Banks charging FDIC fees break rules

WASHINGTON – Despite an order in July 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 directly charges depositors for deposit insurance, or that the financial institutions are simply collecting and passing through a government fee.

That’s not the case. Banks are allowed to charge fees to recoup their costs for complying with regulations, but they’re not required to, and they can’t use the FDIC’s name to do it.

Though the practice is prohibited, McClatchy’s investigation found that it remains common. Some banks in most communities where McClatchy publishes, including Tacoma, are charging fees that sound as if they are government mandated, but they are not.

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 charging 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.

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.

BACKGROUND

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.

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 – regular people and businesses – from losing their money 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 spelled out the regulator’s concerns about and expectations for them. Banks can recoup their regulatory costs, the agency said, but stop using its name.

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.

CHARGES SHOW UP LOCALLY

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. That’s 10 times higher than every other bank surveyed for this report.

At Columbia Bank, headquartered in Tacoma, the fee schedule includes “FDIC Insurance” at a cost of 13 cents per $1,000.

Bank spokeswoman JoAnne Coy said last week that the bank is changing the name after the FDIC’s letter, though the fee is not new and was called that long before the Dodd-Frank changes.

“We began that fee on May 1, 2009,” she said. “It was always called the FDIC because (that) was a portion of that cost, but it was misleading.”

The fee “reflects a small portion of servicing costs that banks bear on account balances,” she said. Those servicing costs include complying with regulations.

EXPLANATIONS FALL SHORT

At least one bank, in an attempt to explain the FDIC fee to customers, reveals confidential information about the agency’s practices that could allow for market manipulation.

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 (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.

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 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.

At a branch of Capital One Bank in the nation’s capital, a McClatchy reporter was provided an account disclosure form and told there was nothing else available.

That disclosure form 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.

News Tribune staff writer Kathleen Cooper contributed to this report.

Did it HAPPEN TO YOU?

If you have noticed an FDIC fee on your statements from any bank, The News Tribune wants to hear from you. Email kathleen.cooper@thenewstribune.com with “FDIC fee” in the subject line.