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Bucks Blog: Banks Rake In Overdraft Fees, Report Finds

June 11, 2013 by Leave a Comment

Overdraft penalties represent well over half of banks’ fees from consumer checking accounts, a new report from the Consumer Financial Protection Bureau finds.

The report, based in part on confidential data provided by some of the nation’s larger banks, estimated that 61 percent of bank fees from consumer accounts were for overdrafts and insufficient funds, penalties charged when customers spent more than their accounts had available. Based on that finding, the bureau said it estimated conservatively that the banking industry earned $12.6 billion in such fees from consumers in 2011.

The report represents preliminary findings of a bureau inquiry into bank overdraft practices announced early last year. The bureau is not making any policy recommendations yet, but says it will conduct further reviews of account-level data.

The report found that overdraft protection can be very expensive for consumers and varies widely from bank to bank. Overdraft protection is a service in which the bank pays the amount in question, even though the account lacks the necessary funds, but then charges the customer a fee for doing so. The average customer overdrawing an account paid $225 in charges per year, the study found. And more than a quarter (27 percent) of checking accounts paid at least one overdraft charge in 2011.

The bureau did not identify the banks included in the report or even specify how many were included in the analysis, which also incorporated comments submitted by the public, consumer advocates and industry groups. The bureau said, however, that the banks in the study represented more than half of all deposit accounts. The bureau has supervisory authority over banks with more than $10 billion in assets, or more than 100 institutions.

Since the middle of 2010, the Federal Reserve has barred banks from charging overdraft fees for A.T.M. withdrawals or most debit card transactions unless a customer actively  chooses the service. The report found that customers who accept the coverage were more likely to end up paying higher fees and were more likely to end up having their account involuntarily closed than those who did not.

“What is marketed as overdraft protection can, in some instances, put consumers at greater risk of harm,” said Richard Cordray, the bureau’s director, in prepared remarks.

Opt-in rates vary widely among banks, suggesting that bank marketing of the service plays a role. At some banks in 2011, more than 40 percent of new customers opted in, while fewer than 10 percent did so at other banks.

Mr. Cordray said the findings did not indicate that banks should not charge overdraft fees. “Nonetheless,” he said, “our findings raise concerns about the number of consumers who are incurring heavy overdraft fees or account closures, and the wide variations across institutions indicate that certain practices and procedures merit further analysis.”

Have you paid overdraft fees? Do you think new rules are necessary to regulate banks’ use of them?

Article source: http://bucks.blogs.nytimes.com/2013/06/11/banks-rake-in-overdraft-fees-report-finds/?partner=rss&emc=rss

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Bucks Blog: How Banks Limit Your Options in a Dispute

November 29, 2012 by Leave a Comment

Ninety percent of Americans use checking accounts, but they are often unaware that agreements with their bank limit their legal options if there is a disagreement, a new report from an arm of the Pew Charitable Trusts finds.

The report studied 92 large financial institutions and found most (64 percent) limit consumer options for resolving complaints about checking accounts in some way, like through the use of “mandatory binding arbitration” clauses. The clauses require customers to submit complaints to an outside arbitrator — usually chosen by the bank — instead of to a court.

The bigger the bank, the report found, the more likely it is require arbitration or impose other restrictions. (The report says 43 percent of institutions use agreements with mandatory binding arbitration clauses, but that number rises to 47 percent when only banks are included, because none of the credit unions in the study use the clauses.)

“Consumers need to be educated about this,” said Cora Hume, project manager for Pew’s Safe Checking in the Electronic Age Project.

Banks favor mandatory binding arbitration as a faster, cheaper alternative to the courts. But consumer advocates worry that the process may limit an account holder’s options for appeal, and can pose conflicts of interest if a bank provides private arbitrators with repeat business.

For the report, “Banking on Arbitration,” Pew’s safe checking project examined checking account agreements at 92 of the country’s largest banks and credit unions, as measured by deposits. The report also includes results of a telephone survey of 603 customers.

Pew has created an interactive graphic to help consumers understand the difference between using arbitration and courts.

Jean Sternlight, a professor at the University of Nevada-Las Vegas law school, writes in an article to be published in The Southwestern Law Review that mandatory binding arbitration clauses, whether in banking or other consumer contracts, stymie the filing of consumer claims over all.

Despite millions of contracts covered by mandatory arbitration clauses, she says, few consumers actually file claims under them. That’s probably because simple complaints are often handled by companies’ own customer service processes, but consumers lack the knowledge or financing to pursue more difficult claims themselves. As a result of the United States Supreme Court’s decision last year in the ATT Mobility case, consumer class actions — which can provide an avenue for more complex cases — are now more limited, so legal options for consumers appear to be dwindling.

