President Trump told the world’s elite business leaders gathered in Davos that “America is open for business” as he tried to balance that message with the “America First” policies that he has put in place over the past year.
“The world is witnessing the resurgence of a strong and prosperous America,” Trump told the audience at the World Economic Forum. “There has never been a better time to hire, to build, to invest, and to grow in the United States.”
Trump, who campaigned for the presidency as a voice opposed to globalization and the global elites, is the first sitting American president to attend Davos since Bill Clinton in 2000. He told the audience that as president he “will always put America first,” but added “America first does not mean America alone. When the U.S grows, so does the world.”
The remarks, which were closely watched by an audience alarmed by what many in the global elite see as a U.S. retreat from the global trading system the country created, is at odds with the policies the Trump administration has enacted after the president took office in January 2017. Trump pulled the U.S. out of the Trans-Pacific Partnership, a Pacific region free-trade zone that included the region’s largest economies and was viewed as a counterweight to China’s growing influence in the region. Trump hasn’t hidden his disdain for the North American Free-Trade Agreement and has been ambiguous about whether the U.S. will stay in the agreement that also includes Canada and Mexico. Last week, he imposed tariffs on washing machines and solar panels made overseas, an action reminiscent of the trade wars of the 1980s. More such moves are expected.
The president says his actions are aimed solely at helping American workers; that the free-trade deals of the past hurt American workers more than it helped the U.S. economy; and that the tariffs were aimed at the advantage, in his view unfair, that countries like China and South Korea enjoyed in their dealings with the U.S.
“We will enforce our trade laws and restore integrity to the trading system,” Trump said Friday. “Only by insisting on fair and reciprocal trade can we create a system that works not just for the United States but for all nations.”
That might be the case, but the president’s rhetoric on trade and his seeming support for bilateral agreements over multilateral ones has alarmed other world leaders. Davos, which has been a cheerleading club for globalization, has seen much indirect criticism of the U.S. from its allies. German Chancellor Angela Merkel this week said unilateral solutions “would ultimately promote isolation and protectionism” and U.K. Prime Minister Theresa May said globalization had “delivered the greatest advances in prosperity we have ever known.”
Earlier this week, Trump said he was open to the U.S. re-entering the TPP if it was fairer to the U.S. It’s something he has said about NAFTA, as well, which the U.S. is renegotiating with the pact’s other signatories. It’s uncertain though whether the world will wait for the U.S. to re-engage with multilateral systems. Canadian Prime Minister Justin Trudeau said this week that his country would join the TPP without the U.S.—joining Australia, Japan, and other Pacific Rim nations.
But if the audience at Davos is concerned by Trump’s position on free trade, it appeared positively giddy at the president’s overhaul of the tax system. Introducing Trump on Friday, Klaus Schwab, the WEF’s founder, said the overhaul would stimulate economic growth in both the U.S. and the world. Trump, citing the economic gains made during his year in office—to the economy, to the stock market, and the unemployment rate, welcomed the world’s investors.
“America is the place to do business,” he said. “So come to America where you can innovate, create, and build.”
Lately it seems that, every week, a new group of media employees votes to join a union. On Tuesday, a majority of employees at Slate voted to join the Writers Guild of America, East. This came a few days after newsroom employees of the Los Angeles Times voted to join the NewsGuild–Communications Workers of America. Two weeks before that Vox Media recognized the Writers Guild of America, East, as the union representative of their editorial and video staff.
These efforts are the latest in a slew of successful campaigns to unionize educated workers, not the traditional targets for labor organizers. In the past three years, employees of Vice Media, ThinkProgress, HuffPost, The Intercept, Salon, Thrillist, and the now-defunct Gawker have all joined unions. Graduate students at Columbia, Yale, Tufts, and Brandeis have also voted to join unions. Adjunct professors at Seattle University formed a union in 2016, and employees at the legal group Lambda Legal voted to form a union in December.
Labor advocates are declaring the wins for white-collar workers a new front for organizing, and indeed, labor has been making some progress in expanding its reach among educated workers. The number of people employed in professional and technical occupations who are members of unions grew by almost 90,000 last year, according to numbers released last week by the Bureau of Labor Statistics. The fields of law, arts, design, entertainment, sports, and media all saw substantial gains in the share of workers who are in unions, ticking up from around 4 percent in 2010 to around 7 in 2017.
