Half Right on Banks

This Big Money piece has half its heart in the right place.

In one part, it’s a tough look at Bank of America that details its litany of sins against its customers, saying that “BofA has long been the pacesetter in consumer-bashing bank practices.”

Take any metric you like. The first bank to raise ATM charges to $3? Check. Minimum payments structured so that credit card borrowers unwittingly exceed their limits and get hit with interest rate boosts to 30 percent? Check. Arbitrary credit card rate increases to sky-high rates? Check. (Though when I “opted out” of the preposterous rate increase on my own Bank of America credit card, at least their customer service rep had the good grace to good-naturedly say that I was doing the right thing. Give ‘em citizenship points for that.) The pièce de résistance is loan modification. While JPMorgan Chase has begun making modifications for 20 percent of its mortgages and Citi for 15 percent, Bank of America has moved to adjust only a meager 4 percent of its loans.

Good stuff. And information that needs to be hammered home.

But the piece veers off course in its second half, going on a weird defense of paying astronomical bonuses payments to Wall Street welfare queens…er, investment bankers, as a distraction from more-serious issues.

In so doing, it reaches too hard at times to make its point. For instance, does anyone believe that BofA and its kin “are now getting a free pass amid the Sturm und Drang of the bonus outcry”?

And it’s spitting into the wind to think you can argue folks into letting the folks Wall Street go merrily on their way, making millions gambling with taxpayer money (or implicit taxpayer backing). There’s a core fairness issue here, and as researchers have shown, we’ll often enforce that to our own economic detriment.

That said, it’s never a bad thing to focus attention on the banks that actually interface with customers:

But if you really want a better deal for consumers, the culture that has to change most isn’t the bonus culture of Wall Street. It’s in places like Bank of America, which might be less generous to their employees but more toxic to the public interest.

But would that there was more about the culture here and less about how relatively benign Wall Street’s bonus culture is.

I can share my own story with the swell folks from Charlotte. My wife recently mixed up my BofA credit card with my BofA check card and went over limit on the credit line by $39. That triggered the clause that ended my free balance transfer on several thousand dollars I had parked in there, sending the APR up to 18 percent. That’s costing us $110 a month in new interest payments.

Now, sure it’s our fault for screwing up the cards (though they look an awful lot a like), but the point is why do these banks let you go over limit anyway? Precisely to gouge you with fees and to get out from under special offers like free transfers. Remember the days when credit cards were rejected? They wised up on that.

It’s anti-consumer, and The Big Money is right to focus attention on these guys. But that doesn’t justify letting i-bankers off easy. If the U.S. can have a two-war doctrine, I think we can take on i-bankers and the more pedestrian kind at the same time.

UPDATE: See my follow-up post.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.