November 4, 2013

Cornell Law Professor Works to Cut Fees With ‘Occupy Card’

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A debit card that does not charge overdraft, transaction or card maintenance fees may sound like a dream to cash-strapped college students everywhere. Prof. Robert Hockett, law, is looking to make that fantasy a reality.

Along with a former bank director and a former British diplomat, Hockett is working to create Occupy Card, a prepaid debit card that he believes could make the banking system more ethical. The card — which will have no upfront cost but will include fees for A.T.M. withdrawals — will be launched if Hockett and his cofounders can raise $900,000.

Occupy Card will revolutionize the way users bank, offering “low-cost, transparent, high-quality financial services to the 99 percent,” its founders say on its website.

“The ideal banking system isn’t looking at its depositors as people to exploit or people to extract various benefits or advantages from, but rather is something that would function as a cooperative arrangement among members who would own the bank in which they deposit their funds,” Hockett said.

Hockett said that fees — which include charges for transactions, card maintenance, overdrafts and A.T.M. withdrawals — are a major source of profits for corporate banks. If Occupy Card ends up making a profit from the low fees it charges to cover administrative costs, the profits will be redistributed among the members, according to Hockett.

The Occupy Card is not just for supporters of the Occupy Movement, according to the Occupy Cooperative website. It is for “people who are unbanked, underbanked and even just angry-banked.”

The Occupy Card is just the tip of the iceberg, Hockett said. The card’s founders say their ultimate goal is to establish a non-profit banking system.

“The Occupy Money Cooperative is beginning with the debit card. This debit card is a specific counterpart to cards like these that exist in existing banking institutions already offered. Chase Liquid is probably the best-known example,” he said. “The ultimate plan is to offer all the other services that these existing banking institutions already do, but on a non-profit basis.”

While working for the Federal Reserve Bank of New York in Fall 2011, Hockett became involved with the Occupy Wall Street Movement. He and other members of an Occupy Wall Street work group that focused on alternate banking held brainstorming sessions every Sunday to discuss how they might design a better banking institution.

Not all scholars agree with the premise that banks should not make a profit, however. Prof. Richard Burkhauser, policy analysis and management, said that it is perfectly fitting for banks to make a profit.

“I don’t think the banking industry is any more or less corrupt than any other industry,” Burkhauser said. “Financial institutions provide a tremendously valuable service to people, and it’s perfectly appropriate for them to make a profit, just like any other industry makes a profit when they produce a product that consumers’ value.”

According to Burkhauser, the problem lies not with the banking institutions, but rather with the people who use them.

“What we really need to do is improve the financial literacy of consumers in how to more effectively use credit,” he said.

Ultimately, Burkhauser said he does not have an issue with the banking system Hockett proposed, as long as it could outperform current banking institutions.

“The reality is that some people don’t pay their debts, this cost has to be factored into the fees that banks charge on credit,” he said. “But the great thing about our competitive private market system is that if you have a better idea of how to provide credit to Americans, you don’t have to merely criticize the current system; you can start your own non-profit co-operative financial institution and do better.”