But these gains for unions are in stark contrast to the many high-profile failed efforts to organize less-educated workers in other parts of the country, usually outside cities. In 2017, after years of organizing, the United Auto Workers lost a bid to form a union at a Nissan plant in Mississippi. They failed to organize a Chinese-owned auto-glass plant in Ohio in November. The UAW similarly lost a bid to organize a Volkswagen plant in Tennessee in 2014. On January 19, for example, the NLRB announced that media employees at the Los Angeles Times and professional employees at a Pennsylvania charter school each voted to join a union. That same day the NLRB announced that drivers at a bakery in New Jersey, drivers at a freight company in New York, and drivers for the Hy-Vee grocery chain in Iowa all voted against joining a union, according to NLRB data.
And while labor groups trying to organize low-wage workers in industries like fast food and the on-demand economy have made some gains in recent years, they have not created formal unions, but rather established informal arrangements that help workers. The share of workers who were members of unions in production, transportation, and material-moving occupations fell to 13.6 percent, from 16.2 percent in 2010, according to Bureau of Labor Statistics data. In service occupations, that share fell to 9.9 percent from 11 percent in 2010.
The contrast, between the growing numbers of educated workers joining unions and the shrinking pool of blue-collar workers doing so, is yet another dynamic of an increasingly bifurcated American economy. As jobs for educated workers continue to proliferate in this economy, educated workers feel secure, sure that they’ll be able to find more work if they lose their jobs. In some cases, that security may mean they feel they can advocate for a union, or stand up to employer threats to shut the workplace down if a union forms. Blue-collar workers, by contrast, are competing for a smaller and smaller share of jobs in the economy, and thus may feel less willing to commit to labor drives. Of the nearly 12 million jobs created after the recession, more than 8 million went to those with a bachelor’s degree, according to the Georgetown Center on Education and the Workforce. “Blue-collar workers may want a union, but fear defines union election to a troubling degree,” Harley Shaiken, a labor expert at the University of California, Berkeley, told me. “You have the same fear among white-collar workers, but they know they have other options. If they lose their job, they’ll have something two days later. That could give them more confidence about turning towards a union.”
This difference in who is joining unions could create further bifurcation in the economy, as workers who are already relatively stable become even more protected by unions, while workers who feel themselves in a tenuous position have fewer places to turn for problems like wage and hour violations, sexual-harassment claims, or unfair termination. Union employees are also better positioned to negotiate wage increases than non-union employees—non-union employees make 80 percent of what union employees do, according to the Bureau of Labor Statistics.
Lowell Peterson, the executive director of the Writers Guild, East, who has organized both blue-collar and white-collar workers in his career, said that organizing skilled workers might be easier in today’s economic climate. “If you’re a semiskilled or unskilled worker, your leverage is a little different,” he told me. Skilled employees are hard for employers to replace, and they know it, he said. While employers think they’ll be able to hire another worker off the street to stock shelves for Amazon or work on a car assembly line, they worry about being able to find enough skilled and educated workers to do the white-collar jobs they’re trying to fill. “[Managers in media] can’t just say, I don’t care who does this job, as long as someone does it,” Peterson said.
White-collar workers may also have an easier time doing the work to organize a union. Many Gothamist workers were young and didn’t have children, so were able to go to meetings after work, Scott Heins, 29, who worked full-time as a photographer and reporter for Gothamist for two years and was on the Gothamist organizing committee, told me. Blue-collar workers are often older, and have families to support. And, since white-collar employees don’t work on the factory floor all day, they are less physically exhausted at the end of the day. Additionally, the access to information technology that white-collar workers have can make it easier to communicate with other employees throughout the company.
Of course, white-collar workers still risk losing their jobs if a union forms—that’s what seems to have happened to 115 employees of DNAinfo and Gothamist, two websites owned by Joe Ricketts, a billionaire who founded TD Ameritrade, after 25 New York staff members voted to join the Writers Guild of America, East. But many of those employees have since found other jobs, and Peterson told me that the people who lost their jobs didn’t regret organizing. Heins told me that’s how he feels. “If forced into the same situation, I would do the same thing again,” he said. Heins said he and others knew the risks when they organized, especially when Ricketts, who is vocally anti-union, purchased Gothamist.
