“The consumer typically would not know if the check originator had sufficient funds in their bank account, whether the account was closed, or whether the signature on the check is valid,” wrote California Attorney General Rob Bonta.
David Paul Morris/Bloomberg
California Attorney General Rob Bonta is warning smaller banks and credit unions about the consequences of hitting consumers with certain penalty fees, arguing that the charges likely violate both state and federal law.
Bonta, a Democrat, highlighted two specific kinds of fees in a letter to California-chartered banks and credit unions that have less than $10 billion of assets. The Consumer Financial Protection Bureau lacks supervisory authority for financial institutions whose total assets fall below the $10 billion threshold.
First, the AG warned the banks and credit unions about charging overdraft fees that aren’t reasonably foreseeable. Such fees sometimes get assessed when an account shows a positive balance at the time the transaction is authorized, but a negative balance at the time of settlement.
“The complexity of how payments are processed, authorized, and settled by financial institutions make it difficult for the average consumer to make an informed decision on whether to use overdraft protection and incur an overdraft fee for any particular transaction,” Bonta wrote in the letter, which was sent this week.
Bonta also focused on fees that get charged to customers who deposit checks that are later returned because they can’t be processed against the account of the person who wrote them. Customers often deposit checks without the knowledge that they’re bad.
“The consumer typically would not know if the check originator had sufficient funds in their bank account, whether the account was closed, or whether the signature on the check is valid,” Bonta wrote.
The letter was sent to 197 state-chartered banks and credit unions, according to the California attorney general’s office.
Diana Dykstra, president and CEO of the California Credit Union League, said the group is carefully reviewing the message being sent by Bonta’s office.
“Credit unions have long been dedicated to serving their members diligently, fostering trust through personalized financial services,” Dykstra said in an email. “We are committed to spotlighting the credit union difference with state legislators in Sacramento on the topic of overdraft protection.”
A spokesperson for the California Bankers Association did not respond Friday to requests for comment.
The focus by California officials on penalty fees charged by small banks and credit unions dovetails with the Biden administration’s effort to crack down on similar practices at big banks.
Bonta wrote in his letter that charging the two kinds of fees he highlighted likely violates both California’s Unfair Competition Law and the federal Consumer Financial Protection Act. Federal banking regulators have previously taken similar stances on the two fees’ legality under federal law.
Such disclosures about overdraft fees are already required in California by both state-chartered banks and credit unions, thanks to a state law enacted two years ago.
Data from 2022 was published in a report last year by the California Department of Financial Protection and Innovation. It showed that California-chartered credit unions were more likely than their counterparts in the banking industry to rely on overdraft fees as a substantial revenue source.
In 2022, no California-chartered banks got more than 6.1% of their total income from overdraft fees and nonsufficient funds fees, according to the report. By contrast, 25 state-chartered credit unions got more than 6.1% of their total income from overdraft fees and NSF fees.
NSF fees may be charged when a financial institution denies a transaction because the customer’s account lacks sufficient funds.
“The CFPB will be accelerating its efforts to ensure that consumers can access better rates that can save families billions of dollars per year,” Rohit Chopra, the agency’s director, says in response to its findings that the largest credit card issuers charge much larger APRs than smaller issuers.
Al Drago/Bloomberg
The largest credit card issuers charge significantly higher annual percentage rates than smaller issuers, resulting in some cardholders’ paying as much as $400 to $500 a year extra and the big companies’ earning billions of dollars in additional interest income, the Consumer Financial Protection Bureau said.
The CFPB on Friday released a survey of 84 banks and 72 credit unionsthat found large credit card issuers offered the highest interest rates across all credit scores. The survey comes as the CFPB is expected to finalize a rule soon that would slash credit card late fees to $8, potentially wiping out up to $9 billion a year in profits for banks and credit card issuers.
The survey results also coincide with the CFPB’s narrative under Director Rohit Chopra that the largest banks are charging consumers so-called junk fees primarily to pad their bottom lines. The survey found that small banks and credit unions offer lower interest rates on average across all credit-score tiers than the largest 25 credit card companies.
The median interest rate charged by large credit card companies was 28.2% compared with 18.15% charged by small issuers, to consumers with good credit — typically credit scores between 620 and 719, the CFPB said.
“Our analysis found that the largest credit card companies are charging substantially higher interest rates than smaller banks and credit unions,” Chopra said in a press release.“With over $1 trillion in credit card debt outstanding, the CFPB will be accelerating its efforts to ensure that consumers can access better rates that can save families billions of dollars per year.”
The CFPB found that the APR spread between the top 25 issuers and the smallest ones was between 8 to 10 percentage points, with only a slight variation based on consumers’ credit scores. The survey was based on data collected in the first half of 2023 including data on so-called purchase APRs, which captures the interest rate credit card issuers charge on purchases when a consumer carries a balance.
The CFPB has said that credit card companies’ margins are increasing as they price APRs further above the prime rate, which the bureau has said signals a lack of price competition. Credit card companies are offering more generous rewards and sign-up bonuses to win new accounts, which largely benefits consumers with higher credit scores who pay their balances in full each month.
The CFPB has long sought to explore ways to promote transparency and comparison shopping on purchase APRs — a major cost of credit cards that is often unknown to consumers prior to card issuance.
Lindsey Johnson, president and CEO of the Consumer Bankers Association, issued a strongly worded rebuttal of the CFPB’s statistics and statements, homing in on the bureau’s assertions that the credit card market is not competitive.
“The CFPB’s own data simply does not support their assertions about competition in the credit card marketplace,” said Johnson, noting that nearly 4,000 banks issue more than 640 individual credit card products. “This may be the only time that anyone has pointed to a market with vastly different prices as an indication of competition problems.”
CBA, which represents most large credit card companies and banks, took issue with the CFPB’s description that the credit card market is highly concentrated and “anti-competitive.” She said how interest rates are calculated and whether fees are assessed varies greatly and can depend on product features such as rewards such as cash-back benefits.
“In a world where only one price is offered, consumers lose — even if it’s the ‘lowest-price’ option,” she said. “Rather than bolstering this already highly competitive and well-regulated market, the CFPB seems to be driving consumers to a one-size-fits-all world focused on specific criteria that the CFPB chooses, as opposed to the preferences of the people we should all be working to serve.”
The CFPB’s research found that the top 30 credit card companies represent about 95% of credit card debt, while the top 10 companies dominate the marketplace. The CFPB also listed 15 issuers—including nine of the largest ones in the country — that reported at least one product with a maximum purchase APR over 30%. Many of the high-cost cards are co-branded cards offered through retail partnerships.
The top issuers include JPMorgan Chase, American Express, Citigroup, Capital One Financial, Bank of America, Discover Financial, U.S. Bancorp, Wells Fargo, Barclays and Synchrony Financial.
A few consumer groups and nonprofits aligned glommed on to the CFPB’s report to blast large banks.
“The CFPB’s report is a clear indictment of how big banks, emboldened by unchecked mergers and consolidation, exploit their market dominance to lock consumers in so they can levy exorbitant fees and interest rates,” said Morgan Harper, director of policy and advocacy at the American Economic Liberties Project, a progressive nonprofit group.