The Pew report found that consumers seem to like the general idea of arbitration as a simpler, less costly alternative to courts. But they overwhelmingly disapprove of specific components of mandatory arbitration. More than two-thirds of consumers said they should have a choice between taking their case to arbitration or to a court. And more than 90 percent of consumers said they thought it was “unacceptable” if consumers were required to pay a bank’s legal fees, even when the consumer wins the dispute.

Pew said it conducted the research in part to aid the Consumer Financial Protection Bureau’s inquiry into the use of mandatory arbitration clauses. The agency is required by the Dodd-Frank financial reform act to examine use of the clauses in financial products.

Have you ever brought a complaint against your bank using the arbitration process?

Article source: http://bucks.blogs.nytimes.com/2012/11/28/how-banks-limit-your-options-in-a-dispute/?partner=rss&emc=rss

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Bucks Blog: A New Web Portal Doubles a Product’s Warranty

November 29, 2011 by Leave a Comment

It’s an age-old question: Should I buy the extended warranty?

With few exceptions, consumer advocates say extended warranties typically are not worth the money. But what if you could double the free warranty coverage that comes with the product, at no additional cost and without the nerve-grating sales pitch?

The company FreeWarranty.com makes such a promise: It says it will double the original manufacturer’s warranty — up to a year — on anything consumers buy through their Web portal, which then ushers you through to the actual merchant’s site where the purchase is completed.

The extended warranty essentially covers whatever the original manufacturer’s contract covers (and it doesn’t cover accidental damage or normal wear). Tom Forrest, the founder and chief executive of the site, says the extension is similar to the ones provided by “premium credit cards but without the stringent acceptance criteria or high annual fees.”

Which raises a good point. Before you decide to shop through their site, you’ll want to make sure you’re not replicating what your credit card already covers. American Express, MasterCard and Visa, among others, offer similar benefits.

Before you get started, you need to set up an account that requires only an e-mail and password. Remember to log on before you start to browse through FreeWarranty.com’s wares, which are heavily weighted toward electronics, with items ranging from Apple’s iPod to the Xbox 360. But the site also features housewares, luggage, toys, games, watches and some other products that don’t exactly pop to mind when you think about warranties. Bird cage litter, anyone?

The maximum length of the site’s extended warranty is listed next to each item. So it might say, “up to six months” or “up to one year.” That means if the original warranty is one year, then the extended warranty will be for an additional year.

But before you commit to buying anything through their site, you’ll probably want to do some comparison shopping around the Web. After quickly perusing the site on Monday — by coincidence, Cyber Monday —  I found two merchants on the FreeWarranty.com site offering a 6th generation iPod Nano for $172.79 and $126.30 (plus $3.99 for shipping). But I was also able to find comparable or better deals elsewhere.

Amazon.com was selling the Nano for $119, and it offered three different warranty options (for two and three years), ranging from $11.99 to $18.99. Shipping was free. The total cost was about $131, with a two-year warranty. Or $138 with a two-year warranty that included drops and spills.

Target was advertising the Nano for $114, though I’d have to go to my local store to pick it up. It also offered a “two-year replacement service plan” for $17.  Best Buy charged $119.99 with free shipping, but the protection pricing was much more expensive, or $24.98 for a one-year accidental protection plan or $44.99 for a two-year accidental plan.

On the Apple site, the Nano was listed for $129 with free shipping. For another $39, you could buy an AppleCare protection plan, which extends coverage to two years from the purchase date.

Besides shopping around, you’ll also need to consider what you may be giving up by shopping through the portal. Several credit-card issuers offer extra points for shopping through their own portals, while discount sites like Ebates and FatWallet offer cash back or other rewards when you go through their Web sites. The same goes for UPromise’s portal, which provides cash back that can be deposited into a 529 college savings plan, used to pay down student loans or put toward other college expenses.

You also have to have faith that FreeWarranty.com will be around as long as your warranty. Mr. Forrest said that for every item bought through the portal, a proportional amount is accrued in a reserve account for repairs, replacements or refunds. He said it has a similar business model to other shopping portals, where the retailers pay advertising fees for sales generated through the site.

“Though new, our company is financially secure and has raised significant capital to ensure that the company will satisfy consumers for a very long time,” he added.

Readers, what do you think of FreeWarranty.com’s Web site?