But Heins also landed on his feet. He is now working as a freelance photographer in New York, and said that it was going pretty well, in part because of support from groups like the Economic Hardship Reporting Project, which established a $5,000 fund to help laid-off reporters from Gothamist and DNAinfo. “I am very fortunate in that photography lends itself well to freelancing,” he told me.
In contrast to Heins’ ability to find work after losing his job, many blue-collar workers can’t afford to risk such a change. They are more likely to be living paycheck to paycheck, and tend to have less savings because their salaries are lower in the first place. “People were really terrified that they were going to lose their job,” Robert Hathorn, a pro-union worker at Nissan in Mississippi, told the website Labor Notes in the aftermath of the UAW’s organizing loss in August.
Part of the divergence between white- and blue-collar workers may also have to do with where union drives are taking place. Many white-collar workers live in big cities like New York and Los Angeles, where workers are likely to be more liberal and supportive of unions than in other places, and where owners (with obvious exceptions) may be less likely to embark on anti-union campaigns because of public pressure. But increasingly, manufacturing and production jobs are located in the South, where anti-union attitudes are most persistent. Boeing located its Dreamliner aircraft assembly line in South Carolina rather than Washington State to reduce the leverage of the machinists’ union, analysts told The New York Times. And the failure of the United Auto Workers to organize plants in Mississippi and Tennessee was closely related to anti-union attitudes there, as I found in previous reporting, attitudes that are less prevalent in automakers’ home turf of Michigan and Ohio.
Educated workers weren’t always as open to organizing campaigns. In the past, educated workers eschewed unions for two main reasons: They had negative opinions about unions, and they felt that they had enough of a voice in their jobs that they didn’t need union representation. Both of those factors have changed in the millennial generation, according to Ruth Milkman, a professor of sociology at the City University of New York Graduate Center. Today, 45 percent of Millennials think labor unions have a positive impact on the country, up from 32 percent in 2010, according to the Pew Research Center. That’s partly because Millennials are much more progressive than previous generations.
The current climate for media jobs may also be motivating some of the media-unionization drives, she said. While college-educated Millennials know that they can get all sorts of jobs in today’s booming economy, they are disappointed with the quality of the jobs in the media sector. “These are people who were led to expect that if they did their part, the world would be handed to them on a silver platter,” she told me. “And then they find that these are crummy jobs.”
Of course, thousands of blue-collar workers are also finding that the jobs available to them in today’s economy are crummy as well. But for them, the alternative to a crummy job—nothing—is even more terrifying.
Sugar is having a tobacco moment, not just here, but around the world.
Urbanization, falling poverty rates, and growing global trade have changed the diets and expanded the waistlines of the world’s poor, with processed food and sweetened drinks becoming household staples. Even very low-income communities are seeing rising rates of obesity, diabetes, cancer, and heart disease as a result. But many countries lack the tax revenue and medical infrastructure to treat such conditions, leading to a burgeoning global-health crisis. To tackle it, a new task force of well-known academics and advocates is encouraging developing nations to treat candy and soft drinks as many of them treat alcohol and cigarettes—and to tax them.
The idea might seem counterproductive, or even cruel. Cheap calories have contributed to falling rates of undernourishment and a reduced incidence of famine. Taxes increase costs, with a burden that falls most heavily on the most poor. And the relationship between added sugar and worse health is not a clear-as-day causal one. But promoting empty calories might be crueler, experts argue. “People say these taxes are regressive,” Lawrence Summers, a leader of the task force and a former Treasury secretary, told me. “But I say premature death is regressive.”
Summers is co-chairing the new coalition along with Michael Bloomberg, the former mayor of New York City and the current World Health Organization ambassador for noncommunicable diseases, an honorary position. Joining Summers and Bloomberg are, among others, Tabaré Vázquez, the president of Uruguay, Margaret Chan, the former director-general of the World Health Organization (WHO), and Nicola Sturgeon, the first minister of Scotland. The group of politicians, health experts, and economists plans to study fiscal measures that can improve public health and to urge lower-income countries to adopt them.
