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.
The expiration and the improperly labeled fees grow out of the 2010 revamp of financial regulation, shorthanded as the Dodd-Frank Act, in which banks were forced to hold more capital to protect against losses and the FDIC increased what it charges the banks for providing deposit insurance. The insurance protects account holders in the event of a bank run or a bank failure.
The FDIC adopted the rule that finalized the changes in February 2011, and the new rates charged to banks began last year on April 1. Since then, some banks have passed along these costs to unwitting business customers, burying the fees in the footnotes and fine print of fee disclosures that often are unavailable to the general public.
The FDIC, a quasi-governmental agency that insures more than $10 trillion in bank deposits, sent a letter July 9 to banks across the nation in response to complaints from businesses about such fees. The letter provided regulatory guidance to the banks and spelled out the regulator’s concerns about and expectations for them. Banks can recoup their regulatory costs, but they can’t use the FDIC name in doing so.The FDIC does not charge bank customers for deposit insurance, Mark Pearce, the FDIC’s director of depositor protection, said in the letter. “Thus, it is inaccurate, and therefore misleading . . . to state or imply that a particular fee charged to a customer is required by the FDIC or to refer customers to the FDIC for an explanation of the fee,” the letter said.
Yet more than a year after the new rules took effect and six weeks after the FDIC’s warning letter, the improperly named fees continue.
Citibank, which required the largest taxpayer bailout in the 2008 financial crisis, explains in a footnote on its schedule of fees for business accounts in the nation’s capital and surrounding states that it charges an “FDIC insurance fee” at an annual rate of 13 cents per $100.
Miami-based BankUnited boasts on its website that it offers customers “Banking without the BS*” and that it’s a “BS* Free Zone.” But in the fine print of the lender’s fee schedule, there’s a stinker.
“For some business accounts, we may charge a Federal Deposit Insurance Corporation (‘FDIC’) assessment based upon the assessment rate the FDIC charges us. The FDIC assessment may include deposit insurance charges and other fees, charges and assessments provided by law,” BankUnited explained, ending with a humdinger: “We generally calculate the FDIC assessment using the same calculation method used by the FDIC, however, we may use another method to calculate the assessment. The assessment rate is variable. We may change it at any time without notice.”
Contacted about the improperly labeled fee, BankUnited said it would investigate the matter.
“This matter is currently under review,” said Mary Harris, the bank’s senior vice president for marketing.
However, that BankUnited tells customers it generally calculates the fee using the same calculation as the FDIC is a big problem for the agency. It warned in the July letter that banks may be indirectly revealing information used to determine a bank’s confidential supervisory ratings, something that could land them in hot water with regulators. Regulatory information is confidential to protect against bank runs and market manipulation by investors.
"In some cases some of them went into extreme detail in providing a detailed calculation of how it was done. If you give them (customers) the exact calculation . . . they could determine the risk rating of the institution," James Deveney, the head of the deposit insurance section in the FDIC’s division of depositor protection, said in an interview. He declined to discuss specific banks.
Under the 2010 Dodd-Frank Act, the FDIC redefined the base on which it assesses banks for deposit insurance and in April 2011 it introduced a new assessment-rate schedule for reviewing the risk factors it uses to level the deposit insurance charges. It also changed the method of pricing of deposit insurance for the largest banks – whose failure puts the entire financial system at risk – and raised its cost.
McClatchy’s investigation found numerous banks in communities where it owns newspapers hitting customers with fees that sound as if they’re government-mandated.
River City Bank, in California’s capital city of Sacramento, boasts that it’s the region’s premier business bank. It charges its “FDIC Assessment” under miscellaneous fees, describing it as a variable rate applied to the average monthly ledger balance.
Contacted by McClatchy, River City’s compliance manager, Tim Angello, acknowledged that the fee “appeared to be in conflict with this (FDIC) guidance” and said the matter was now under review and the fee likely to be scrapped.
