WASHINGTON — Despite an order last month 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 charges depositors for deposit insurance, or that the financial institutions are simply collecting and passing through a government fee.
Although the practice is prohibited, McClatchy's investigation found that it remains common, with some banks in most communities where McClatchy publishes hitting businesses with such improperly labeled fees.
The so-called FDIC fees appear to be imposed mostly on noninterest-bearing accounts that belong to businesses. These are the job creators, in today's political speak, and banks are hitting 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.
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 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 provided regulatory guidance to the banks and spelled out the regulator's concerns about and expectations for them. Banks can recoup their regulatory costs, but they can't use the FDIC name in doing so.
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.
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.
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 them (customers) the exact calculation, they could determine the risk rating of the institution," said James Deveney, the head of the deposit insurance section in the FDIC's division of depositor protection. He declined to discuss specific banks.