Do you agree that banking is a transparent procedure?

Have you read the news that President Barack Obama has met the executives from the banking arena at the white house to discuss about implication of stronger rules to be passed by congress? He has also demanded for complete transparency and clarity and also wishes to end the ‘abusive’ rates and fees especially those which are charged by TARP i.e. the trouble asset relief plan.  Ed Mierzwinski, the consumer program director of US PIRG, which is the federation of state public interest research group showed his excitement and stated that Obama was the new Sheriff of the town.

On Capitol Hill, both the US House and Senate are trying their best to pass the consumer protection bills for protecting the rights and privileges of the customer. The main item on the agenda is to protect the credit card holders. They plan to lay out the Credit Cardholders Bill of Rights (HR5244). Nancy Pelosi, the office of the house speaker stated the key clauses that are laid down in the consumer protection bill as:

1. Working upon means to end the unfair or uninformed interest rate increase. The rules state that it is mandatory for the banks to give proper intimation before any increase in the rate of interest.
2. Taking measures against all those banks who charge penalties to all those individuals who pay on time.
3. Allowing the consumer to set their own credit limits so that they are protected by the excessive over limit fees.
4. Requiring fair allocation of consumer payments.
5. Protecting consumers from the penalties that are levied due to any delay in payments.
6. Protecting the consumer’s credit rating. They plan to lay out an effective measure where the banks do not use any misleading terms to damage the consumers’ credit ratings.
7. Taking preventive measures so that the credit card company does not charge any exorbitant fees
8. Making it mandatory to issue credit cards to only adults. Children should be banned from issuing credit cards as they are not matured enough to handle the sensitivity of credit card ratings and payments.

All these rules are laid down but shall be practically applied only from July 2010. Until then the banks are trying to make the most of this opportunity and raising as much money as possible before the rules are applied. Mierzwinski has stated that he is not very happy the way the banks are shaping their future. He added that the whole procedures that the banks followed are wrong, unfair and very disappointing.

As per the data collected it has been seen that banks are making up for the down fall by making most of their income from fees and penalties that are charged to credit card holders. They have not only increased the credit card rates and fess but also made the whole procedure very complicated .the banks have changed all the rules of services and charges that are generally associated with loans, there are charges levied for checking accounts too.

The best example that can be quoted is that there was a complete fury when Pacific Capital Bancorp offered tax refund anticipated loan at annualized interest rate of more than 100%.the services offered by Wells Fargo’s is similar to a “payday loan” which is considered predatory enough to be banned for use by military families.

There is a debate between the banking officials and the consumer watch dogs. The banks state that it is the responsibility of the consumer to remember his dates and make his payments on time. It is completely ethical to charge delayed fees if the consumer misses his deadline for making the payments. However, the consumer watchdogs argue that the banks intentionally confuse the consumers by arbitrarily changing the due dates so that the consumer misses his payment dates. They have made collecting fees as their main source of income.

ABA or American Banker’s Association who lead majority of the large and small scale banks in the US points out that the controversial service charges and fees are not forced on the consumers. They add that there is nothing for free in any financial business. There are many overhead cost which the bank incurs while plying to the needs of the customers. The statement of account that is issued to the consumer is charged as the bank also incurs stationary charges, printing charges and charge for hiring a banking official .whether you apply for a short term loan for less than one year or apply for am extended loan tenure there are overhead charges that are levied and hence needs to be shared by the consumer.

Ness Feddis , vice president of ABA and senior counsel states that there are many activities that are performed by the bank, each requires a competent staff to handle the work procedure , a cash counter person to sort out finances, etc which is an expense to the bank. The banks which have taken government loans will never be able to repay the loans if the function in a loss. According to ABA, TARP has already returned to the government and tax payers about $2.5 billion in the form of dividends.

Feddis smartly compares the trend of insurance companies also rising their premium on their portfolio. They add that there are times when borrowers pay only in small amounts or don’t repay thereby giving looses to the banks. It is very important that the banks make all the provision for these anticipated losses by adding fees or service charges. There are also instances where there are many borrowers who keep paying the interest time after a time and end up making as much interest as much as they had borrowed.

It is true that everybody wishes to make money but if the basic business model is making money by illusory ways then the Federal Reserve Board of Governors have laid down ways to catch all those who are making money by unfair means.