“It’s going to go by the wayside. There is no need to continue charging a fee that might mislead our customers,” he said. “We’re making the necessary changes to the fee schedules that we post online within the next few months, if not sooner.”
At Columbia Bank, near Bellingham, Wash., the fee schedule includes “FDIC Insurance” at a cost of 13 cents per $1,000. City National Bank of Florida said in its disclosure that it collects a variable “Federal Deposit Insurance Corporation Assessment.” A bank spokesman said the disclosure was an error. “We do not charge and have not charged any FDIC pass-through fees to our clients,” said Eddie Dominguez, a bank senior vice president.
In Texas, Frost National warns of an FDIC assessment in its fee schedule, noting in a footnote that the FDIC assesses an insurance premium for all depository accounts and that its customers with the affected accounts “receive a monthly pass through allocation of the assessment for FDIC insurance based on rates set by the FDIC.”
In North Carolina, Yadkin Valley Bank and Trust in the Charlotte area notes that it charges for FDIC insurance on commercial checking at a rate of 10 cents per $1,000. Bank of America doesn’t charge any such deposit insurance fees, although another big Southern bank, BB&T, does so at a rate of $0.1333 per $1,000, and Georgia’s Regions Bank charges a sliding FDIC fee based on ledger balances.
Capitol City Bank, which is headquartered in Atlanta, boldly states that, “In the event of changes in the FDIC assessment set by the Federal Government, Capitol City Bank & Trust Company may increase or decrease this (FDIC Insurance) fee.”
Consumer advocates were troubled by the findings of the McClatchy investigation, although not surprised. Business owners, they said, should review their bank fees and raise the issue if necessary.
“They call it an FDIC fee and they tuck it away. It’s a faithful reflection of what they actually pay the FDIC, but it’s never in an account holder’s interest to be subjected to junk fees, and if you have a significant amount of deposits there it wouldn’t hurt to point out that you are prepared to take your business elsewhere unless they eliminate it,” said Joe Ridout, the manager of consumer services for the national advocacy group Consumer Action.
A revamp in 2009 of regulations that govern many consumer credit card fees, called the CARD Act, didn’t affect how banks can charge fees to commercial customers, Ridout said. For credit cards and checking accounts, banks have more leeway on fees, he said.
How prevalent is the problem is of improper FDIC fees? It remains difficult to gauge because so few banks publish schedules of their fees online. It’s not much better even when you walk in and ask for a schedule of fees for business accounts.
At a Bank of America branch in the nation’s capital, it took several employees to dig up a hard copy of a fee schedule.
Sometimes the response to a request for a fee schedule was comical. At a branch of Capital One Bank in the nation’s capital, the bank whose TV ads ask “what’s in your wallet,” a McClatchy reporter was provided an account disclosure form and told there was nothing else available.
That disclosure form was silent on the fees but warned potential business account customers that additional fees may apply and instructed them to “refer to a current Schedule of Fees and Charges available upon request at any of our banking offices.” That’s the same one that McClatchy was told was unavailable.
At a PNC Bank branch in Rehoboth Beach, Del., McClatchy was told that the fee schedule is shared only when a customer is opening an account. However, at another branch of the Pittsburgh-based bank in the nation’s capital, an employee printed a schedule of fees and it didn’t include an improper FDIC fee.
None of this surprises Ed Mierzwinski. He heads consumer programs for the advocacy group US PIRG, an organization that since 1997 has done secret shopper tests of fee disclosures for consumer bank accounts. While unaware of any restrictions on junk fees for business accounts, Mierzwinski said banks often flouted laws, some enacted as long ago as 1991 after similarly misleading fees on consumer checking were rife, that required fee disclosure to consumers.
“Routinely, one-quarter of branches do not provide fee disclosures provided by law,” he said of his group’s annual secret-shopper research. “In our current research we are finding that banks sometimes put the information online, but not often. The short version is you are right: It is nearly impossible to compare bank fees, because banks make it virtually impossible to find their bank fees.”