What we’ve learned over the past few years is that banks base a large segment of their profits on their ability to flat-out rip off their customers. Here’s a great example, courtesy McClatchy. Banks have been charging their business customers what is labeled an “FDIC fee,” presumably to recoup costs from the deposit insurance fund into which they pay. Problem is, there’s no such thing as an FDIC fee, and the FDIC has warned banks to stop using their name to gather fees from their customers.
Despite an order last month from the Federal Deposit Insurance Corp. to its 7,241 member banks to stop using its name on any fees charged to business account holders, many banks continue flouting the instructions and are socking businesses with extra charges, McClatchy has found.
By using the agency name in charging an “FDIC assessment” or fee, banks mislead customers into thinking that the agency charges depositors for deposit insurance, or that the financial institutions are simply collecting and passing through a government fee.
Although the practice is prohibited, McClatchy’s investigation found that it remains common, with some banks in most communities where McClatchy publishes hitting businesses with such improperly labeled fees.
The so-called FDIC fees appear to be imposed mostly on non-interest bearing accounts that belong to businesses. These are the job creators in today’s political speak, and banks are hitting them with fees on accounts used for payroll and cash-flow purposes. These accounts enjoy unlimited FDIC insurance under a special program that expires this year.
You knew that, when the FDIC raised the fees charged to banks, that they would try to find a way to pass those fees along to customers. You just didn’t know that they would call it an “FDIC fee,” expressly against the wishes of the federal agency. Obviously banks can try to recoup their regulatory fees if they want – and in an actual free market, they would have to compete with the banks who offer better terms to their customers – but they simply cannot use a federal agency’s name in the imposition of that fee, as if the government is taking the money from the business customer, not the bank.
McClatchy found in their investigation that Citibank, BankUnited, River City Bank in Sacramento, Columbia Bank in Washington state, City National Bank of Florida, Frost National Bank in Texas, Yadkin Valley Bank in North Carolina, BB&T in several Southern States, Regions Bank in Georgia, and Capitol City Bank and Trust Company of Atlanta all charge variants of this FDIC fee. Surprisingly, Bank of America is one of the good guys here; they don’t charge any such fee.
McClatchy also goes through the process of actually trying to find out what fees are charged to customers on a given account, which was nearly impossible. The goal is to spring the bank fees on you, not to let you know beforehand so you can comparison shop. That would be crazy!
CFPB needs to get on top of this. One of their major initiatives is to ensure financial consumers have the information in hand to make smart choices. Banks disrupt this at every turn.