Its creation comes as international organizations and individual governments are increasingly worried about the prevalence and cost of lifestyle diseases. The rate of obesity has tripled in lower-income countries that have adopted Western diets and lifestyles, with doctors warning that the threat of diabetes has become pandemic. There are immense costs in terms of human suffering. And there are immense costs in terms of lost productivity, lost wages, increased health expenditures, and a smaller labor force. Five main noncommunicable medical conditions—cardiovascular disease, cancer, chronic respiratory disease, diabetes, and mental-health conditions—are estimated to cost China $27.8 trillion between 2012 and 2030, and India $6.2 trillion. The price tags will be in the millions and billions for many poorer countries as well.
“There’s a set of lower-income countries, like Bangladesh and Ethiopia and Myanmar, that will go in the span of 40 years from basically having no burden of noncommunicable diseases to having a similar burden as the United States or the United Kingdom. That’s three or four times as fast as high-income countries had to make that epidemiological transition,” said Thomas Bollyky, a global health expert at the Council on Foreign Relations, the New York–based think tank. “If you can’t slow this down and give countries time to adapt, they’re dealing with a problem coming four times as fast with a quarter of the resources.”
Some noncommunicable conditions might best be targeted with low-cost medical interventions: vaccines for HPV and hepatitis, inexpensive medicines for people with hypertension. For others, taxes might be part of the answer. “For the first time in the history of the world, more people are having their health affected by eating too much, rather that too little. That’s a sea change for humanity,” Summers said, adding, “It’s going to be a while before the developing world is able to afford open-heart surgery on a massive scale. Fiscal measures are super-efficacious, both because prices matter particularly for younger and poorer people and because taxes are educative.”
Taxes do have a clear record of curbing the consumption of, and thus the public-health impact of, tobacco and alcohol. The WHO estimates that raising excise taxes on cigarettes by $1 per pack would push up the cost of cigarettes by an average of 63 percent in low-income countries. After such an increase, projections indicate, the prevalence of daily cigarette smoking among adults would fall from 14.1 percent to 12.9 percent, leading to 15 million fewer smoking-attributable deaths. The group argues that “tobacco-tax increases are the single most effective policy to reduce tobacco use.”
Studies are similarly clear about the effect of alcohol taxes, if fewer countries have them as an explicit public-health policy. “Nearly all studies, including those with different study designs, found that there was an inverse relationship between the tax or price of alcohol and indices of excessive drinking or alcohol-related health outcomes,” one survey published in the American Journal of Preventive Medicine found. Making alcohol more expensive does not just cut down on rates of cirrhosis and cancer, researchers have learned, but also reduces the incidence of car crashes, suicides, domestic violence, workplace accidents, house fires, and so on. At the same time as these kinds of vice taxes reduce the consumption of dangerous products, they boost government coffers—providing a potential revenue stream for health spending.
Then there is sugar. “Sugar is where tobacco was in 1972,” Summers told me. “The equivalent of the surgeon general’s report has been written, but there has not been much that has happened yet to reduce demand.” He was gesturing to a growing body of studies showing that taxing sugar leads to reduced consumption—with a potential knock-on effect on obesity rates and health expenditures. Perhaps the best evidence comes from Mexico, which instituted a one-peso tax on every liter of sugar-sweetened beverages back in 2014, leading to a 5.5 percent drop in consumption in the first year and 9.7 percent in the second year.
“These taxes help, and the people who consume the most are most affected,” said Barry Popkin, an economist and nutrition expert at the University of North Carolina, who studied the effect of the sugar tax in Mexico. He said that while the burden of the tax might have hit lower-income people the hardest, the benefits might help them the most, too. “The poor do pay more, but they’re the ones who can’t afford health care. They’re not being treated much at all in terms of chronic disease—diabetes is not something you can treat cheaply.” He added that the study did not show that Mexicans facing higher prices for soda and sports drinks seemed to shift their calories into other kinds of junk food.
