The Federal Deposit Insurance Corp. (FDIC) an agency that insures $10 trillion of U.S. bank deposits has warned banks to stop charging business customers citing its name.
In a letter sent out to banks this week, FDIC stated that it has received a number of complaints from depositors regarding some type of fees charged to them citing it’s a mandatory requirement imposed by FDIC. The warning applies to all types of banks charging such fees, including Bank of America Corp. (NYSE:BAC), Waukesha State Bank etc.
The ‘fees’ in question pertains to premiums that banks are required to deposit into the agency’s deposit-insurance fund to protect depositors in case bank fails. This measure was introduced after the financial crisis, which has led nearly 450 bank failures. So to make up for the loss, many banks pass on those costs to their customers with labels such as “FDIC Fee,” “FDIC Assessment,” “FDIC Insurance Premium” and “FDIC Insurance Charge.” San Francisco-based Wells Fargo & Company (NYSE:WFC) calls it “deposit-insurance assessment” on some business checking accounts, while Citigroup Inc. (NYSE:C) charge it as “FDIC insurance fee.” JPMorgan Chase & Co. (NYSE:JPM) calls it “deposit-insurance fee.”
Fees with those names “create confusion,” said Luke Brown, associate director for supervisory policy in the FDIC’s division of depositor and consumer protection. “The FDIC doesn’t charge deposit-insurance assessment fees to bank customers.”
“While [banks] are not prohibited from passing the costs of deposit insurance on to customers, the FDIC discourages institutions from specifically designating that a customer fee is for deposit insurance or from stating or implying that the FDIC is charging such a fee,” according to the notice issued by the FDIC.
Banks have been resorting to such acts to make up for the lost profits after the introduction of some new regulations. Last year banks had to withdraw plans to impose monthly debit-card fees on consumers after the stiff opposition from consumers and lawmakers.
It seems Banks officials are taking the warnings very lightly, “We’ll call it something else,” said Ty Taylor, chief executive and president of Waukesha State Bank. Others criticized FDIC for wasting time on minor issues, instead of focusing on banks which are still struggling to provide customers and investors with greater transparency. Representatives of Bank of America Corp (NYSE:BAC), Wells Fargo & Co., Citigroup Inc. and J.P. Morgan Chase & Co. said they are reviewing the FDIC letter and their accounts. Other banks state that current fees could be merged with existing charges, such as variable monthly maintenance fees.
Using the FDIC name is not the only concern of the regulator. the FDIC is also worried that connection between a fee and the bank’s FDIC premium could be used to find the ever secretive and highly confidential CAMEL ratings that regulators use to assess financial health, as some banks do provide detailed calculations about their fees.
A CAMELS rating is based on an evaluation of the financial institution’s Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk. It ranges from 1 to 5, with 1 being the highest rating. Their importance can be judged from the fact that, when a bank’s rating drops, regulators come up with some sort of enforcement action or memorandum of understanding, which places restrictions on a bank’s ability to operate freely.