The CFPB said it has taken a number of steps to address what it claims are problems in the market including promoting switching through open banking, scrutinizing bait-and-switch tactics on credit card rewards, closing loopholes that allow credit card issuers to extract junk fees, and promoting credit card comparison shopping.
The agency recently updated its credit card data webpage and said it continues to expand its reporting on credit card data.
French payments company Worldline may cut 8% of its workforce, Moneygram advances its digital strategy by hiring four new leaders, Fed issues enforcement action against Peoples-Marion Bancorp and more in our weekly banking news roundup.
Pedestrians pass a JPMorgan Chase bank branch in New York.
Michael Nagle | Bloomberg | Getty Images
The three biggest American retail banks collected 25% less overdraft revenue last year as the companies, under pressure from regulators to cap the fees, created new ways for customers to avoid the penalties.
JPMorgan Chase, Wells Fargo and Bank of America reported a combined $2.2 billion in overdraft fees in 2023, roughly $700 million less than in the previous year, according to regulatory filings.
Overdraft fees are triggered when a customer attempts to spend more than the balance in their checking accounts. At around $35 per transaction at many banks, the fees have been a lucrative line item for the industry, generating $280 billion in revenue since 2000, according to the Consumer Financial Protection Bureau.
The industry is girding itself for a battle over overdraft fees after the CFPB in January unveiled a proposal to limit charges to as little as $3 per transaction. Banks say overdraft services are a lifeline that helps users avoid worse options such as payday loans, while critics including President Joe Biden say the fees exploit struggling Americans.
The practice has brought unwelcome attention to big banks. During a 2021 hearing, Sen. Elizabeth Warrenneedled JPMorgan CEO Jamie Dimon on the fees. Dimon at the time refused her call to refund $1.5 billion to customers.
But even before recent efforts by regulators, banks’ haul from overdraft has been on the decline. Pandemic stimulus money helped Americans trigger fewer of the fees starting in 2020, and then firms including Capital One, Citigroup and Ally voluntarily ended the practice.
Those who kept the fees, including JPMorgan, limited the types of transactions that trigger penalties, got rid of fees for bounced checks and introduced one-day grace periods and $50 cushions to reduce their frequency.
Bank of America cut the fees to $10 from $35 in 2022.
“Whether folks eliminated some fees or dramatically reduced the cost of others, there’s been very significant shifts here,” said Jennifer Tescher, CEO of nonprofit group Financial Health Network. “Banks aren’t just getting rid of overdraft, they’re trying to find more customer-friendly ways of meeting their liquidity needs while making sure they aren’t overextended.”
Industrywide overdraft revenue totaled $7.7 billion in 2022, 35% below the 2019 level, according to a May CFPB report that included all U.S. banks with at least $1 billion in assets.
Recent regulatory filings show that the steady decline continued last year, though JPMorgan and Wells Fargo remain by far the largest players in overdraft.
JPMorgan had $1.1 billion in overdraft revenue last year, about 12% lower than in 2022. Wells Fargo saw a 27% decline to $937 million. Bank of America posted a 64% decline to $140 million.
More than 70% of overdraft transactions no longer incur fees, and customers can choose accounts that don’t allow the penalties, a JPMorgan spokesman told CNBC.
“Our customers continue to tell us they want and need access to overdraft protection, which helps them when they are temporarily short on money,” the JPMorgan spokesman said.
Wells Fargo declined to comment. A Bank of America spokesman noted that after the company voluntarily changed its overdraft policies in 2022, revenue from the practice fell more than 90%, and they now collect less than smaller banks.
Gamblers in 28 U.S. states can now make legal sports bets from their mobile phones, which has fed fears that a problem-gambling epidemic is building.
When Rob Minnick needed money to fuel his betting habit, he often found it where a lot of gamblers do. He got a cash advance on a credit card.
Minnick was 18 years old when he started betting, convinced that his extensive knowledge of sports would make him a winner. The New Jersey native moved from daily fantasy sports to traditional sports betting to casino games. Eventually, he’d find himself sitting at an Atlantic City poker table while simultaneously peeking at his cell phone, where an online slot machine was spinning.
In late 2022, Minnick was in recovery from his gambling addiction when he had a relapse, which was fed by cash advances. It started with a sports bet, which led to a visit to Parx Casino in Bensalem, Pennsylvania.
By the time the 12-hour binge ended, it was close to midnight. Minnick had created so much debt that he says he had to work a second job for more than five months — and put all of his earnings into repayment — to dig out of the hole.
“With the credit cards, you know that the cash advance fee is going to be huge,” Minnick said. “And you don’t care. Because you’re convinced that you’re going to win it back.”
Over the last six years, legal gambling has spread like a weed across the United States. In early 2018, before a pivotal U.S. Supreme Court decision, only Nevada allowed sports wagering. Now 37 states, plus the District of Columbia, do. State lawmakers have moved quickly amid fears that standing pat will result in a loss of tax revenue as their residents gamble in neighboring states.
Pro sports leagues — once hostile to gambling due to fears that the integrity of their games could be compromised — have embraced the financial opportunities that gambling offers. A year ago, the first-ever sportsbook inside an NFL stadium opened at FedEx Field in suburban Maryland. And fans watching on TV are now inundated with gambling ads.
The ease of access to legal gambling has also soared, as bettors increasingly place their wagers on mobile apps, which is feeding fears that a problem-gambling epidemic is building. In 28 states, gamblers can make sports wagers from their mobile phones, according to the American Gaming Association.
At least six more states currently allow online casino games. As online gambling’s legal status has changed, so has the stance taken by many U.S. banks. Just a few years ago, the mainstream financial industry wanted nothing to do with online wagering, which generally involved offshore operations of dubious legality.
Today, gambling is a growing source of revenue for banks.
“The opportunities for them are overshadowing the risks and dangers,” said Brianne Doura-Schawohl, a lobbyist who advocates for policy responses to problem gambling.
But judging by the experiences of the United Kingdom, which has a longer history of widespread legal gambling than the United States, banks here may eventually be dragged into the burgeoning debate over how to address problem gambling.
After all, banks provide credit to bettors who have already depleted their savings. Banks are also well positioned to offer ways to make it easier for problem gamblers to protect themselves from their own self-destructive impulses. And banks hold reams of transaction data that can indicate which customers have gambling problems.
Back when legal gambling in the U.S. was happening only in casinos, and bettors needed to use cash, banks had less information about who might have a gambling disorder. That’s changed in the era of online betting.
But what is the proper role for U.S. banks in addressing problem gambling? So far, there has been little public discussion of that question. And there are no easy answers, as Minnick’s experiences illustrate.
“There was always a way to spend more money than I had when I was gambling,” said Minnick, who has been in recovery since his November 2022 relapse. “And that was even without the use of credit cards.”
Of course, specific banks can decide to ban the use of plastic to fund their customers’ gambling accounts. But cash advances offer a simple way around such restrictions, since they don’t trigger a gambling-related merchant category code. Another workaround: using a credit card to purchase a gift card or e-wallet funds.
“I can broadly say that people who are addicted to gambling develop the ability very, very rapidly to get money that they don’t have when they need it,” Minnick said.