Still, not all research shows such promising results—nor is it clear that sugar taxes will lead to less consumption, and thus to lower rates of obesity, and thus to a lower incidence of noncommunicable disease, and thus to reduced long-term public-health spending, in part because such tax initiatives have not been around long enough to know. “Studies looking at the effect of actual soda taxes implemented at the state level find that, while the taxes do lead to a moderate decrease in soda consumption, the net effect on obesity is next to zero,” reads one review of the literature in the United States.
Moreover, critics have questioned whether such policies are fair—pumping up prices for the poor with a questionable benefit for public health. Others oppose them on the grounds that they are paternalistic and interfere with free markets. “Individuals’ decisions about what risks they are willing to take and how much they are willing to trade pleasure for diminished health are incredibly personal and should not be overly politicized,” argues Peter Van Dorn of the Cato Institute, the libertarian think tank. Plus, junk-food and soda taxes are often unpopular, raising the ire of grocery stores and food producers, along with citizens themselves.
In spite of all that, many countries have moved in recent years to use taxes to try to improve their citizens’ diets and cut down on health costs. Thailand recently instituted a tax on sugary beverages, with Hungary putting one on junk food and Vanuatu putting in place significant import restrictions. That should provide more data on the efficacy of such measures, and the best way to design them.
If they work, the impact on public health could be considerable, in terms of lower costs and higher revenue. “You’re also seeing massive demographic changes in these countries,” Bollyky said. “It isn’t that people in developing countries have grown fat and lazy and intemperate in their habits, and now they have these health conditions. It’s because of fairly dramatic shifts in their populations as well as in lifestyles, and their health systems need time to accommodate them. They’re having to do it faster than we did and with fewer resources.”
The United States might stand to implement more vice taxes too, Summers added. “This is some of the lowest-hanging fruit for potential policy improvement.”
Since the day in late November when he showed up at the Consumer Financial Protection Bureau, doughnuts in hand, Mick Mulvaney has said that things were going to change. For almost two months, the acting director appointed by Trump has implemented seemingly small, but important, shifts that indicate what the bureau will look like in the years ahead. In a memo to bureau staff made public by ProPublica, Mulvaney finally laid out his vision for the agency: a government entity that doesn’t “push the envelope.”
In an email to the bureau’s staff, Mulvaney said that he had been struggling to come up with a central thesis for how exactly the agency would change. Mulvaney wrote that the philosophy of the previous director, Richard Cordray, was “to aggressively ‘push the envelope’ in pursuit of the ‘mission;’ that we were the ‘good guys’ and the ‘new sheriff in town,’ out to fight the ‘bad guys.’” The acting director then declared, “That is what is going to be different.”
Mulvaney went on to say the “entire governing philosophy of pushing the envelope frightens me a little ... it’s not appropriate for any government entity to ‘push the envelope.’” The acting director described concerns that the bureau would overstep and create long-lasting damage to individuals, reputations, and businesses. What will this new philosophy look like in practice? Mulvaney vowed to only pursue lawsuits if evidence of “quantifiable and unavoidable harm” is found. And the agency will rely more heavily on its rulemaking efforts as the engine of change, instead of enforcement, meaning that the bureau won’t focus on fines or lawsuits to cull bad behavior. Instead, the CFPB will primarily look to the creation and implementation of new rules, in hopes of changing dangerous practices—a process that is less punitive and more time-consuming.
This memo is in line with the plan that Mulvaney has already started enacting. In the nearly two months that Mulvaney has been at the helm of the bureau, he has instituted policies that have pulled back on the agency’s rulemaking, enforcement, and collection of personal data. According to Nick Bourke, the director of the consumer-finance project at the Pew Charitable Trusts, this strikes at some of the key areas of success for the bureau. “Enforcement has been the biggest impact the CFPB has had so far,” Bourke told me during an interview in November. And thus far, the implementations of new rules for prepaid cards, payday lenders, and mandatory arbitration clauses—all considered big victories for the bureau—have been slowed or killed since Mulvaney took on leadership of the bureau.
