Posts Tagged ‘bank of america customer service’
Why do we need a CFPA? To squelch $31 billion a year in bank fees
Anyone who doubts the need for a Consumer Financial Protection Agency (CFPA) that looks out for individual consumers’ interests might want to take a look at a few recent statistics and reports that shed light on what life is like for banking customers under current government regulatory oversight.
While some banking institutions have been making headlines lately with higher-than-expected quarterly profits and paybacks of taxpayer bailout money, a recent Federal Deposit Insurance Corp. report indicates banks continue to rake in billions worth of fees from their checking account customers, primarily from those who get hit with soaring overdraft penalty charges. According to the FDIC report, in the first quarter of this year, banks collected $10 billion in service fees on deposit accounts. In an earlier report, the agency indicated that nearly three-quarters of such fees are generated by insufficient funds and overdraft loan fees.
At a time when other sources of bank revenue may be dwindling, the appeal of such penalty fees to banks is clear. If income from overdraft fees continues at the pace of the first quarter, consumers will have paid more than $31 billion in overdraft fees to banks in 2009.
In the past, most banks would not allow debit card purchases to go through if the funds in the account weren’t sufficient to cover the charges. But the current trend is to put the charges through and hit customers with ever-rising penalty fees, even if they haven’t requested overdraft privileges or agreed to the high fees that accompany them. As recently updated results from a Consumer Federation of America survey reveal, the median overdraft fee is now $35 and over 60 percent of the largest banks charge additional “sustained overdraft” fees if customers do not quickly repay the overdraft and initial fee.
For instance, the CFA survey shows that Bank of America in June began charging a $35 “sustained overdraft” fee on top of the initial $35 fee. That means that inadvertently overdrawing your account when you use your debit card to charge even a $6 fast food lunch tab, could cost you $70 in penalty fees. Bank of America also this year doubled the number of overdraft fees it can charge against a customer’s account in a single day to ten. In payday loan terms, the interest costs of repaying a $100 overdraft charge after seven days would range from an Annual Percentage Rate of 1,768 percent at CitiBank to 3,640 percent at Bank of America.
“For years, consumer advocates have complained about these anti-consumer practices and urged the Federal Reserve to force banks to comply with the Truth in Lending Act and get their customers’ consent to use this extremely expensive form of credit, but the agency has turned a deaf ear to those requests,” says Jean Ann Fox, CFA’s director of financial services.
Evidence of banking regulators’ putting bankers’ bottom line interests ahead of consumers’ also can be found in an audit report from the Office of the Inspector General for the Department of the Treasury. The report concluded that officials at the Office of Thrift Supervision, which provided oversight for the failed IndyMac Bank and other thrifts across the U.S., not only were aware of misleading financial reporting at some of these institutions, but actually directed or authorized them to engage in inappropriate accounting practices that made them appear healthier than they were—a situation the OIG termed “alarming.”
And the toll for lax regulatory oversight and financial institution mismanagement continues to mount: According to the tally by trade industry publication Bank Info Security, eight credit unions had failed from the beginning of this year through late July, while there were more than 60 bank failures in that same period, a total cost of $13.6 billion to the FDIC Insurance Fund.–Andrea Rock