There is also the politically charged question of how to balance harm reduction with personal autonomy.
“There’s no clear-cut solution right now that everyone would be happy with,” Minnick said.
Minnick, who will turn 25 in February, now creates content on TikTok, Instagram and YouTube in an effort to help people with gambling problems. He goes by the name Rob Odaat, which is recovery-speak for “one day at a time.” In a recent interview, he was self-reflective about the factors that fueled his addiction.
“I’m responsible for all the things that I did, and I made my life continuously more difficult to live,” he said, before noting that the next stage of his escalating problem — such as his move from sports betting to casino games — was always easy to find in the gambling apps he used.
“They put it one click away,” he said. “And it’s always very obvious where it is on the screen.”
Like others who are trying to help problem gamblers, Minnick sees an analogy between the current moment and the early days of the opioid epidemic, when addicts were often stigmatized.
“I think that over the next eight years, it’s going to go through the full cycle that opioid addiction went through,” he said.
Rob Minnick started placing fantasy sports bets when he was 18 before moving onto traditional sports gambling and then casino games. He now creates social media content warning others about the dangers of gambling addiction under the name Rob Odaat, which is recovery-speak for “one day at a time.”
Kyle Massi
‘Responsible’ vs. ‘safer’ gambling
Gambling in the U.S. is regulated at the state level. And to the extent that state laws deal with addiction, it’s typically by establishing hotlines that gamblers may call if they believe they have a problem. This approach has led to gambling ads that end with narrators rattling off various states’ hotline numbers at breakneck speed.
Gambling operators also offer voluntary tools designed to limit the compulsive behavior of players who recognize they have a problem. For example, the sports betting site FanDuel allows its users to put limits on the amount of money they can deposit in their accounts
during a given period of time. FanDuel users can also cap the size of any wager, as well as the number of hours they can spend on the site each day. Or they can exclude themselves from gambling on FanDuel altogether.
The umbrella term that’s used to describe the dominant U.S. approach to staving off the harms caused by addictive behavior is “responsible gambling.” The basic idea is to provide tools and resources to help bettors manage their time and money while gambling. Gamblers, according to this school of thought, ultimately have responsibility for their own behavior.
Supporters of this philosophy say that it’s in keeping with the American ethos of self-reliance.
“Especially in the U.S., people don’t like to be forced to do anything,” said Joseph Watkins, president of World-Pay Gaming Solutions.
Critics of the responsible gambling approach argue that it’s ineffective. Kasra Ghaharian, a senior research fellow at the University of Nevada, Las Vegas’s International Gaming Institute, said that tools that allow people to block their own participation in gambling have low uptake rates.
“All these tools are great, but no one uses them,” he said.
The United Kingdom, by contrast, is taking a more heavy-handed stance, which is generally known as “safer gambling.”
In a white paper released last April, the U.K. Gambling Commission proposed a system of “financial risk checks” for gamblers who breach certain loss thresholds. The goal is to assess whether the gambler can afford to lose the money that he or she is wagering.
Under the U.K. commission’s proposal, relatively basic checks would be conducted on bettors who record a net loss of 125 pounds in a month or 500 pounds in a year at a particular gambling operator. The operators would conduct the checks, which would look at factors such as court judgments, bankruptcies and the average affluence within the gambler’s postal code.
“These checks should take seconds to process and would be frictionless for the consumer,” the Gambling Commission stated in its white paper, titled “High Stakes: Gambling Reform for the Digital Age.” “We estimate only around 20% of accounts in a calendar year will trigger this check as most never lose this much gambling.”
The commission also proposed more intrusive checks — which would provide more insight into the gambler’s discretionary income — in cases where net losses exceed 1,000 pounds in a rolling 24-hour period. “Such rapid losses are highly unusual and exceed the discretionary income nearly all people likely have available for a day’s activity, so are therefore highly indicative of risk,” the commission stated.
Still to be determined is exactly how these more detailed financial risk checks — also known as affordability checks — would be conducted. The Gambling Commission said that it expects most of the checks could be done by contacting credit reporting agencies, which would provide an estimate of the gambler’s overall disposable income. In some cases, the individual gambler might have to provide information, but the Gambling Commission stated that it might be possible to streamline the process using open banking.
“The Commission is currently working with the financial services sector to explore how more detailed checks would work in practice,” the white paper stated.
Also up in the air, for now, is what exactly U.K. gambling operators would be expected to do with the information they gather. The white paper contemplates a range of possible responses, including applying limits to specific accounts and ending customer relationships in situations that raise serious concerns.
The proposed affordability checks have sparked controversy. Nevin Truesdale, CEO of The Jockey Club, a U.K. horse racing organization, has launched a petition against them. “We believe such checks — which could include assessing whether people are ‘at risk of harm’ based on their postcode or job title — are inappropriate and discriminatory,” Truesdale has argued.
But Lucy Frazer, a Conservative member of Parliament who serves as the U.K. government’s culture secretary, has defended the commission’s proposal. The Gambling Commission estimates that roughly 300,000 people in Great Britain are experiencing problem gambling, and that another 1.8 million individuals are gambling at elevated levels of risk.
All told, those 2.1 million people account for about 3% of the country’s population.
“This government is not in the business of telling people how they can and can’t spend their money,” Frazer wrote in an op-ed late last year. “But we know, for some, gambling leads to a dangerous cycle of addiction that can feel impossible to escape. We have a duty of care to those at the greatest risk of devastating and life-changing financial losses.”
‘The final destination before you’re done’
Not every response to problem gambling in the U.K. relies on government intervention.
For instance, the Premier League, the world’s top professional soccer league, has voluntarily agreed to remove gambling sponsorships from the front of players’ jerseys by the end of the 2025-2026 season, in an effort to reduce gambling’s appeal to kids.
Last April, when the Premier League announced the new policy, eight of the league’s 20 teams had gambling sponsorships on the front of players’ shirts. Numerous U.K. banks, meanwhile, offer features that allow gamblers to block themselves from betting at all, rather than using the self-exclusion features on multiple gambling apps. Those banking-app features, which have yet to gain steam at stateside banks, will typically decline any gambling transactions for three days, providing a cooling-off period to habitual gamblers who want to walk away. HSBC UK is one of the banks that offers such a tool.
“The 72-hour restriction aims to help give our customers time to pause when they are tempted to return to gambling,” Maxine Pritchard, head of financial inclusion and vulnerability at HSBC UK, said in an email.
Across the Atlantic Ocean, some U.S. states have taken a harder line than others on the use of credit cards. Iowa is one of a handful of states that — like the United Kingdom — bans the use of plastic in online sports betting.
“Credit is credit. And gambling has its addiction side,” said state Sen. Tony Bisignano, who was an architect of Iowa’s online sports gambling legislation. “If you mesh the two together, at some point someone will gamble their future away.”
Bisignano, a Democrat, said he believes that Iowa’s ban on the use of credit cards in gambling has saved lives.
“I think credit is the final destination before you’re done,” he said.
Some major U.S. credit card companies are taking a less restrictive stance. A JPMorgan Chase spokesperson said that the bank permits betting transactions where they are legal. Wells Fargo allows its credit cards to be used for lawful purposes, according to a spokesperson.