The process of paring back the scope of the bureau’s enforcement efforts is already underway, and already questions have been raised about Mulvaney’s close relationships with some of the entities that he is now in charge of regulating. On Monday, Mulvaney shuttered an investigation of World Acceptance Corporation, a small-dollar loan operation from his home state of South Carolina that contributed an estimated $4,500 to his political campaigns over a three-year period. Earlier this month, Mulvaney dropped a lawsuit against a group of payday lenders in Kansas accused of misleading customers and charging interest as high as 950 percent. Campaign donation records show between 2012 and 2016, Mulvaney received contributions totaling more than $60,000 from groups in the payday-lending industry.
This new trajectory of the agency will almost certainly ruffle longtime advocates of the bureau and supporters of its work under Cordray. Many have feared that Mulvaney, who has been a vocal critic of the CFPB, would shut down the agency, or, short of that, gut it from the inside. Tuesday’s memo didn’t exactly assuage those concerns. “When I arrived at the CFPB, I told folks that despite what they might have heard, I had no intention of shutting down the Bureau,” Mulvaney writes. “Indeed, the law doesn’t allow that.”
In January, the acting director asked the Federal Reserve to refrain from giving the agency any money for the second quarter of 2018, saying that instead, the bureau could use some of the $177 million reserve fund accrued during Cordray’s tenure to operate. “The request—or lack thereof—will serve to reduce the federal deficit by the amount that the Bureau might have requested under different leadership,” Mulvaney wrote.
With a new mission for the bureau articulated, Mulvaney has cemented the Trump administration’s vision of the CFPB: a smaller, quieter, and less active financial regulator—one that looks a lot more like the regulators of the pre-recession era.
Toys “R” Us announced on Wednesday that it will close about 180 stores in the U.S., or about one-fifth of its domestic locations, as the company emerges from bankruptcy proceedings to restructure $5 billion in debt.
On one level, this is just the latest chapter in the never-ending saga of brick-and-mortar calamity as the retail industry focuses more on online sales. The first half of 2017 was among the worst periods for retail stores on record, and the pain isn’t nearly over. In the last four months, Sears and Kmart have announced 63 imminent store closings (after shuttering 350 locations in 2017), Gap announced plans to close 200 locations in the next three years, and Walmart announced that it would close 63 Sam’s Club stores and lay off thousands of workers.
But while Toys “R” Us has suffered from some predictable brick-and-mortar burdens, its story is a complicated one that touches on family economics, modern leisure, and private-equity mismanagement. There are the three main culprits of the sad demise of America’s erstwhile titan of toys.
1. It’s the e-retailers.
This story begins—as all modern retail stories must—with Amazon. The “everything store” sells toys now—billions of dollars of toys, in fact. Between 2015 and 2017, Amazon toy sales grew 24 percent, to $4 billion. Toys “R” Us, whose revenue declined in those years by a similar sum, simply doesn’t have the same facility with digital shoppers. Last June, the company’s CEO criticized the store’s own website, including its kludgy baby-gift registry tool, acknowledging that the store had simply fallen behind contemporary shopping habits.
Failing to build an online presence is bad for any retailer, but it’s particularly deleterious for one whose core demographic includes parents short on time and cash. As my colleague Rebecca Rosen wrote last year, most households don’t have a stay-at-home parent anymore, which makes shopping excursions a luxury many families cannot afford. So more moms and dads are skipping the car trips and buying toys from a website they can trust.
2. It’s the debt, too.
It’s a mistake to consider Toys “R” Us nothing more than Sears, but for kids. Yes, the store was clearly hurt by the rise of Amazon and other large retailers; Walmart actually overtook it as the nation’s largest toy retailer all the way back in 1998.
But its collapse has been especially acute, due to terrible mismanagement by private-equity firms. After Toys “R” Us was taken private by KKR, Bain, and Vornado in 2005, it took on a lot of debt, leaving the company with repayments that have crippled it in a period of declining sales. Toys “R” Us has spent more than $250 million annually to pay back $5 billion in long-term debt. These repayments became unsustainable once revenue started to decline consistently, as it has each year since 2012. That left one option: for the company to declare bankruptcy and renegotiate the terms of its debt.
3. Blame the kids and their screens.
It would be satisfying to exclusively blame private-equity sharks and retail conglomerates for the fall of Toys “R” Us. But there’s another group that deserves consideration as a culprit: Kids.
