even after law changes
Overdraft fees, unfair foreclosures are angering customers.
By Pallavi Gogoi
of The Associated Press
NEW YORK — Complaints against banks are soaring, suggesting that new laws and regulations put in place since the financial crisis two years ago aren’t dampening Americans’ anger over overdraft fees and foreclosure practices they view as unfair.
If the trend continues, experts say, it will set banks on a collision course with customers and lead to tougher rules that will hurt their earnings.
The Office of the Comptroller of the Currency estimates that complaints from customers of the 1,500 banks it regulates will hit 80,000 this year. That would be the highest level in the 15 years it has recorded them and more than double the 2008 total. The Better Business Bureau and state attorneys general also report big increases.
Regulators say the surge has put them on high alert. Both the Federal Reserve and the Federal Deposit Insurance Corp. have issued new guidelines, and regulators have hired additional staff as they seek to resolve each complaint. The Fed sought to head off one area of large complaints in November 2009 by prohibiting banks from charging overdraft fees on ATM withdrawals without customers’ consent.
Elizabeth Warren, the Harvard professor chosen by President Obama to set up the new Consumer Financial Protection Bureau, said she is frustrated with how banks find ways to skirt new laws that ban certain practices. “We need fundamental change that will address the real, underlying issues,” she said in a Dec. 2 speech to the Consumer Federation of America. Consumer safety must trump “deceptive and dangerous innovations,” she said.
Officials at Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. said they are listening to customers closely and hiring additional staff to deal with problem areas like mortgages.
“Customer relationships are the backbone of banking, and banks (strive) to meet customer demands,” said Peter Garuccio, spokesman for the American Bankers Association.
Complaints about mortgages and foreclosures surged to the top spot this year. The OCC estimates that the number of grievances it will receive about home loans will almost double this year to 36,000 from 19,669 last year. That’s not surprising: Banks are fighting lawsuits over these issues in several states and are being investigated by all 50 state attorneys general on how they conduct foreclosures.
For years, most complaints were over credit cards. People said banks charged excessive fees or jacked up interest rates without warning. Last year, Congress passed sweeping legislation that prohibited card companies from arbitrarily changing rates and limited fees. The changes already are having an effect. While credit cards are still the second-highest complaint category, they now make up just 22 percent of all complaints, down from 37 percent in 2009.
A public outcry about overdraft fees led legislators to place stiff curbs on their use this summer. That came after banks were found to have charged as much as $35 each time a customer with insufficient funds used a debit card to pay for items like a $1 pack of gum or a $4 cup of coffee.
The stepped-up oversight has done little to slow the number of complaints related to overdraft fees on checking accounts. Consumer advocates say that’s because banks process the largest checks or transactions first, allowing them to levy multiple fees on smaller transactions after the checking account empties out.
“This manipulation of transactions leads to a cascading effect of as many as 10 overdraft fees a day,” says Rebecca Borne, senior policy counsel at the nonprofit Center for Responsible Lending, a consumer advocacy group.
FDIC Chairman Sheila Bair took note of these complaints last month. She launched an offensive, asking banks to consider eliminating overdraft fees altogether for small amounts. “Consumers often feel like they’ve been tricked, and that makes them angry,” she said.
Banks have been reluctant to part with the fees because they are extremely lucrative. In 2009, overdraft fees brought in a record $38.5 billion for banks, according to research group Moebs Services. Another $20.5 billion came from credit card penalty fees, according to R.K. Hammer, a credit card consultant.
With the new laws in place, Moebs estimates revenue from overdraft fees will fall to $34 billion this year. Hammer says the new rules will cost the credit card industry $11 billion a year over the next five years. Other things are weighing on banks too. Fighting the lawsuits is expensive, and the people who bought billions of dollars of faulty mortgages are trying to make the banks buy them back.
Consumer advocates say the punitive fees have hurt bank customers by driving them to use payday lenders and pawnshops. But there’s little doubt the banks have been hurting themselves too.
“The culture at banks has been to chase profits at all costs, even if it hurts their customers,” said Paul Miller, head of financial service research at FBR Capital Markets. “Now it’s coming back to bite the banks in the form of new rules.”
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