The Obama administration’s new consumer watchdog knew about Bank of America Corp.’s plan to impose a $5 monthly debit-card fee at least two weeks before the firm’s announcement ignited a public firestorm, said people briefed on the discussions.
The lender met with Consumer Financial Protection Bureau officials on Sept. 16 to inform them of the fee, Susan Faulkner, head of consumer banking products, told employees yesterday at a gathering in Delaware, said two people who attended. They asked for anonymity because the event was private. Faulkner said the regulator didn’t oppose the fee, according to one of the people.
Bank of America set off a backlash last month when it announced plans to charge some customers for using debit cards, with President Barack Obama among the lead critics. He reprimanded the Charlotte, North Carolina-based firm on Oct. 3, saying that banks didn’t have an “inherent right” to profits and that the added fees are “exactly why we need somebody whose sole job it is to prevent this kind of stuff from happening.”
Obama later said that while banks have the right to impose the fee, it wasn’t fair to consumers.
Regulators “may have been out of touch, like Bank of America was, about how customers would react to this fee,” said Gerald Bell, a professor at UNC-Chapel Hill’s Kenan-Flagler Business School. The question is, “Did they somehow not execute the president’s strategy, or did they just agree with Bank of America that this wasn’t anything out of the ordinary?”
Didn’t ‘Bless’ Fee
Bank of America, the biggest U.S. lender by assets as of midyear, went ahead with the fee after competitors including Regions Financial Corp. and SunTrust Banks Inc. imposed similar charges, David Darnell, the bank’s co-chief operating officer, said at yesterday’s gathering, according to the people.
The Consumer Financial Protection Bureau didn’t “bless this or any other fee,” said Jennifer Howard, a spokeswoman for the regulator. “That simply isn’t our role. Nor is it our role to advise banks on whether the public would readily accept a new fee.”
Faulkner, 49, who reports to Darnell, 58, told the group she was surprised at how well the meeting with regulators went, one of the people said. Still, the bank could have done a better job of informing the public about who will have to pay the fees, Faulkner told employees.
Clients with at least $20,000, a Bank of America mortgage or accounts linked to the Merrill Lynch brokerage aren’t affected. Small-business and military customers are also exempt. Customers will be charged once a month for making debit-card purchases, and won’t be penalized if they don’t use the card or use it only for cash-machine withdrawals.
The banking industry has pointed to Senator Richard Durbin, the Illinois Democrat whose legislation reduced so-called swipe fees by about half, as the reason for the new fees. Durbin has said that banks still “profit handsomely” from debit transactions.
The bank’s internal gathering in Delaware included about 200 employees, the people said. Tony Allen, a company spokesman, confirmed the company held a town-hall style meeting yesterday and declined to elaborate. “Our leaders do a lot of market visits of this nature across the country,” Allen said.
While rivals including JPMorgan Chase & Co. and Wells Fargo & Co. previously said they were testing ways to recoup revenue lost because of new U.S. limits on debit transactions, Bank of America’s Sept. 29 announcement galvanized consumer discontent, said Bert Ely, a banking consultant in Alexandria, Virginia.
“Bank of America has become the symbol of what people don’t like about financial institutions,” Ely said. “They misjudged the extent that they personify a lot of what people don’t like about banks.”
The fee fueled demonstrations in Los Angeles and prompted a Washington, D.C., woman to collect more than 150,000 petitions in protest. Representative Brad Miller, a North Carolina Democrat and member of the Financial Services Committee, condemned “unrepentant” lenders this month and introduced a bill that would make it easier to switch banks.
Obama said Oct. 3 that his nascent consumer bureau, created by the Dodd-Frank Act, could prevent banks from imposing new fees. He stepped back from those comments in subsequent interviews.
“The argument they’ve made is, ‘Well, you know what, this hidden fee was prohibited so we’ll find another fee to make up for it,’” Obama said on Oct. 6. “Now, they have that right, but it’s not a good practice. It’s not necessarily fair to consumers.”
Awaiting Director’s Confirmation
The consumer bureau, which officially started operating in July, awaits the Senate confirmation of its director, Richard Cordray. Republicans have vowed to oppose approving Obama’s nominee until changes are made to the agency.
Consumers should be able to easily compare costs across banks, the bureau said in an Oct. 5 release that specified that it wasn’t addressing “any one fee from any one bank.”
Chief Executive Officer Brian T. Moynihan, 52, is streamlining the firm, which swelled to become the biggest U.S. lender after more than $130 billion in acquisitions by his predecessor, Kenneth D. Lewis. Moynihan agreed to sell almost $50 billion in assets and units and said that he would trim $5 billion in expenses, mostly by eliminating 30,000 consumer-banking jobs.
Yesterday, Darnell likened efforts to dispose of non-core assets to cleaning a garage that became full over the years, according to the people.