Today’s teenagers and children have been shaped by smartphones, social-media apps, and living-room bingeing, as the psychologist Jean Twenge wrote in The Atlantic last year. This has coincided with a sharp rise in teen depression and suicide. Less gravely, it’s also depleted the marketplace for hardware toys. In the last year, Lego, Mattel, and Hasbro have all reported declining sales for key brands (like American Girl or Star Wars merchandise). Maybe tactile trinkets have simply lost their luster among kids.
Or maybe kids don’t even know which toys are out there. Last year, The Wall Street Journal reported that with Millennials watching far less cable television than they used to, young parents and their children simply aren’t seeing the commercials that toy makers rely on to market new products. As a result, much of Toys “R” Us’s merchandise is doubly cursed—kids can’t play with it on their screens, and parents won’t find out about it on their screens.
While bankruptcy might seem like corporate death, the truth is that Toys “R” Us is far from defunct. With $11.5 billion in 2017 sales, its toy business is still more than twice as big as Amazon’s. But in the last decade, it has faced a brutal set of economic and technological forces that has left it heavy in debt and light in new customers. Along with every other struggling brick-and-mortar company today, the scariest question is this: If Toys “R” Us can’t cut it with 4 percent unemployment nine years into a recovery, what happens when the recession comes?
It’s getting harder and harder to avoid paying for one of the most basic and necessary banking services: a checking account. And that could make it even harder for low-income customers to access the services of mainstream banks.
Just this week, Bank of America finished converting an unspecified number of customers still using its eBanking checking account to a different kind of checking account that will charge a monthly fee of $12. While the original eBanking account wasn’t technically free, its monthly $8.95 fee could be circumvented if account holders didn’t go to a teller (which fewer and fewer Americans do) and agreed to get their statements online instead of in the mail. The fees for the new account won’t be as easy to get around. In order to have the $12 monthly fee waived, customers will need to keep their balance above $1,500, or have direct deposits of $250 or more per month.
In comparison to most other major banks, those terms aren’t out of the ordinary, and those fees are comparatively low, Betty Riess, a spokeswoman for Bank of America, said in an email. That’s true. In recent years, plenty of other major banks including Wells Fargo and U.S. Bank have moved away from no-fee or effectively free checking accounts in recent years. “Checking accounts oftentimes are free if certain conditions are met—of course, those conditions can be tough for people to meet,” says Thaddeus King, who works on consumer-finance issues at the Pew Charitable Trusts.
Still the change could be a blow to some some of the low-income clients who relied on the ability to forgo a few services in exchange for access to free checking at a major financial institution. Many Americans, especially those who don’t earn much, have a tenuous relationship with the traditional banking system. Around 7 percent of Americans don’t have very basic banking access, such as checking accounts, and around one-quarter of Americans don’t have access to all the banking tools that they need, such as affordable accounts, debit cards, and credit.
So why are banks making it harder for Americans to keep an account? Over the past few years, overdraft practices—when banks charge customers for overdrawing their checking accounts instead of denying the transaction—have come under scrutiny. The fees on such policies can start at $35 at major banks, and many banks have relied on transaction reordering, which sorts checking account withdrawals from highest to lowest in order to increase the likelihood of one or more overdrafts on a low balance account. This so-called “overdraft protection” costs Americans around $14 billion a year, according to the Center for Responsible Lending.
These policies have disproportionately hurt low-income Americans who are more likely to overdraft (and wind up closing accounts because of constant overdrafts); they have also brought in a lot of revenue. The shift away from harsh overdraft penalties will undoubtedly help some consumers avoid onerous charges, but the fees generated by those overdraft policies were a big part of the free checking-account model. Thus, as banks lose that revenue stream, it’s become more likely that customers have to pay for their accounts.
There are still options for those who are unwilling or unable to pay a monthly fee: some smaller regional banks, credit unions, and banks without brick-and-mortar locations still offer free checking accounts. And many banks offer low-fee checking accounts for customers who are willing to forgo basic banking options, such as paper checks or bank branches. But at big banks, the move away from free checking is likely here to stay.
