survey respondents graded themselves at C, D or F. A whopping 78 percent said they would welcome professional advice and answers to basic questions. The desire to obtain the understanding that would make their money work harder and better was overwhelming. With such clear direction, huge financial companies such as Bank of America allied themselves with Kahn to provide that information in a simple, easily understood format.

Bank of America expanded on the online Kahn Academy series by sponsoring financial workshops in several major US. cities.

What’s New With The Target Security Breach?

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target-breachThe biggest known corporate breach in U.S. history was perpetrated on Target in November, 2013. Hundreds of stories have been written about it in the news, on blogs and magazines. That comes as no surprise considering the current number of customers affected reaches upwards of 100 million.

The looming question in consumers minds remains. Who is responsible for the Target credit and debit card breach?  Brian Krebs,  and American journalist and investigative reporter who runs a computer security website has identified a likely suspect – Andrew Hodrievski of Odessa, Ukraine. Attempts to contact the suspect proved futile, but Krebs was able to email an associate of Hodrievski.  After exchanging emails with the associate, Krebs Security was offered $10,000 not to publish the incriminating information.  Hodrievski has not been arrested or questioned.

How Did They Do It?

The who question may have been answered, but the how question is still somewhat of a mystery to the public. Investigators have determined that the hackers were able to breach Target’s security through a third party vendor. Fazio Mechanical Service provided heating and air conditioning for the stores. After hacking into Fazio’s computer they gained the vendor’s username and password into Target. The hackers then used the same username and password to hack into the point of sale information where all customer information is stored.

Hackers then uploaded software to retrieve customer data for them. They tested the software on a handful of registers. Within two days they had access to a majority of Target’s cash registers and point of sale information. Thus the fraud began. Once they had customer data they sold the data on underground internet sites. The value of this data has gone down significantly as banks have purchased the same data, disabled cards and reissued new ones.

Investigators think the vulnerability was caused by the lack of two factor authentication for remote access, which is required by PCI Data Security Standards. PCI Standards help merchants to secure all Point Of Sale transactions.  Apparently Target used one network for most of their data while they should have been two different networks.  Isolating  3rd party remote access for vendors and customer data would have added another security measure needed and possibly helped prevent this type of security breach.

Latest News

Beth M. Jacob, chief information officer and executive vice president for Target’s technology services resigned from her position on Wednesday, March 5, 2013, just one week after Target posted their 4th quarter losses of $1.5 billion dollars compared to the previous year’s figures. More encouraging news in this case would have been that the criminal behind the attack was arrested.

Consumer Protection

For consumers who are now worried about their accounts being drained by complete strangers there is no magic bullet. The best thing to do at this point is to learn how to set up automatic alerts from your bank to your cell phone any time a transaction on your account occurs. You can then call the bank immediately when you discover any unauthorized transaction and prevent further loss.

CPSA Sets Standards For The Check Printing Industry

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check-writingAlthough paying by check is not as common as it once was, it’s a financial practice that is likely to have long-term value in the economic scheme of things, according to the Check Payment Systems Association. And their prime role is to promote and protect what is referred to as the “paper-based” payment system.

The non-profit organization has been involved since 1952 in assuring that using personal checks and business checks will remain a viable option for individuals and businesses. It is dedicated to the integrity, security and convenience of checks. It has been at the forefront of developing safeguards that are built right into the checks you use. Its advice has been incorporated into check-printing practices for ValueChecks.net main check printing partners.

Preventing Check Fraud

One of CPSA’s most valuable contributions has been in developing strategies that thwart criminals bent on check fraud. In 1994 the association created a set of guidelines intended to prevent the production of counterfeit checks. The guidelines are voluntary, but have been applied by the majority of check-printing companies in North America. Would-be counterfeiters have been significantly stymied in attempting to use computer scanners, laser printers or photocopiers to produce fake checks.

Key to the effort is the Padlock Icon, touted as CPSA’s greatest contribution to the fight against check fraud. The small symbol appears on the front and back of personal and business checks that were designed with at least three safety features. Those who routinely accept checks recognize the Padlock as  evidence that the checks are protected by production safety steps. Only CPSA can legally grant the right to use of the Padlock on checks.  The association’s website lists authorized users, such as those check companies who print checks for Valuechecks.net.

CPSA partners with the American National Standards Institute to study issues surrounding the use of checks. It also does research to assist members with development of products and services. It’s influence is recognized and respected in Washington D.C. as federal government agencies consider these issues. Lawmakers whose business is to protect citizens make use of the information generated by  CPSA researchers.

Beneficiaries of the efforts being made by such organizations are those at the end of the chain — the individuals and companies that continue to make writing checks their standard for doing business.