Interesting post from the US PIRG Consumer Blog (uspirg.org).
THIS TYPE OF FEE DISGUISE NEVER HAPPENS WITH A PAWN LOAN!
Outrageous, obscene overdraft fees next battleground?
Both House Financial Services Chairman Barney Frank with Reps. Carolyn Maloney (D-NY), reform bill sponsor, and key subcommittee chair Luis Gutierrez (D-IL) (their letter to the Fed) as well as Senate Banking Chairman Chris Dodd (D-CT) (his release) have issued warnings to the banks that the next reform battleground may be their use of unfair, deceptive overdraft “protection” schemes to extract penalty fees from consumers. A couple of years back, the Fed led bank regulators in a disgraceful bit of regulatory legerdemain. They declared that even though overdraft protection was in fact a form of loan that should be subject to Truth In Lending warnings, because the banks could make a lot more money if they merely disclosed the practice under the Truth In Savings Act instead, why not just do the latter and let consumers suffer? Previous blog linking to our testimony on the Maloney bill, HR 1456, to reform unfair overdraft practices. In the case of unfair overdraft fees, all the kids are doing it, including pretty much all community banks and even some (too many) member owned credit unions. It is yet another pathetic business model. Consumer release (December 2008) criticizing the Fed. Meanwhile over at the FDIC, a regulator that dares to protect consumers, depositors and taxpayers, a recent study found that what consumer advocates have said about overdraft fees being unfair and targeted at people who could least afford to pay them is true.
What’s in your wallet? Cap One to re-invent
Today’s Washington Post says Capital One credit card bank will have to re-invent itself following passage of credit card reform last month. Well, the core provision of the law says you cannot impose unfair late fees. Turns out Cap One, supposedly an innovative company, relies heavily on late fees. Profitable yes, innovative, no. Re-invention needed to have a fair business model, yes.
Just as Wall Street titans weren’t really inventing anything useful (risk is not useful) except in their own minds and wallets, basing your business model on gotcha fees is not useful to social welfare either. By the way, a recent National Consumer Law Center report on fee harvester credit cards heavily criticized Cap One for its practice of issuing multiple low-limit cards to some consumers instead of raising their limits. That’s a reverse innovation designed to keep people buried in late fees. From NCLC:
Another Capital One customer who found she had a problem in her wallet was Maryann Strouse, a partially disabled woman in Sunbury, Pa., to whom the bank issued a card in August 1999. Strouse, who is now 73 years old and living on social security payments, had used the card which had an initial credit limit of $200 “extremely sparingly,” according to her lawyer. Between February of 2000 and June 2005, Strouse made only four purchases for a total of $430 and paid $1,190 to Capital One.