Article source: http://feeds.nytimes.com/click.phdo?i=20fc9b82a9e5eff9f97e105ffd6bada2

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Dodd-Frank Rekindles Old Debate

June 29, 2011 by Leave a Comment

At issue is whether state banking regulators will be undercut by their federal counterparts when it comes to consumer financial protection laws. Banks, state regulators and consumer advocates have been sparring in legalese-filled comment letters over the last month in response to rules proposed by the Office of the Comptroller of the Currency, which regulates national banks.

Even the Treasury Department has criticized the comptroller’s rules and sided with state officials, saying the rules do not hew closely enough to the Dodd-Frank legislation intended to rein in Wall Street.

A portion of the Dodd-Frank legislation is dedicated to pre-emption, the ability of federal law to trump state laws. Banks, consumer groups and states are now arguing over what the intent of the legislation was.

The comptroller, meanwhile, said that for the most part, the Dodd-Frank bill did not change the office’s power to pre-empt state laws when it comes to regulating national banks. The states contend that the bill gives them new power to avoid pre-emption in some cases.

The issue is a hot one because some consumer advocates say that financial companies were able to get away with lax lending standards and predatory behavior during the surge in home sales before 2008 in part because the lenders could claim that more restrictive state rules did not apply to them.

Banks, on the other hand, say it is more efficient for them to follow national rules as the industry has consolidated and added customers in many states.

The comptroller has been criticized since the financial crisis for often siding with bank-friendly policies, and the office’s critics point to the recently proposed rules on pre-emption as a sign that the regulator has not changed.

“There is extreme consternation in the consumer community that the O.C.C. is continuing to side with banks over consumers to a considerable extent,” said Paul Bland, a senior staff lawyer who works on consumer banking cases at the law firm Public Justice, referring to the Office of the Comptroller of the Currency.

“A clear message of the Dodd-Frank law,” he said, “was that Congress felt that federal regulators, especially the O.C.C., had not been sufficiently aggressive in dealing with advertising by banks. And, because state banks and state regulators were so much more favorable to consumers, Congress wanted to free state regulators from the O.C.C.’s grasp. In these proposals the O.C.C. is very close to trying to pretend that the Dodd-Frank act never passed.”

The comptroller gained expanded oversight responsibilities in the Dodd-Frank law last year, when the Office of Thrift Supervision was shut down, and some of its rules proposed in May applied to merging parts of those two regulators. The regulator is working under an acting director and awaiting the nomination of a permanent leader.

The comments on its proposed rules were due on Monday, and at least 24 were received, including some from Wells Fargo, JPMorgan Chase Company and Citigroup.

A spokesman for the comptroller’s office, Bryan Hubbard, declined to discuss the comments and said there was no timeline for the comptroller to finish evaluating them. “We will be carefully reviewing all comments we’ve received as we move toward a final rule,” he said.

New York State’s new Financial Services Department was one of the strongest critics of the proposed rules, arguing in its comment letter that the rules would “narrow and hamper the application of state consumer protection laws.”

Created this year, the New York department could prove to be a thorn in the side of federal regulators because so many financial companies are based in the state. The department, an amalgam of the state’s old insurance and banking divisions, is being led by one of Gov. Andrew M. Cuomo’s most trusted advisers, Benjamin M. Lawsky. He helped manage many of the cases against banks filed by Mr. Cuomo when he was New York’s attorney general.

In an interview, Mr. Lawsky said that the comptroller was trying to “hinder the intent of Dodd-Frank.”

Mr. Lawsky added: “We think it’s important for consumers and for the financial service industry writ large for the states to continue their vital role. The importance of the states as regulators has been on display the last several years.”

In particular, Mr. Lawsky wrote, the comptroller is trying to use an overly broad definition to determine whether it can overrule a state law and ignoring a mandate to review state consumer laws on a case-by-case basis. He also says that the comptroller is trying to ignore a provision of Dodd-Frank that would allow state attorneys general to enforce federal laws as well as state laws.

Several banks, however, wrote letters supporting the comptroller’s proposals. Citibank wrote, “It would be extremely difficult for these banks to stay current on all state and local laws that could possibly apply to them across the United States, to be certain which ones would cover their activities, and to attempt to comply with such a multiplicity of different — and potentially inconsistent — requirements.”

Wells Fargo wrote that the comptroller’s confirmation of a 1996 Supreme Court ruling on pre-emption helped support a “robust national banking system.” The implications of that case, though, remain in dispute, and the National Association of Attorneys General wrote in a comment letter that the comptroller’s office was basing its proposed rules too heavily on that case and not enough on the intent of Dodd-Frank.