Bank of America, on the other hand, does not allow credit card transactions with gambling-related merchants, according to a company spokesperson. Citigroup declined to comment.
To advocates concerned about gambling addiction, banning the use of credit cards is a no-brainer. “Playing with money you don’t have can be a red flag,” said Doura-Schawohl, the lobbyist who advocates for policy responses to problem gambling.
Even without putting blanket bans in place, there are steps that credit card issuers could take to protect customers who show signs of having a gambling problem, said Les Bernal, national director of Stop Predatory Gambling, a nonprofit advocacy network.
Bernal would like banks to alert their customers when credit card transaction records indicate that the cardholder is chasing gambling losses, or continuing to place bets in an effort to make up for losing wagers. After all, banks have a unique vantage point that gives them a detailed picture of their customers’ gambling activity.
Those automated messages might work similarly to the fraud protection alerts that cardholders receive when they travel to a different city and make an unexpected purchase. “That was me, I wanted to make that transaction,” Bernal explained.
But the compulsive nature of gambling addiction could limit the effectiveness of this strategy; gambling addicts in the midst of a binge may not be receptive to an intervention from their bank.
Jon-Pierre Micucci, a recovering gambling addict who lives in San Francisco, recalled that he sometimes got phone calls from his bank’s fraud protection department in response to his online gambling sessions. While stuck at home during the COVID-19 pandemic, Micucci fell under the spell of online slot machines operated by unlicensed offshore companies.
“They would offer to hide the transactions like a porn site does. So it would show up as, like, Tommy’s Jeans from Indonesia,” said Micucci, who is now project manager of problem gambling hotlines at Health Resources in Action, a nonprofit consulting organization.
Micucci recalled that his bank statement might have shown roughly 150 consecutive transactions, all in the same odd amount. “All international, all sketchy,” he said.
But when his bank called Micucci to ask about the transactions, he would say: “It’s okay. Those are international. I accept those. And then I was off and running. They would never stop me again.”
Advocates have pushed for banks and others to come up with ways to curb problematic gambling. For instance, sports betting site FanDuel allows users to place limits on their activities, such as a cap on the size of any wager.
Chris Ratcliffe/Bloomberg
‘Bet now/pay later’
The large buy now/pay later firms Klarna and Affirm have not embraced legal gambling. But a nascent product from an upstart competitor specifically targets bettors. Its design has sparked concern that it could feed gambling addictions.
The product, Edge Boost, is being billed as “the first bet now/pay later program for sports bets.” It will allow users to double the size of their wagers, using borrowed funds that they can repay at 0% interest in four weekly installments.
Edge Markets, the company that offers Edge Boost, expects to earn money from interchange fees. It will also charge fees to users who make an early repayment in order to regain access to their full borrowing capacity, according to a promotional video for the product.
“Let’s say you’re feeling great about this weekend’s game, but wish you had an extra $100 to wager,” says the video’s narrator. “Double down, and double your winnings.”
That message, which overlooks the possibility that the gambler will lose the bet, has generated outrage among problem gambling advocates. “This platform glorifies and entices people to spend more than they can afford to lose,” Doura-Schawohl told a sports betting publication last year.
Seni Thomas, the founder and CEO of Edge Markets, said that Edge Boost is in a testing phase, working with Cross River Bank and Galileo Financial Technologies, which is owned by SoFi Technologies. He is looking to launch the product in the first half of 2024, and he said it would be available in 27 states.
A Cross River spokesperson confirmed the New Jersey bank’s involvement. A SoFi spokesperson did not respond to a request for comment.
Thomas has a response to criticism of his company’s product. He argues that Edge Boost will serve as a replacement for illegal gambling, saying that many people bet in the black market because their bookies give them an advance, which is generally not available from regulated companies.
“Bookies want you to lose, and then they start charging interest on the balance,” Thomas said.
He also opined that there’s a misconception that people who gamble are degenerates: “I think people have watched too many movies, frankly.
“These are people that are quite sophisticated,” Thomas added. “They have the cash to back it up — high-income earners.”
It’s true that a majority of gamblers are not addicts.
Last year, researchers at the Center for Gambling Studies at Rutgers University published the results of a phone survey of 3,512 New Jersey residents. Although roughly 61% of the respondents had gambled in the last year, just under 6% of the respondents were classified as “high-risk problem gamblers.” Another 13% of the participants reported low to moderate gambling problems.
Those numbers suggest that a clear majority of gamblers place wagers as a form of entertainment, and they don’t bet more than they can afford to lose.
The Rutgers research also found that the prevalence of high-risk problem gamblers in New Jersey — a state that has a long history of legal casino gambling — was about three times higher than the average rate in a majority of population surveys both domestically and abroad.
Minnick, the gambling addict who has been in recovery since relapsing in November 2022, grew up in Washington Township, New Jersey, less than an hour from Atlantic City. Today he expresses the clear perspective of someone who’s been through recovery. He says that the archetypal gambling addict has an internal desire to accomplish great things, but without putting in a lot of effort.
When he was betting, Minnick once accumulated enough rewards points with Caesars Entertainment to receive a free three-day trip to the Bahamas, where Caesars had a partnership with the Atlantis resort and casino. He was flattered. He felt important.
In the early stages of the trip, Minnick’s wagers weren’t paying off. He decided to place a sports bet, known as a parlay, that would pay out if six different games ended the way he’d predicted.
Minnick correctly forecast the first five legs of the bet. The last contest was a regular-season NBA game between the New York Knicks and the Minnesota Timberwolves.
Minnick had put his money on the Knicks, who held a big lead in the second half. The parlay included a feature that would have allowed Minnick to cash out early for roughly 95% of the value of the win. But he refused to budge. The Timberwolves came back and won the game 102-101.
“I lost the bet, and I spiraled and spent even more money on credit in the casino,” Minnick recalled. “So what started out as feeling like a great gambler, a great big shot, turns into feelings of greed. It turns into feelings of depression.
“But it always came down to this belief that it would be different the next time,” he explained. “I would figure it out, and I’d come out on top. And you just don’t.”
One way that Minnick found the money he needed for gambling was by exploiting the fact that U.S. banks didn’t typically settle transactions over the weekend. It’s a loophole that could be closed if real-time payments gain widespread adoption.
Minnick explained, as a hypothetical example, that he might have had $500 in his bank account on a Friday. He would deposit the $500 into the sportsbook. Then he would wager away all $500. “Most people would say, ‘Okay, I have zero dollars, so I can’t gamble.’ But the bank doesn’t process that transaction until Monday. So between Friday and Monday morning, the bank sees that you have $500 in your account,” Minnick said.
Before the weekend was over, Minnick would move another $500 into his account at the sportsbook. “And the banks don’t catch it until Monday morning,” he explained.
“If you’re addicted to gambling, you’ll say something like, ‘Okay, I’m down $1,000 now, which means I’m going to have a $500 overdraft. So now I need to pull out another $1,000,” Minnick said, adding that gamblers convince themselves that they’ll win enough money to pay back the overdraft fees they’ve incurred. “And you dig yourself such deep holes because the bank catches up on Monday.”
