“Standing on the moon
With nothing else to do
A lovely view of heaven
But I’d rather be with you.”
–Robert Hunter/Jerry Garcia, Standing on the Moon
Whoa, that’ll give you a chill, eh GonzoBankers? Pretty cool stuff for a love song by the Dead; that’s some serious devotion being described there, Fair Readers.
Do you think that’s how your customers, all doe-eyed and gooey with loyalty, think about your bank? A galaxy of venerable competition out there in the pecuniary cosmos, but your customers choose to orbit your bank just because you’re You? Well, of course not. You know it’s your exceptional products and devotion to service that keep your customers coming back.
Trust, too. In fact, bankers rightly play the Trust card early in every hand. Without concentrating too hard I can think of a dozen new products, services and innovations (e.g., electronic bill presentment/payment, account aggregation, insurance/investment sales, etc.) that the banking world has said should naturally be centered around Trust because the public Trusts the banking system.
Consider the traditional banking products that have always succeeded because of Trust. Borrowers shop rates and terms but in the end choose lenders based on Trust. Customers Trust the bank with their hard-earned deposits. We Trust banks to clear our checks, prevent fraud, and keep our accounts accurate.
In the late 1980s, when I worked as a part-time cash letter balancer in a very large bank in Texas, I frequently read about Trust in the company newsletter. I used to think that all of this Trust talk was trash talk. I thought customers trusted their bankers like they trusted the security guard at Woolworth’s – glad they’re there, solid and dependable, but don’t expect any Vin Dieselesque heroics out of them.
But I was dead wrong. I’ve spent thousands of hours at scores of banks with hundreds of bankers. As a result, I do think – in fact I KNOW – that Trust has the primary role in the decisions consumers and businesses make in their banking relationships. This industry is full of examples to prove me right. That’s the good news. The bad news is that Trust is both subjective and fragile. One man’s favor is another man’s flying soup bone to the throat. Second chances with Trust are few and far between, so we have to ferociously protect the public’s Trust.
This week I’ll address a growing movement that threatens that all-important Trust relationship. I’m talking about Overdraft Privilege Programs (OPP). We know all about OPP. A customer writes a bad check. The bank covers the check and assesses the customer a fee. The customer repays the bank, and all’s right in the world.
A great service, right? Then why all the fuss in the press? You’ve read the emotional stories in The New York Times and elsewhere about the hideous abuses of overdraft privilege programs, causing the financially undergunned to wallow through a modest life’s savings at the rate of $35 per covered check.
That’s the obvious lunacy in the OPP saga, the vast majority of which I attribute to oversight, bad process and amplified exceptions to the norm as opposed to hand-wringing wickedness The rare instances of weird and hurtful abuse are not the target of today’s diatribe. No, even at much more sane, seemingly anodyne levels, banks and credit unions across the country are riding the speeding OPP train for all it’s worth.
And we all know it’s going to have to stop.
The tearjerker headlines are inspired by the crazy abusers that, right along with the casual bandwagoneers, nudge-nudge and wink-wink their way to that last bit of fee income, knowing all the while that this is a train certain to derail unless the brakeman awakens and applies a little pressure.
Overdraft privilege cannot endure in its current form because, for the banks and credit unions generating loads of easy fee income, OPP is simply too good to be true. Certainly, far too many programs are indirectly encouraging fiscally irresponsible behavior among their most unsophisticated customers and then jabbing said customers with unaffordable fees for following the bank/credit union’s own script. And my gut tells me that just cannot last.
“All ambitions are lawful except those that climb upward on the miseries or credulities of mankind.”
Don’t get me wrong, I am not one to begrudge a bank’s right to make a buck. I’m a dyed-in-the-wool, earnings-per-share kinda guy. But EPS isn’t the ONLY thing. I keep getting back to that Trust issue. How many times will a customer read a monthly statement full of $35 fees/favors before that ever-precious Trust starts to diminish?
I’ll agree that meted out reasonably, at a fair price with some forced discipline thrown in, OD privilege is a legitimately helpful service, particularly for those customers who do not have the financial might to procure a line of credit to protect themselves from the occasional bounced check.
But as fellow GonzoBanker Terence Roche asked me, would you be proud if your child came bounding home after a semester at college and bragged that she had spent $1,000 in overdraft privilege fees at the bank but didn’t bounce a single check? I’d have to answer a resounding “No!” to T-Ro’s question. In fact, I’d immediately log off of casino.com and launch into a cruel invective about financial responsibility.
To be clear, I am not calling for an abolishment of overdraft privilege programs. I’m simply saying:
It could be your own bank that you keep out of the headlines.
This is yet another opportunity for our industry to self-regulate or wish we had. The Fed has taken its shot across the bow, letting it be known that it is considering interpreting fees paid under certain overdraft privilege programs as finance charges with sometimes quadruple-digit annual percentage rates. That means that the Truth in Lending Act (TILA)/Reg Z two-headed monster, with all of the related disclosures and rules, could well come into play.
And holy screaming mother of babbling Elvis, do we need more regulatory hurdles to clear? The disclosures, tracking and paperwork alone involved with applying Reg Z to overdraft privilege could render just about every one of these programs unprofitable. That’s not what the regulators intend, but let’s not kid ourselves. There is only so much heat that the Feds will take from community groups, sniveling reporters, unhappy constituents of powerful Senators, etc. before they take decisive action. The Feds are going to come down heavy on our industry if we don’t do something about the abuse, even our relatively small-scale failings of inattention and scale-induced carelessness.
We can hide behind the “We’re providing a much-needed service” shield if we want to, but believing our own BS is a losing game that will lead to the next regulatory hammering du jour. And not even the regulators want that.
Let’s get reasonable with these overdraft privilege programs and start some serious self-policing. Bankers carry big influence in the community, and it’s time to start focusing some of that power in a direction that will help keep us out of a regulatory quagmire as well as retain some of that coveted and storied Trust that has kept this industry prosperous for so many years.
“Facing it, always facing it, that’s the way to get through. Face it.”