Beyond supporting the comptroller’s proposed rules, JPMorgan made suggestions to try to protect itself from state laws that might hinder the bank’s ability to lend money or demand collateral. JPMorgan also said that it supported the positive comments by the Clearing House, a bank-owned company that handles payments within the financial system. The Clearing House asserted that “any suggestion that federal pre-emption has encouraged predatory lending practices or somehow led to the subprime crisis is baseless and incorrect.”

Article source: http://feeds.nytimes.com/click.phdo?i=cd8310a746a7ae3eafb3cf46dcdb53a2

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Bucks: How to Dispute Credit Report Errors

May 18, 2011 by Leave a Comment

Credit reports have increasingly become consumers’ passport to the financial world. Whether you want to rent an apartment, get car insurance or apply for a credit card, the data in your credit report will be one of the crucial measures used to judge you.

That’s why you want to ensure that the information in your report — which is used to formulate your credit score — is free of any inaccuracies. Even if you’re not denied credit, a small error here or there can cost you more in interest.

The three big credit bureaus — Equifax, Experian and TransUnion — and the entities that provide them with data (like lenders) are required to investigate any potential errors. But, as I reported in a recent story, their investigations aren’t very thorough.

So as with most everything else, you need to be your own advocate. Here are several tips on the right way to file a dispute, compiled from consumer attorneys, credit experts and consumer advocates.

Get your report. There’s only one place you should go to get a copy of your credit report: AnnualCreditReport.com. All consumers are entitled to one free credit from each of the three major credit bureaus through this site. (In fact, you can forgo the credit monitoring services many of them sell by creating your own: simply order a report from one of the agencies once every four months.)

Create a paper trail. The credit bureaus allow you to file your dispute online, and it’s probably the fastest and simplest way to go. But don’t. Experts say it’s better to send a written dispute via certified mail (return receipt requested).

Sending a written complaint may not help resolve your problem any more than filing an online dispute. But it will help later on, say, if your problem isn’t  resolved or if you eventually need to show a record of your efforts in court.

Don’t be restricted by the dispute forms that the bureaus recommend you use. Experts recommend coloring outside of those lines. Attach a letter that explains the problem, and provide copies (not originals) of any supporting documentation, like a canceled check illustrating that you made a payment. The Federal Trade Commission has a sample dispute letter on its Web site.

The credit reporting bureaus are required to forward all relevant information to the organization that is the source of the error, though consumer advocates and lawyers told me this never happens. (In fact, the system the bureaus use to communicate with creditors doesn’t allow them to forward any attachments. Instead, workers boil down all the information you send into a one- to three-digit computer code — for instance “account not his/hers.” That’s what is forwarded to the creditor, who must then perform an investigation of its own.)

So go ahead and do it yourself: notify the creditor of your dispute and send it all copies of supporting documentation as well.  That way they can’t argue that the bureau didn’t send them enough information.

In fact, consumer lawyers and advocates said that the bureaus typically won’t make any changes unless the company that provided the information, like a creditor, says to.

Where to send your dispute. TransUnion and Equifax provide mailing addresses on their Web site.  A spokeswoman for Experian said an address can be found on its credit reports. (For the record, this is the address: Experian, P.O. Box 9701, Allen, Tex. 75013).

All three bureaus provide instructions on how to file a dispute on their Web sites. If you want to call to follow up, keep notes of the date you called and with whom you spoke. TransUnion provides a phone number on its site, while numbers for Equifax and Experian can be found on your credit report.

Do it thrice. Even if you know that your credit card company is the source of the error, it pays to send the dispute to all three bureaus as well. That will give you the right to file a suit — against the creditor or the bureau — if either institution doesn’t resolve the problem. Due to a quirk in the law, you don’t have the right to sue if you simply send your dispute to the creditor. Given the havoc a serious credit error can wreak, you want to retain that right.

Technically speaking, however, if one bureau finds an error as the result of a dispute, it must alert the other two bureaus.

After it’s resolved. Once the investigation is complete — bureaus usually have 30 days — the credit bureau must send you the results in writing, along with a free copy of your report if the dispute results in a change.

And if you ask, the credit reporting company must send notices of any corrections to anyone who received your report in the last six months, according to the F.T.C.’s Web site. You can have a corrected copy of your report sent to anyone who received a copy over the last two years for employment purposes.

And if it’s not resolved. If all else fails, hire a lawyer who is experienced in handling cases that pertain to the Fair Credit Reporting Act, which is the law that governs the bureaus. You can find a lawyer with that expertise through the National Association of Consumer Advocates.

What has been your experience in trying to have a credit dispute resolved? Do you have any additional advice for others who might be in this situation?

Article source: http://feeds.nytimes.com/click.phdo?i=18b66350444ee834d3dbc5df7ecc0f9e

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