‘It’s about putting as many barriers in place’
Gambling industry insiders argue that the rise of legal online betting in the U.S. has brought significant advantages compared with the status quo prior to April 2018. That’s when the Supreme Court opened the floodgates by striking down a federal law that had barred most states from legalizing sports wagering.
First, people in the gambling industry point out, plenty of Americans were making illegal online bets prior to 2018. Legalization has allowed for regulation and oversight, and it’s enabled states to collect tax revenue. Electronic payments also offer various advantages over the paper currency that long ruled Las Vegas.
One asset of noncash payments is that they generate customer-specific data, which can be used to identify problem gamblers and help bettors set and stick to budgets. And data can be harnessed to provide customers with visual signals — such as green, yellow and red lights — about when it’s safe to gamble.
“We can guide people to a certain behavior without forcing them,” said Omar Sattar, co-founder and CEO of Sightline Payments, which specializes in serving the gambling industry.
Ghaharian, the senior research fellow at UNLV, wrote his doctoral dissertation about how payments transaction data can be used to identify markers of gambling-related harm.
Analyzing gambling payments data from more than 2,200 online casino players, he found three clusters of customers whose behavior indicated they were at potential risk of harm, including a group that had high decline rates even though their deposit amounts were low. “That might be a little bit of a red flag,” Ghaharian said.
Ghaharian recently got access to a new dataset, which he hopes will reveal patterns about how gambling transactions relate to other kinds of payments. One goal of the research is to look at how markers of financial vulnerability — or the ability to withstand a financial shock — relate to gambling spending.
Even some people in the gambling industry say that more needs to be done to address problem gambling. Jonathan Michaels, who consults for gambling firms on payments issues, said there needs to be further collaboration between financial institutions and gambling operators in order to determine when problematic behavior is occurring. “The industry hasn’t taken true proactive approaches,” he said in reference to both banks and gambling companies.
But skeptics wonder whether the gambling industry will ever take aggressive action, given its heavy reliance on frequent gamblers as a source of revenue. The states, which collect taxes from gambling, arguably have a similar conflict of interest.
According to that logic, the financial sector is the one major player that doesn’t have a vested interest in maximizing gambling revenue. Matt Zarb-Cousin, the U.K.-based co-founder of Gamban, which offers gambling blocking software that’s designed to be difficult to remove, described financial institutions as a disinterested third party.
He argued that there is no one silver-bullet solution in the battle against gambling addiction: “It’s about putting as many barriers in place.”
There’s no shortage of recommendations for how banks can contribute. Stop Predatory Gambling suggests not only larger ideas like credit card bans, but also smaller ones. For example, the banking industry could promote one day a year, similar to National No Smoking Day, when Americans are encouraged not to gamble.
Banks could also throw their support behind the idea that all gambling apps and slot machines must have a warning that reads, “The money that I’m gambling is not borrowed, and I can afford to lose it.”
Gambling reform advocates have generated at least two other ideas for how banks could help. One is to communicate with young people and vulnerable populations about problem gambling.
Banks could also take steps to help their customers understand how much they’ve spent each month on wagers. “It isn’t their problem to solve,” Zarb-Cousin said.
“But they are in a very good position to solve it,” he added.
U.S. Bank and Bank of America are both defending themselves against lawsuits alleging that their terms of service violated California’s so-called “Right to Gripe” law.
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Bank of America and U.S. Bank are fighting back against lawsuits alleging the two banks — in their terms of service — violated a California law that ensures customers have the right to air their grievances publicly.
The suits are part of a wave of recently filed cases that will likely help establish the scope of corporate liability under California’s so-called “Right to Gripe” law. The goal of the law is to protect consumers’ ability to complain online about their experiences with specific companies without the threat of retribution.
In recent months, plaintiffs’ lawyers have filed suits alleging that various companies — the list includes not only BofA and U.S. Bank, but also Amazon, Mastercard and United Parcel Service — violated the law.
The California law was signed by then-Gov. Jerry Brown in 2014 and took effect the following January. Nine years later, there is still not a lot of relevant case law, said Andrew Bluth, one of the plaintiffs’ lawyers who is spearheading the lawsuits. “I don’t think it’s been widely tested yet,” he said.
The suits against BofA and U.S. Bank were both filed in state court last November, but they have since been removed to federal court. The plaintiffs in both cases are seeking class-action status.
In the suit brought against Bank of America, the complaint cites language from the company’s Online Banking Service Agreement. That text relates to potential consequences in situations where customers expose the Charlotte, North Carolina-based bank to “liability, reputational harm or brand damage.”
Bluth, a partner at the law firm Singleton Schreiber, argued that the provision prevents BofA customers from making statements that in the bank’s determination may cause reputational harm. “That’s exactly what the law is designed to protect,” he said.
But earlier this month, Bank of America filed a motion to dismiss the suit, arguing that the bank’s terms of service do not prevent customers from making negative statements about BofA. The clause identified by the plaintiffs, the bank says, bars mobile-banking users from engaging in brand-damaging or illegal conduct, but it does not restrict speech.
BofA reserves the right to suspend or terminate users when they are determined to have violated the terms in question.
The relevant portion of the bank’s Online Banking Service Agreement relates to customers’ use of the Zelle money-transfer service, BofA said. The agreement states that “illegal or brand damaging activities” include but are not limited to: firearms; pornography; materials that promote intolerance, violence or hate; Ponzi schemes; digital currencies; terrorist funding; fraud; and money laundering.
“This list does not include any provision that says that Bank of America customers may not make ‘statements’ about Bank of America that are critical or disparaging, much less any provision addressing customers’ speech about Bank of America at all,” lawyers for the $3.2 trillion-asset bank wrote in a court filing.
“For example, the list does not include a provision that says that Bank of America customers may not post to X, or Facebook, or Yelp or any other social media platform with statements that are critical of the Bank.”
Separately, Bank of America also contends that its Online Banking Service Agreement is not a “contract” for the “sale or lease of goods or services,” which is what the California law covers.
U.S. Bank, the banking subsidiary of Minneapolis-based U.S. Bancorp, is making a similar argument.
“The language in question in U.S. Bank’s customer agreement addresses a customer’s conduct when using our products and services and is intended to prevent wrongful use of those products and services,” a bank spokesperson said in an email. “The agreement does not restrict what a customer can say about the bank. This suit has no merit.”
The outcome of the recently filed cases will likely have an impact on how frequently plaintiffs’ lawyers file suit under the nine-year-old California law.
California is not the only state that has a “Right to Gripe” law — sometimes known as a “Right to Yelp” law. But the Golden State’s statute may be the most attractive to litigants because it allows consumers to file civil lawsuits, and because a company’s first violation is subject to a fine of up to $2,500.
In a suit that draws class members from California’s 39 million residents, a successful lawsuit could open a company to considerable liability.
Clay Calvert is a professor emeritus at the University of Florida who wrote a 2018 law-review article titled “Gag Clauses and the Right to Gripe.” In an interview, he did not take a position on whether the terms of service used by Bank of America and U.S. Bank violate California’s law.
