The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

Imagine that: when the banks actually disclose a fee to consumers, they have the capacity to vote with their feet—in this case by migrating to competitor banks with a more customer-friendly policy.  This is free market economics at its best.

Facing a hue and cry from consumers, Bank of America announced on Friday that it will drop its planned $5.00 debit fee charge.

At the beginning of October, major banks including JPMorgan, Wells Fargo and Bank of America announced the fee.  But consumers are showing some feistiness.  In the past month, consumers have mobilized against the fee, getting 300,000 signatures on a Change.org petition.  And worse for the banks, they are defecting at large rates from the big banks in favor of smaller, local banks.  In response, Bank of America (last but not least) became the final banking giant to nix the charge.

Could there be a better example of the benefits of transparency?  Imagine that: when the banks actually disclose a fee to consumers, they have the capacity to vote with their feet—in this case by migrating to competitor banks with a more customer-friendly policy.  This is free market economics at its best.

Transparency and disclosure makes it possible for the middle class to see the truth.  More transparency even trumps more regulation.  Let the public vote with their feet... and their mouse clicks.

Assisted by David Martin

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These hallway bullies already have our lunch money; now they’re after our caps, shoelaces and bubblegum—anything they can grab.

Okay, Bank of America, I get it.

First, you dig into the pockets of every taxpaying American for billions of dollars in revival money.  It isn’t strong enough to say we begrudgingly obliged.  Taxpayers were pinned down by bully one and bully two while bully three turned their pockets inside out.  We heard the rhetoric about too big to fail, and maybe that’s true; maybe we are better off than if we’d let the giant banks go under.

But then, in spite of the foul stench created by loans going bad, you go buy up companies like Countrywide, the poster boy for mortgage indiscretions.  Any half-decent review of their books would have revealed the woefully inadequate research done in advance of issuing the mortgages—to the point of being fraud.  Now we know why the catchphrase isn’t “too smart to fail.”  If Bank of America was in the real estate business there’d be no price too high to pay for Chernobyl acreage or oceanfront estates on the shores of Arizona.

But now?  Surely now that we’ve bailed out the banks, they throw the lowly depositor a bone, right?  Of course not.  These hallway bullies already have our lunch money; now they’re after our caps, shoelaces and bubblegum—anything they can grab.  Starting in 2012, Bank of America customers who plan to use their debit cards can expect to pay $5.00 per month, every month.  You read that right.  Take out your debit card at Costco, or WalMart, or BP just once, and bang.  Money well spent, huh?

Of course, it doesn’t stop with Bank of America.  ABCNews reports that Wells Fargo and JPMorgan are each testing $3.00 debit fees of their own.  What does this mean?  Most consumers will end up paying the $5.00 fee no matter how hard they try to avoid it.  This isn’t capitalism, this is exploitation.  Months ago TCO predicted the rise of such fees, and this won’t be the last one.  It’s baffling in light of this that congress seeks less regulation, leaving consumers with only one recourse for the time being: remain vigilant.

Assisted by David Martin and Zachary A. Kady

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What happens when a consumer needs to pay bills, but doesn’t have a credit or debit card? A new and increasingly popular answer is prepaid debit cards. This new business is booming. The New York Times reported on October 5^th that over $8.7 billion was loaded onto prepaid cards in 2008 alone. These cards offer the convenience of a debit/credit card without the credit check or bank account fees. Unfortunately, this is not the whole story. There is, quite often, a long list of fees including:

·      Activation fees

·      Convenience fees

·      ATM withdrawal fees

·      Balance Inquiry Fees

·      Purchasing Fees

Keep in mind; this is by no means an exhaustive list of fees connected with most prepaid cards.  I am not the first to raise the issue that some large companies may be taking advantage of their target markets: college students, and the uncreditworthy.

Of course the companies issuing the cards (small upstarts like Green Dot, Net Spend, and Account Now) have the right to a reasonable profit. We should also remember that without charging interest, fees will certainly be included in any of their schemes. My problem with the current system is that consumers are generally unaware of these fees which often end up considerably devaluing the money put on a card. This is a growing problem in the financial world and I think it’s time we found a solution.

Let’s look at an example:

This is a short sample of the fees that a consumer would incur with normal use of the MiCash prepaid MasterCard.

A deposit of $500

- $9.95 activation fee

- $17.50 (10 ATM withdrawals)

- $5 (5 ATM balance inquiries)

- $10 (20 purchases)

-$8 ($4 per month for “monthly maintenance”)

_________________________________________

Net Value: $449.50

A consumer using this card would have lost 10% of his or her initial payment just in fees by using this card normally for a two month period. Is this fair? Well, there certainly is precedent in the check cashing and pay-day loan industries for charging outrageous fees just for people to access their own money. However, even these questionable industries seem more willing to disclose fees than prepaid credit card companies.

Though prepaid cards may still be a better option than high interest credit cards or certain bank fees, many consumers rightfully feel that they are being charged fees without being made explicitly aware of them. The MiCash program in particular discloses the fees in the “terms and conditions” which are not directly posted on the application page – rather a user would have to follow a small link at the bottom of the application. This method of disclosing fees is perfectly legal, but is still deceiving. Nowhere on the application page does MasterCard mention any fees. In fact the only mention of fees is in reference to a lack of outrageous overdraft fees. However, it is clear in the fine print of the “terms and conditions” that overdraft or “negative balance” fees do indeed exist with the MiCash program.

We are not seeking an end to prepaid debit cards, nor are we seeking an end to all fees. All the common person is seeking is a fair representation of products, a clear warning that fees will be deducted from a prepaid card. Federal oversight should be the next step towards ensuring full and fair disclosure of fees. The industry is relatively new and has not been subject to a substantial amount of governmental review. Perhaps legislation will be the best way to guarantee disclosure. The card should warn customers that any initial deposit will actually have a lower net value. Hopefully, this clear warning will help assure that consumers are not tricked into allowing big banks and credit card companies to take their hard-earned money.  

Assisted by: Zach Kady 

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