Banking: Then and Now
Out of pocket money? That's no problem as long as there is money in the bank account. Just visit the closest automated teller machine (ATM) any day, at any time.
In 1968, getting cash meant getting to the bank before 3:30 p.m. to make a withdrawal or cash a check or finding a local merchant willing to cash a check.
Rich Krauland, chairman of the board of directors for NexTier and formerly NexTier's chief executive officer and president, said there were no ATMs in the Butler area until the late 1970s and the 3:30 p.m. early closing time was critical.
“There were no computers to keep track of your account,” Krauland said. “All this was done by hand ... The amount of work that had to be done to conduct a day's work was incredible.”
Ron Dambaugh of Prospect, who retired from his career in banking as a senior vice president at Mars Bank, said managing deposits, interest and other records was much different than it is today.
“Everything was kept on ledger cards,” Dambaugh said. “If you had a loan payment, someone in bookkeeping recorded that manually on paper.”
Krauland said customers did not use credit cards or debit cards in 1968. Instead, merchants offered charge accounts with the customer's payment due monthly.
“Every time a person wrote a check, no matter where they went or who they paid, that check had to come all the way back to their bank and their statement,” Krauland said.
One advantage for account holders was that it took several days for the check to return to the bank. At the time of purchase, if a customer did not have enough money in the bank to cover the check, he or she had those days to put more money into the bank account. Krauland said the speed of today's electronic processing eliminated that “float.”
“The store didn't get it's money until the check went all the way to the original bank and cleared. Just moving money was a lot more cumbersome and took a lot more personnel and much more equipment,” he said. “There are hundreds of jobs that don't exist anymore.
“Mellon Bank was the first bank in the country that automated the back room,” Krauland said.
He said IBM employees designed computer hardware and software to automate what Mellon employees did by hand. With that capacity, Mellon offered check processing for many small banks in the region. Those services helped each check return to the original bank and to the person who wrote the check.
Dambaugh said the continued advance of technology led to today's electronic capture of check information. It makes funds available to customers faster and generally more accurately.
“That means you start earning interest on your deposit more quickly,” he said.
With that speed, the door also is open for greater fraud. Dambaugh, who served as the risk manager for Mars Bank when he was senior vice president, said consumers need to be diligent and understand who they are paying.
Banking convenience
Convenience is high priority for banks. Dambaugh said today's direct deposit and online bill paying are examples of personal service that have contributed to the dramatic decline of pedestrian traffic in banks.
“The industry is changing so quickly,” Dambaugh said. “There are so many ways to not have to go to the bank.”
He said the technology that permitted banking from any location unfortunately added greater financial risk for customers.
Since banks have done a good job with security and polished their systems to protect personal information, he said hackers moved on to attack customers' computers.
“I think it's extremely important that all the consumers, the regular people out there, understand that every day, every hour, every minute someone is trying to beat them. If they are online, if they are giving up any personal information, they have to be absolutely certain that they are giving it to the right people in a secure environment,” Dambaugh said.
“Bankers would be more than glad to talk with you if you don't understand whether there is risk involved in what you want to do with your money,” he said.That willingness to help individual customers directly is not new. However, personal attention was different in 1968.Krauland said the loans customers wanted, for example, car loans, guaranteed student loans, mortgage loans and home improvement loans, could all come from the same bank.“The people there were capable of judging your credit and making a decision,” Krauland said. “Everything was decentralized.”He said people's needs for loans have not changed much but the ways they get those loans and who is involved has changed.“It was more commonplace to go into the bank and they were among friends,” Krauland said. “In the old days, it was a character thing.”Bankers knew their customers and knew the local employment situation. He said bankers could deny money if they felt it was a mistake.“Back in those days — 1968 — your local banker was your financial adviser. Even the local tellers,” Krauland said.If the bank had a trust department, the trust officers could give stock and investment advice to customers.“Today the world is a lot more litigious,” Krauland said. “(Customers) come in for advice, they have to talk to someone who's qualified to give advice.”He said banks no longer offer guaranteed student loans and about 80 percent of all mortgages are purchased by a U.S. government agency.“NexTier keeps probably 90 percent of the loans we make,” Krauland said. “That's very unusual. Most banks sell their loans within days of closing it.”“The whole industry has consolidated,” he said.Federal influenceAccording to Krauland, in 1968, the federal government specified what types of accounts and interest rates a bank could offer. Until 1981, banks could not offer interest on checking accounts.Deregulation of the banking industry and change in interstate banking laws in 1981 allowed banks to offer competitive interest rates and new products such as money market accounts, individual retirement accounts and checking accounts with interest.Other regulatory change in consumer compliance made bank operations more transparent for customers.“It took the wiggle room out of it for the bankers,” Dambaugh said.“Typically they are trying to put something in place to make it easier for the consumer to understand what they are getting and understand the implications of decisions,” Dambaugh said.The Truth in Lending Act is an example. He said there were many ways to calculate interest on loans in the 1960s and without a control in place, each could be abused.“It could look like you're getting a 6 percent loan and you're really getting a 14 percent loan,” Dambaugh said.He said the Truth in Lending Act, enacted in 1968, required calculation of the annual percentage rate of a loan, regardless of any other methods the bank might also use to calculate interest on a loan. This pushed the banks to use simple interest loans.The act helped customers know the cost of a loan in a fair and consistent way. It enabled customers to compare rates at different banks.“The bad guys could go to jail now with civil penalties,” Dambaugh said.The Real Estate Settlement Procedures Act of 1974 was another help for consumers. Because of it, a lender must give the customer information about the total cost of a mortgage.These and other regulations in the past 50 years have made a difference.“It's leveling the field and it's giving people important information. It's holding the feet of the bankers to the fire to do it right,” Dambaugh said.He said today's banks monitor “the financial activity of crooks.” Cash transactions greater than $10,000 must be reported to federal authorities.Dambaugh said it is part of the bank's job to request additional customer information in some transactions.“That's putting criminals behind bars,” he said.“We cannot clean everything off the streets but at least everyone's trying.” Dambaugh said.Another bank regulation — the Community Reinvestment Act of 1977 — helps customers who rely on cash transactions. The act encourages banks to meet the needs of the local community, especially for low and moderate income customers.Dambaugh said offering a basic checking account without fees and having some free checks available are tools that a bank should consider to meet the needs of those customers.“It's an individual bank's decision on how to help the community,” Dambaugh said. “Smaller banks do it because they feel a commitment to the community they are in.”He said receiving an unfavorable community reinvestment compliance review can prevent mergers and acquisitions. The bank cannot grow.“It's really the right thing to do,” Dambaugh said. “Most banks are actually good organizations. There are just some out there that are dirt bags.”He said he believes the speed and sophistication of banking allows better service for customers today than was possible 50 years ago. The banking industry has embraced technology and made it work for customers.“We have a responsibility to help our community not just survive, but to thrive,” Dambaugh said.
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