But he did argue that “Right to Gripe” laws are necessary in an era where many consumers use websites like Yelp and Tripadvisor to share their experiences, some of which are negative.
“People use these sites all the time,” said Calvert, who is also a nonresident senior fellow at the American Enterprise Institute. “And there certainly is a danger that business entities would try to squelch that speech.”
In its fourth quarter, Texas Capital’s strategy hit a roadblock, as investment banking and trading income and mortgage loans sank. However, the company is still aiming high for its 2025 goals.
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Texas Capital Bancshares is braced for “inconsistent” revenues in the near term as its mortgage finance business takes a hit, but annual results from 2023 show the bank’s progress as it executes a massive, four-year strategic overhaul.
The Dallas-based bank had a rougher-than-expected end to last year, in part driven by a $751 million quarterly drop in mortgage finance loans. The sputtering in the business was tied to “predictable seasonality,” as fourth quarters are often weaker for home-buying, but the bottom isn’t in sight. Texas Capital expects next quarter to be “amongst the toughest the industry has seen in the last 15 years,” said CFO Matt Scurlock on the company’s fourth-quarter earnings call Thursday.
Net interest income at the bank fell nearly $18 million in the quarter to $214.7 million, which Jefferies analysts wrote “disappointed slightly,” and Scurlock attributed almost entirely to the mortgage finance slump, which has impacted rates across the country. However, CEO Rob Holmes said despite the blip, the bank’s mortgage strategy is aligned with long-term goals of deepening relationships with target clients.
“The firm has been and remains committed to banking the mortgage finance industry as it weathers what is the most challenging operating environment in the last 15 years,” Holmes said on the bank’s earnings call. “Over the previous 18 to 24 months, we have refocused client selection and improved the service model as we look not to expand market share, but to instead deepen relationships to improve relevance with the right clients.”
Cross-selling is working, he said: of clients that started with just a warehouse line of credit Holmes said that all of them now have some treasury relationship with the bank, and nearly half have an account open with a broker-dealer at the bank. The company’s stock rose 2.43%, to $63.12 per share, on Thursday.
Texas Capital wasn’t able to make up the revenue lost in its mortgage business either, with a fourth quarter of flat commercial loans, stagnant or lower fee income and a fall in investment banking and trading income.
Holmes launched a massive transformation of Texas Capital when he took the helm in 2021, coming off a three-decade career at JPMorgan Chase. The $28.4 billion-asset bank’s metamorphosis included recalibrating its target commercial client base, launching an investment bank, adding wealth management and treasury products, and investing in infrastructure and front-end staffing.
As part of the master blueprint, Holmes set ambitious goals with a 2025 deadline, including a return on assets of greater than 1.1% and return on tangible common equity of over 12.5%, which a post-earnings note from Jefferies analysts said, “will require dramatic improvement in the next year,” since the bank saw those metrics at .47% and 4.4%, respectively, in the fourth quarter.
Still, Holmes said the bank has the products, tech and talent in place to meet its objectives. While there’s fine-tuning to do, Holmes said now that the more-dramatic parts of Texas Capital’s evolution are done, it’s basically a “brand new bank.”
“It’s 100% execution now, that’s what’s so exciting about where we are in the transformation,” Holmes said. “The risk of the build is done. We have a core competency now of taking efficiencies and improving client journeys. We have data-as-a-service. We feel really good about the tech platform and the run-the-bank versus change-the-bank composition of the spend.”
Some of the pieces of the strategy, though in their early stages, are beginning to prove longer-term value. Texas Capital’s investment banking and trading business, which was nearly non-existent before 18 months ago, increased annual income by 146%, to $86.2 million, even though quarterly income fell more than 60%.
The bank deemed its investment bank an “area of focus,” along with assets under management, treasury product fees and wealth management and trust fees, which altogether grew 64% from the previous year. In 2023, investment banking and trading generated 8% of the bank’s total revenue, and the goal is to have the unit bring in 10% of total revenue in 2025.
“When we launched the strategy, we acknowledged that results generated by the newly formed investment bank would not be linear, and that it would take several years to mature the business with a solid base of consistent and repeatable revenues,” Holmes said. “Despite broad-based early success, we expect revenue trends to be inconsistent in the near-term – the same as all firms – as we work to translate early momentum into a sustainable contributor to future earnings.”
Thirteen years is a long time to wait for rules implementing open banking in the U.S. We should wait a little longer and get it right, writes Tom Brown.
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In July 2010, Congress tucked a small provision into the Dodd-Frank Financial Reform Act, imposing a new mandate on firms that provide financial services to consumers. The mandate requires financial institutions to provide consumers electronic access to their banking account data. The law, called “Section 1033” of the mammoth bill, also gave the newly created Consumer Financial Protection Bureau the authority to issue a rule implementing that mandate. More than thirteen years later,the CFPB finally released its proposed rule.
The proposed ruleoffers a solid foundation, yetits impact is limited. The original statute’s wording is expansive, requiring all consumer financial services firms to provide consumers with access to their data, except those explicitly exempted. However, the recent draft of the rule is restricted in scope, applying only to credit cards, checking accounts and digital wallets. To truly align with the statute’s broad intent, the CFPB should consider broadening the rule’s reach, including entities like payroll providers, Electronic Benefits Transfer accounts and billing companies. Greater data coverage would benefit more consumers and fulfill Congress’ original objectives.
Section 1033 of the Dodd-Frank Act received little attention when President Obama signed it into law along with the rest of the sweeping bill. The creation of the CFPB, the imposition of caps on debit interchange for large banks and the remaking of the mortgage industry overshadowed it. Comprehensive summaries of Dodd-Frank from major law firms and even Senate Democrats did not mention it. How the language even made it into law was mysterious. The consumer fintech industry, as it exists today, did not then exist. Products on which hundreds of millions of people now rely, including Venmo, Square Cash, Propel, Earnin and Chime, had yet to launch.
Yet, Section 1033 was as far-reaching as anything else in the bill. By 2010, it was clear that technology could eliminate tedious data entry and reconciliation for the banking public. Intuit had acquired Mint, an early fintech pioneer, and had begun enabling consumers and small businesses to track transactions automatically. Consumers and small businesses that provided Intuit with account credentials for banking and wealth management accounts could reconcile their bank accounts and calculate their tax obligations without manually entering transaction details.
Thirteen years after the passage of Section 1033, American consumers deserve more than the ability to delegate access to electronic data related to their deposit accounts, credit cards and electronic wallets. The market has already delivered those benefits.
Consumers have clearly benefited from giving third parties access to their account information, making it easier to switch account relationships. Even those who don’t switch benefit from new services that guard against overdrafts and other bank-imposed charges. This trend has led to notable declines in overdraft revenues as the impacts of open banking gain popularity. Moreover, since checking accounts reflect a person’s financial health, real-time transaction and balance information can aid lenders in responsibly extending credit to those who can afford it while avoiding burdening those nearing financial distress.
The consumer demand landscape is evolving, with a growing interest in granting innovators access to a broader range of financial data, including payroll data, EBT and bill payment information. Like data from checking accounts and credit cards, access to these new data points can enhance competition, reduce unnecessary fees and widen financial service access, including credit.
