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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For the smartest kid on the playground, it has been a tough few months.  First news swirled of Goldman’s clever idea to essentially bet against both the market it created and the investors it had enlisted.  All in the name of bringing “liquidity” to the market (so they said) and mega profits to the Street’s richest firm for yet another “financial innovation”.  However, the new, “we’re tougher than ever” SEC would have none of it and a settlement was reached costing Goldman $550 million (nothing that will rock this giant, but a half a billion dollars is still a lot of money).  On the heels of the settlement, ACA, a private Wall Street insurer, initiated a lawsuit over the same issue.

Perhaps related, perhaps not, Goldman made serious concessions to its critics by divulging the source of some of its revenue.  Specifically, Goldman has implemented new procedures to: (1) disclose the source of its profits; (2) increase transparency; (3) separate and clearly define the responsibilities of traders and investment bankers; and (4) publish a simplified balance sheet in addition to the balance sheet required under minimum accounting standards.  As part of the change Goldman will distinguish profits it earns investing on its own behalf from those earned for investors on investor accounts.  The hope is that this will dispel theories that the firm is making improper trades (or less gently “betting against it’s own customers”).

While the smart kid who seemed to run the schoolyard took a punch on the nose, he may have just learned his lesson.  The extent to which Goldman truly works towards transparency remains to be seen, but this initial good faith offering is a step in the right direction.  We can only hope that in addition to being a market leader in profits, they also want to be a market leader in the area of reform.  If so, others firms on the playground, large and small might just follow.

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 A “Private Right of Action” Must Be Added to the TARP Legislation

TARP monies must not become a slush fund for the ethically challenged.

On July 21, Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program, released his office’s quarterly report.  To his credit, he demonstrates the kind of transparency taxpayers who are footing the bill deserve.  Notably on page 5-6 of the report, he identifies and describes in some detail 35 investigations brought by his office.  He also describes in depth two matters that have already been publicly filed.  Good stuff indeed.  But the magnitude of this program (trillions of dollars), the profound seriousness of this endeavor to our economy, and the hopes of future generations demand more. 

A far greater degree of enforcement must be available. 

In just a few months, Mr. Barofsky has received 3,200 tips.  This means trouble is afoot as many feared. It needs to be “nipped in the bud”.  Confidence must be maintained and the TARP monies must not become a slush fund for the ethically challenged.

We recommend Mr. Barofsky seek additional funding for more staff and investigators.  The Administration should also request that Congress amend the TARP to allow a “private right of action."  Private attorneys ferreting out fraud can make a real difference.  We need more than 2 filed cases to serve as a deterrent, protect the essential mission of the TARP, and limit the cost to taxpayers.

We cannot afford to wait.

The More Transparency the Better

We applaud the report as a small step in the right direction.  Much has been made of the $27.3 trillion that the report warns could end up as the overall cost of resolving the economic crisis.  Although this figure represents a worse-case scenario, the magnitude of that amount should alarm taxpayers and regulators alike.  To avoid coming close to that number, the Treasury must heed the recommendations of the report by: (1) enacting realistic mandatory transparency requirements; and (2) opening its own methods and decisions to the glare of public scrutiny.

As Justice Douglas said in framing the Securities Act of 1933, in the midst of the Depression, “Clean Air is the best disinfectant.”

(Post was prepared with the assistance of David Martin, University of North Carolina 2010)

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