As Elizabeth Warren starts building the Consumer Financial Protection Bureau, there’s never been more uncertainty and upheaval surrounding the costs and fees associated with consumer finance.
There’s definitely a fair amount of good news. Old-fashioned overdraft fees now banned unless you opt in to them, and the Wells Fargo case, in which the California bank was ordered to pay $203 million to customers who had their largest transactions processed first, could set an important and expensive precedent for banks. Kate Davidson reports that smaller community banks are likely to fall into line on this front, but it’s still amazing how opaque the national banking system is when it comes to such policies. Get this:
Community banking companies that process transactions highest-to-lowest include the $3.6 billion-asset Renasant Corp. in Tupelo, Miss.; the $10.5 billion-asset Citizens Republic Corp. in Flint, Mich.; the $13.7 billion-asset Susquehanna Bancshares Inc. in Lititz, Pa.; the $6 billion-asset First Commonwealth Financial Corp. in Indiana, Pa.; and the $8.5 billion-asset Hancock Holding Co. in Gulfport, Miss.
Many banks that KBW surveyed would not disclose information about their processing practices. Several declined to comment when reached by a reporter, or did not return calls seeking comment.
It’s a simple and powerful strategy: simply don’t tell anybody, whether they’re a bank analyst or a reporter, what your policy is when it comes to overdrafts. That way, people shopping for a new bank will have to simply go on your public marketing materials, rather than being able to make any kind of easy apples-to-apples comparisons.
One of the things I hope that Warren does is to make every bank’s fees and policies public, in an open database which can be easily parsed by personal-finance websites. It’s not like these things are a secret, per se: they’re just very difficult to find right now. Let’s make these things as transparent as possible, instead.
Meanwhile, the ABA is, predictably and depressingly, pushing back against the idea that consumers would rather have fewer overdraft fees:
Nessa Feddis, a vice president and senior counsel at the American Bankers Association, said she expects regulators will eventually consider changes to rules affecting the order of processing. But she noted that the issue has been the subject of debate and litigation for decades, and said a Federal Reserve study found that customers want important payments — such as rent, mortgage or other bills — processed first, and they’re willing to pay for it.
I’ve looked for this Federal Reserve study, and can’t find it, does anybody know what she’s talking about? If it exists, it only serves to underline how important it is that the CFPB have full independence from the rest of the Fed. And if it doesn’t exist, then the ABA is even more mendacious than I’d imagined.
In any case, banks are definitely looking for new fee-revenue streams, and that’s where the uncertainty comes in. Blake Ellis has a look at some of them: Wachovia, for instance, will now charge you $10 to transfer money from your savings account to your checking account if you don’t have enough money in checking. It’s essentially an overdraft fee without an overdraft, and it’s existed for some time at Wells Fargo, which is now imposing it on Wachovia customers too.
I see four main forces here, all pulling in different directions.
The first is banks’ desire for income streams: they are going to want to introduce as many new fees as possible, especially banks like TCF which were highly reliant on those overdraft fees. (TCF’s business was particularly cunning: it banks a large number of students, who then learn the hard way about how much overdraft fees cost. Once they’ve learned their lesson, they move on to other banks, but TCF just stays there, signing up a new cohort of naive freshmen each year. It, like Wells Fargo, is being sued over its overdraft practices.)
The second is lawsuits. The Wells Fargo decision is the biggest, but other decisions are important too, like the $18.75 million settlement in North Carolina against a payday lender there. The more such decisions there are, the warier banks will be of trying to push the envelope.
The third is Warren’s new bureau, which could become an invaluable public resource for holding bank practices up to scrutiny.
Finally, of course, there’s the constant scramble, on the part of banks, for market share and customers: the more confusing the landscape becomes, the more appealing it is to try to attract new customers by promising them a simple product with no hidden fees. bank
It’s impossible to predict where we’re going to end up once all these factors have been working for a while, but it’s easy to predict that the route from here to there is going to be a rocky one and is not going to go in a straight line. So be careful out there. Your bank is having to deal with a scary and unfamiliar regulatory landscape, and might well react in unexpected ways.