The CFPB plays a crucial role here. Market dynamics that influenced traditional financial service providers might not similarly impact payroll companies, EBT processors or billers, primarily because consumers often don’t get to choose these service providers. Unlike consumers’ free market leverage in choosing banks or credit card companies based on data access, this influence doesn’t extend to payroll and EBT services, underscoring the need for clear regulatory guidance.
Thirteen years is a long time to wait for anything. Urging the CFPB to expand its current proposal could further prolong this period. Fortunately, the language of the statute largely solves that problem. It is self-executing. In the absence of a new CFPB rule, the law mandates that all financial institutions under the umbrella of the Dodd-Frank Act provide electronic data access to consumers and their agents. On this dimension, no rule is preferable to a limited one. Having waited this long, we can afford to wait a bit more to include meaningfully more consumer data.
TD Bank has agreed to pay more than $15.9 million Canadian dollars to settle a lawsuit alleging that the bank charged customers multiple nonsufficient funds fees per transaction.
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TD Bank has agreed to pay more than $15.9 million Canadian dollars to settle a lawsuit alleging that the bank charged customers multiple nonsufficient funds fees per transaction.
The settlement stems from a class-action lawsuit filed on behalf of TD customers who were charged the duplicative fees starting in February 2019.
“[TD Bank]’s practice of charging multiple NSF fees on each subsequent attempt to process the same already rejected transaction is a breach of its contract,” lawyers for the plaintiffs said in a 2021 complaint.
Fees charged to consumers by banks large and small have come under increased scrutiny in recent years. The Federal Deposit Insurance Corp. has called nonsufficient funds fees “unfair” and “deceptive.” Banks are pushing back on the efforts to punish them for assessing the fees, and the Minnesota Bankers Association sued the FDIC and its chairman, Martin J. Gruenberg, over guidance the agency has issued on NSF fees.
Consumers eligible for payments from the TD settlement include those who are Canadian residents, hold deposit accounts with TD and were charged multiple $48 Canadian fees on a single transaction. Payments will be directly deposited into the accounts of TD customers who meet these requirements, according to the settlement agreement.
The settlement agreement is scheduled to go before a Canadian court for approval in February 2024, according to a press release from Koskie Minsky, the law firm representing the plaintiffs. The agreement includes the stipulation that TD doesn’t admit liability in the case.
“It took a lot of work, on both sides, to get this deal done,” said Adam Tanel, a partner at Koskie Minsky. “We’re pleased with the outcome.”
The settlement isn’t the first TD has agreed to this year. In September, a judge approved TD’s $8.7 million settlement with more than 5,000 off-duty New York City police officers. The officers claimed they went unpaid for shifts as security guards at TD branches across the city.
Banks and wealth management firms owned by banks are desperate to grow by courting wealthy Americans.
But a new report suggests that most of them appear to be missing out on a prime opportunity for future growth that’s closer at hand.
Industry research and consulting firm Cerulli Associates finds that only 16% of firms in the banking sphere, including banks and firms attached to banks, offer tailored wealth-related or investment services to the so-called “mass market,” or American households with investable assets under $100,000.
“Despite comprising nearly two-thirds of all U.S. households, the mass market represents banks’ least frequently targeted demographic,” Ceruli said in a press release on the report. Data in the report was primarily based on research by Cerulli, as well as figures from the Federal Reserve and U.S. Census Bureau.
The most common target for banks in the study was a more well-heeled group known as the affluent segment, where households typically have from $2 million to $5 million in financial assets and average $3 million per household.
The more wealthy the potential clients, the more banks in the study generally strove to offer them “high-touch” services where teams of financial advisors and specialists would cater to their complex financial needs. However, the merely upper middle class — ‘middle market’ households with assets of $100,000 to half a million and the ‘mass affluent’ segment with assets of $500,000 to $2 million — would instead receive hybrid service, or a mix of self-directed and advisor-mediated in many cases, the authors of the Cerulli report wrote.
Investing in tomorrow’s prospects As for those who are worst off, banks leave them to their own devices for the most part. Such clients might get to use a brokerage platform with zero-commission trades, and some “educational content,” the report authors wrote, adding that typically such offerings are deemed “adequate” for those with less than a few hundred thousand dollars of assets.
“The service delivery model of providers in this space is becoming highly digitized and automated with minimal access to human advice providers, and often centers around an online dashboard,” according to the report.
Yet many younger Americans in this snubbed group, who have yet to hit their prime earning years or inherit a windfall, are already beginning to look for financial advice. A study by Ameriprise earlier this year found that millennials are seeking financial advisors earlier than older generations of Americans did.
Once someone’s locked into an advice relationship, research suggests that most clients will at least outwardly express feelings of loyalty to the advisor they already have, meaning it will be harder to pitch the bank’s own financial advisors at that point.
“There is an opportunity for banks to create lasting relationships with mass market clients in the accumulation phase,” Matt Zampariolo, analyst at Cerulli, said in the press release. “Banks that create a differentiated, engaging client experience will be well positioned to retain clients as they cross into higher wealth tiers.”
Chayce Horton, a senior analyst in wealth management at Cerulli, said in an interview on the report that it’s understandable that banks want to focus on chasing rich clients.
“A lot of the wealth that’s been created in the country has gone to those upper-tier households,” Horton said. “But in the same vein, there still is tens and tens and tens of millions of people who need services. And if they’re properly guided throughout their financial lives, they’re more likely to have assets later on in life.”
Better services for mass market clients can also help a bank keep its young advisors, since they’re more easily able to grow their books of business and learn the trade if they’re given smaller accounts to work with at first, he said.
Advisors handling $2.4T of assets are retiring, as young talent flees the industry
Creating an offering Since building out services that cater to each client segment is costly and requires heavy investment in technology to build attractive platforms, banks can outsource some of that, and increasingly do so, Horton said. Independent broker-dealers such as LPL Financial and Ameriprise, have benefited from banks and credit unions making that decision to stay competitive in recent years.
At the same time, some institutions are partnering with specialty firms offering services like estate planning at scale. Navy Federal Credit Union’s wealth management unit, Navy Federal Investment Services, in October, announced a partnership with budget estate planning startup Trust & Will to provide affordable estate planning services to members, for example.
Horton said services a bank could implement to better serve the mass market include an all-in-one portal with self-service and access to features like trading — to graduate clients from services like checking and savings accounts, for starters. Second, firms should allow clients to “speak to an actual person” and ask questions — which can happen through a call center or a dedicated professional, “obviously for a slightly higher charge.”
The third level should be “having access to financial planners and people who can really set up a plan and a series of steps to follow over the course of years and decades,” Horton said. “That can really help retain those clients over time. Because you extend the impact of the service throughout decades, rather than the next couple of years or months.”
Sarah Adams, the chief sustainability officer and co-founder of Vert Asset Management — an RIA based in Sausalito, California — agreed. While banks are often structured to see clients transactionally, and often cross-sell their own products, “financial advisors have always meant to be more personable and personal with the client,” she said. “The financial planning piece is what needs to stay there.”
