Poor folks and banks will just have to learn how to play together
Glenwood Springs, Colorado CO
The Consumer Financial Protection Bureau was created by the Dodd-Frank Act, which redefined the nation’s banking infrastructure in the wake of the Great Financial Meltdown of 2008. At the time, there were five federal banking regulators, but Congress figured that wasn’t enough, because of the perception that consumers were being ripped off by financial institutions.
So, the CFPB was given almost unlimited power and a budget to match, and told to go out and make rules to protect depositors and borrowers in the banking system. It’s the big dog regulator, and it trumps everybody else, including the FDIC, the OCC (Office of the Comptroller of the Currency) and the Federal Reserve.
Bankers firmly believe that the CFPB acronym actually stands for “Commission for Forestalling Profit in Banks.” There’s no doubt that it’s severely complicating the life of bankers and banks, big and little. Whenever a regulatory entity is created in response to a crisis, its performance – and thus its continued existence – is based on the number of regulations promulgated, and the stringency of the enforcement of those regs. In these circumstances, it’s not much fun to be among the regulated; it can become a game of “Simon Says,” and eventually bankers don’t know which way to jump. So, they just sit and turn down loans; no way you’ll lose your job if you don’t move.
But, when the coin flips and the other side turns up, the bureau might have a point or two. Take the brewing controversy over penalties for overdrafts and NSF checks. The regulator avers that low income people, who can afford it least, are being harmed most by these charges, which are being termed “excessive.”
Not at all, say the banks. The dinky accounts are loss leaders for us, even if they never have an overdraft. They’re real losers if we have to deal with NSF checks. If we don’t assess these fees, we can’t offer these low balance accounts.
There’s some truth to the banks’ position. If they could borrow from the public (which is what happens when depositors leave funds at banks) with every account having, say, a $10,000 average balance, they’d be ecstatic and tell the guy or gal with a couple of hundred to go find a safe mattress somewhere.
But when employees at financial institutions complain about the cost of low balance accounts, they’re not telling the whole story, and they’re not likely to, at least until you get two or three beers into them in a nice quiet booth somewhere.
Deposit account fees comprise a very healthy internal cash cow. Any threat to trim the fat off of this particular bovine can cause acute indigestion on the part of your average bank president. We’re all familiar with these fees, and how, often, banks can legally take money right out of the pocket of their customers.
Like the oldie but goodie “low balance maintenance fee.” In this nice little ploy, your balance falls below a certain amount, so a $10 or $20 admin fee is assessed each month. Pretty soon, if you don’t withdraw your dough quickly, it’s all gone. The bank’s got it, you don’t. And the bank is careful not to make a big point of its hand in the customer’s pocket. Multiply that nice feat of accounting legerdemain by, say, 10,000 accounts, and you’re looking at real money.
Right now, there’s some dithering about just how those low income folks can be defined, should a rule actually be promulgated. That’s pretty simple. People who don’t make much money don’t have much money so they don’t put much into their bank account. Higher income people have more money (yup, that’s true) so they put more loot in their checking account. It’s a pretty sure assumption that every low balance account belongs to a low wage earner. Even regulators and bankers should be able to figure that one out. Kind of reminds you of the famous exchange between Scott Fitzgerald and Ernest Hemingway: Scott: “The rich are different from us.” Ernest: “Yeah, they’ve got more money.”
In fairness to bankers (I know, I know, but bankers are people too, just like lawyers) the regulators tell them they’ve got to serve everybody, and there’s certainly no place for moderate income people to go for financial services other than a bank or credit union. So, until someone figures out how to create a banking subsystem just for lower economic groups, poor folks and banks will just have to learn how to play together, under the watchful eye of the CFPB, the Mother Superior that’s very ready to rap knuckles.
I’ll tell you one thing, though, if fees are decreased in one profit center, it’s a pretty good bet that bankers, being bankers, will figure out how to make it up in another.
Pat Dalrymple is a valley native. He’s been in the mortgage and banking business since 1961. He’ll be happy to answer your questions or hear your comments. His e-mail is dalrymple@ sopris.net.
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