Banks don't like paying increased regulatory costs, and sometimes they complain about how they'll have to pass that fee on to customers in the form of fees. That's just fine with the Federal Deposit Insurance Corp., as long as you don't pretend that those customer fees are "FDIC assessments."
Unfortunately, that's exactly what some banks have been doing for some noninterest-bearing accounts used by businesses to make payrolls and manage their cash flow. Last month, the FDIC ordered banks to stop labeling their fees with "FDIC" and other government agency names, saying it could mislead customers into thinking those fees go directly to the government instead of the banks themselves.
Many banks are still at it though, according to an article by Kevin Hall of McClatchy Newspapers:
Citibank, which required the largest taxpayer bailout in the 2008 financial crisis, explains in a footnote on its schedule of fees for business accounts in the nation's capital and surrounding states that it charges an "FDIC insurance fee" at an annual rate of 13 cents per $100.
Miami-based BankUnited boasts on its website that it offers customers "Banking without the BS*" and that it's a "BS* Free Zone." But in the fine print of the lender's fee schedule, there's a stinker.
"For some business accounts, we may charge a Federal Deposit Insurance Corporation ('FDIC') assessment based upon the assessment rate the FDIC charges us. The FDIC assessment may include deposit insurance charges and other fees, charges and assessments provided by law," BankUnited explains. It ended with this humdinger: "We generally calculate the FDIC assessment using the same calculation method used by the FDIC. However, we may use another method to calculate the assessment. The assessment rate is variable. We may change it at any time without notice."
Contacted about the improperly labeled fee, BankUnited says it would investigate the matter.
"This matter is currently under review," said Mary Harris, the bank's senior vice president for marketing.
However, that BankUnited tells customers it generally calculates the fee using the same calculation, as the FDIC is a big problem for the agency. It warned in the July letter that banks may be indirectly revealing information used to determine a bank's confidential supervisory ratings, something that could land them in hot water with regulators. Regulatory information is confidential to protect against bank runs and market manipulation by investors.
"In some cases, some of them went into extreme detail in providing a detailed calculation of how it was done. If you give (customers) the exact calculation ... they could determine the risk rating of the institution," James Deveney, the head of the deposit insurance section in the FDIC's division of depositor protection, said in an interview. He declined to discuss specific banks.
Incidents like this show the profound disconnect between how bankers and financial services professionals perceive the Dodd-Frank Act and regulatory reform, and how most Americans feel about it. A poll by Americans for Financial Reform last month found that Americans favor Dodd-Frank by 73 percent for to 20 percent against. And I think if you asked most people about the law, they'd probably tell you they don't love costly regulation, but it beats the heck out of Americans losing $19.2 trillion worth of wealth to a financial crisis over the course of a few months.
Naming their fees after the FDIC seems to be banks' way of saying, "We would love to not have to charge you additional fees to cover our new insurance and compliance costs, but because of the mean old government, we have to." That ignores the role of bankers in why those regulations were created, along with misleading customers about where that money will end up.
Instead of getting creative with the fee names, why not just offer simple, clear and readily available disclosures and leave the grandstanding to the lobbyists and politicians?
What do you think? Should banks be able to label their fees with government agencies' names to highlight the roll of regulation in bringing about those fees?
Follow me on Twitter: @ClaesBell.