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

I get it.  I do.  Madigan is a good man, a very smart man (B.A., Economics, St. Joseph's; M.A., Mathematics, George Mason; Ph.D., Economics, Penn State).  I have no reason to believe he is not the most ethical man that offices in the Fed’s white marble, post-modern palace on Constitution Avenue -- a stone’s throw from the Lincoln Memorial.  He will bring to Barclays his judgment, his experience, his understanding of the process.  He will add value.  Mr. Madigan will facilitate Barclays' compliance with all those rules and regulations that may be part of Dodd-Frank. (KaChing … millions saved.)  He will allow Barclays to have an internal sounding board for those inevitable questions that come up every day for an international money center bank under the general rubric of: “What did the Fed mean by?”  (KaChing, millions more saved.)  That will surely lead to greater certainty in planning and serving its depositors and investment customers, and all will be right with this very savvy world-leading bank (fourth-largest in the world, with $2.2 trillion in assets).

Mr. Madigan will surely earn every penny of what will easily be a million-dollar-plus pay package consisting of a sizeable salary, a bonus, stock, and options.  And grants.  And spending allowance.  And did I mention life insurance?  Heck it's Barclays for crying out loud.  (a half a trillion in …).  But come on now, what is Barclay’s really buying and what is it Mr. Madigan is selling?  Indeed, when that proverbial “revolving door” circles from every major regulator in this town to the entities that are regulated, what is being offered? It’s access.

Pure and simple.  Access, and the influence access creates.  If Barclays wants approval for some new debt instrument or an interpretation of a rule that will be to their benefit, or finds itself subject to some investigation, someone in upper management will say, “Hey get Madigan on the phone, have him call one of his buddies at the Fed and let’s get this worked out …. What are we paying him for?”

And so it goes.  Bryan Madigan will do what he is asked without breaching any legal rules.  He will dial the phone or send an email to a colleague of 20 years from the Fed, maybe the father of a kid Madigan coached in baseball or lacrosse.  And a conversation will ensue, and Barclays and its shareholders will be better for it, because one day Madigan’s friend at the Fed, facing college tuitions and not-so-robust returns on his 529 accounts, will need a job too in the “private sector”.

It is the way it is, but the game remains at a tilt because small community banks and consumer groups don’t have the allure or the money of a Barclays.

Brian Madigan, “good luck in your new position, work hard, make a lot of money and don’t forget your ethical compass at the door.”

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Today we feature another guest post from Jeff Goldberg, who blogged last week about soaring unemployment versus the falling crime rate.  Enjoy.

Frustrating as this is in hard times, our system is built for inaction, compromise and half measures.

From left and right our government is assailed for its inability to act decisively to meet our current national challenges.  

Rarely in our history do we see decisive political action for the unalloyed public good.  The single boldest legislative action taken in American history was the vote of the southern legislatures to secede from the union.  Those votes were decisive but were they right and were they good?  If bleeding the country was necessary to end slavery then perhaps the votes can be seen in a positive light, but history does not heap praise on the secessionists.

In the fall of 2008 the federal government acted decisively to prevent the perceived imminent collapse of the US financial sector.  A Republican president, democratic presidential nominee and the congressional leadership from both parties acted to pass TARP, often contrary to their constituents’ express desires and their own political beliefs. 

Recent reports suggest that TARP has worked reasonably well and that the program will end up costing much less than originally budgeted and feared.  "For what it's worth, it's worked," Fed Chairman Ben Bernanke said in a meeting with college students in Rhode Island.  "It's stabilized the system.  The financial system is now much healthier than it was.  It's no longer in crisis, and moreover, the money that went into these financial firms is coming back to the taxpayers with interest.  So it turns out to have been not only a successful program, but for the most part, a pretty good investment for taxpayers."  Yet a number of federal officeholders, particularly on the right, have paid or will pay a political price for voting in favor of TARP.  

Our government is specifically designed to prevent decisive action.  Montesquieu wrote of the need to separate and balance the functions and powers of the branches of government.  In Federalist 10 Madison wrote that government should serve to temper misdirected passions of the people.  Frustrating as this is in hard times, our system is built for inaction, compromise and half measures. 

On a recent Real Time With Bill Maher, Cornel West asked why the crisis mentality that led to TARP doesn’t exist for the problem of unemployment?  This poignant formulation echoes the larger charge -- that the system is broken and unable to act.  TARP provides a partial and partially unsatisfying answer -- leadership can transcend politics but rarely.  In all other times we muddle through.  Tweaks to the system and the protests of an angry electorate will not change the basic nature of the system, which is built on the founders’ keen understanding of human weakness.

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The New York Times reported yesterday that the Federal Reserve will move to restrict banks’ abilities to charge overdraft fees.

The Fed’s new rules will have multiple impacts on consumers’ relationships with banks:

1.      Most importantly, all consumers will be notified of debit card policies and fees in clear, easily comprehendible language.

2.      Starting July 1, 2010, banks will no longer have the ability to charge exorbitant overdraft fees on most common purchases.

3.      Customers will have to opt-in to overdraft protection policies in order to be subject to them.

4.      If a consumer does not opt-in to overdraft protection, he or she will simply be denied at the register for purchases over their available balance.

Overdraft fees will still be charged for purchases made by check and on recurring debit card payments (i.e. auto-pay monthly bills). However, purchases at retail stores will not be subject to overdraft and withdrawals at ATMs will trigger a warning that a customer is about to overdraft. Only if the customer chooses to continue with their withdrawal will they be charged an overdraft fee at an ATM. According to the NY Times, the distinction between types of payments was made in response to consumer satisfaction surveys. These surveys concluded that consumers are less aggravated by fees on checks and recurring payments than by fees on retail purchases and ATM withdrawals.

Currently, consumers can be charged overdraft fees upwards of $30 for purchases far less than the fee. Under these current conditions, a $3 cup of coffee that pushes an account below zero could cost a customer 10 times that amount in fees. As we described in earlier blogs, overdraft fees are essentially high interest loans made without the consent of the consumer. The Fed’s realization of this injustice and action to remedy it, however dilatory, is highly praised.

This recent move is a step in the right direction, and one The Corporate Observer has advocated for in the past (see: “Big Banks Strike Again: High Interest Loans Disguised as Protection”). Consumers’ rights to full disclosure in the banking world are of paramount importance and the Fed deserves congratulations for its responsible action.

Assisted by Zach Kady

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