Senate Banking Committee Chairman Sherrod Brown, D-Ohio, was flanked to his left by ranking member Sen. Tim Scott, R-S.C., and to his right by Sen. Jack Reed, D-R.I., during a Dec. 6 hearing, which featured testimony by the CEOs of the biggest U.S. banks.
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Senate Banking Committee Chairman Sherrod Brown is pressuring the nation’s four largest banks to make use of a federal database to determine whether their retail customers qualify for benefits under a law offering financial protections to active-duty service members.
That 20-year-old federal law caps the interest rates on loans made prior to military service at 6%, as long as the service member is on active duty.
Brown noted that lenders have the ability to run free checks of a Department of Defense database to determine whether customers are currently on active duty.
“Active duty servicemembers have much on their mind, from deployment, to concerns about leaving their families, to returning home,” Brown wrote. “Banks should not place the burden on servicemembers to request protections they are legally entitled to receive.”
Brown pointed to a December 2022 report by the Consumer Financial Protection Bureau, which found that fewer than 10% of auto loans taken out by Reserve and National Guard members who were on active duty got interest rate reductions.
The CFPB calculated that Reserve and Guard members who are on active duty pay about $9 million per year in interest that they are not legally required to pay.
Under the Servicemembers Civil Relief Act, service members may qualify for interest rate reductions by providing creditors with written notice of their active-duty status.
Brown’s letters followed a Senate Banking Committee hearing last week where he pressed the CEOs of the country’s biggest banks on whether their companies proactively check the database.
During the hearing, JPMorgan Chase CEO Jamie Dimon said he’s sure that his bank complies with the law. He also touted JPMorgan’s record of hiring military veterans and spouses.
Citigroup CEO Jane Fraser also pointed to her company’s record of employing veterans, before adding: “We make extensive investments in ensuring that we comply with the laws, and we do indeed tap into the database.”
Bank of America CEO Brian Moynihan said that the Charlotte, North Carolina-based bank follows the provisions of the Servicemembers Civil Relief Act. After receiving notification about service members’ active-duty status, BofA sends $180 million back to them annually, he said.
In written testimony, Wells Fargo CEO Charlie Scharf said that the San Francisco-based bank is committed to providing the benefits and protections required by the 2003 law.
The U.S. economy continues to grow despite the 5.5% benchmark federal funds interest rate set by the Federal Reserve in 2023.
The Fed’s leaders expect their interest rate decisions to eventually slow that growth.
The increase in borrowing costs that stems from Fed decisions does not affect all consumers immediately. It typically affects people who need to take new loans — first-time homebuyers, for example. Other dynamics, such as the use of contracts in business, can slow the ripple of Fed decisions through an economy.
“It might not all hit at once, but the longer rates stay elevated, the more you’re going to feel those effects,” said Sarah House, managing director and senior economist at Wells Fargo.
“Consumers did have additional savings that we wouldn’t have expected if they had continued to save at the same pre-Covid rate. And so that’s giving some more insulation in terms of their need to borrow,” said House. “That’s an example of why this cycle might be different in terms of when those lags hit, versus compared to prior cycles.”
A 1% interest rate increase can reduce gross domestic product by 5% for 12 years after an unexpected hike, according to a research paper from the Federal Reserve Bank of San Francisco.
“It’s bad in the short term because we worry about unemployment, we worry about recessions,” said Douglas Holtz-Eakin, president of the American Action Forum, referring to the paper’s implications for central bank policymakers. “It’s bad in the long term because that’s where increases in your wages come from; we want to be more productive.”
Some economists say that financial markets may be responding to Federal Reserve policy more quickly, if not instantaneously. “Policy tightening occurs with the announcement of policy tightening, not when the rate change actually happens,” said Federal Reserve Governor Christopher Waller in remarks July 13 at an event in New York.
“We’ve seen this cycle where the stock market moved more quickly in some cases, more slowly in other cases,” said Roger Ferguson, former vice chair of the Federal Reserve. “So, you know, this question of variability comes into play, as in how long it’s going to take. We think it’s a long time, but sometimes it can be faster.”
Watch the video above to see why the Fed’s interest rate hikes take time to affect the economy.
Shayne Elliott, CEO of ANZ says the bank’s strength is coming from its international diversification, adding that the proposed acquisition of Suncorp Bank would be “exciting” for its Australian retail banking division.
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Capital One is seeking the dismissal of a lawsuit filed by customers who received relatively low interest rates on their savings accounts. In a recent court filing, the bank said that the lawsuit tries to use state law in a way that would significantly interfere with its federally granted ability to receive deposits.
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Capital One Financial wants a federal judge to dismiss a lawsuit filed by customers who received relatively paltry interest on their savings accounts and alleged that they were misled into assuming that they were earning higher rates.
In a court filing Thursday, Capital One noted that the annual percentage yield on its “Savings 360” account was disclosed to its customers in monthly statements. The McLean, Virginia-based company also pointed to contractual language stating that it had the right to change interest rates at any time at its own discretion.
Capital One argued that the plaintiffs are seeking the creation of a legal obligation that would require any bank that offers a new product to provide that product to existing customers who are enrolled in a different product.
“Plaintiffs’ request is legally unsupported, could have far-reaching and untenable consequences if granted by this Court, and should be rejected outright,” Capital One argued in its motion.
The lawsuit, which Capital One disclosed in a securities filing earlier this month, was filed by customers who initially opened accounts at ING Direct USA. After Capital One bought ING Direct in 2012, customers’ savings accounts became 360 Savings accounts.
The conduct at issue in the suit began in 2019, when Capital One started offering an account called “360 Performance Savings.” As of last month, 360 Performance Savings customers were receiving 4.30%, while 360 Savings customers were getting 0.30%, according to the complaint.
The lawsuit acknowledged that Capital One has the right to change the interest rates it pays. But the plaintiffs argued that the bank exercised its discretion unfairly, and that 360 Savings customers who went to the Capital One website and saw prominent ads for high rates on 360 Performance Savings accounts could be deceived into thinking that they were getting those rates.
Gregory Mishkin, a longtime Capital One savings account holder who lives in the Atlanta area, learned about the lawsuit last week from an American Banker article. The article led him to discover that he, too, has been receiving low returns, rather than the much more competitive rate advertised by Capital One for the 360 Performance Savings account, he said.
“I nearly threw up,” Mishkin said in an interview. “If I had any idea that they were playing these games, I’d just set up another account.”
In its court filing last week, Capital One made a series of legal arguments in support of its claim that the suit should be thrown out.
Among those arguments is the idea that the plaintiffs are seeking to use state law in a way that would significantly interfere with Capital One’s ability to receive deposits, which is a federally granted power.
The lawsuit, which is seeking class-action status, alleges that Capital One violated certain state laws in Illinois, Virginia, Massachusetts and Pennsylvania that deal with consumer protection and deceptive business practices.
Capital One also noted that the plaintiffs did not point to any contractual provision that required the bank to notify 360 Savings customers about the creation of, or the existence of, the 360 Performance Savings account.
“Nor do they allege any facts showing that Capital One did anything to prevent them from learning about, or switching to, the Performance Savings account,” the bank wrote in its motion to dismiss the lawsuit. “On the contrary, they allege that Capital One advertised the Performance Savings account on its website …”
In their lawsuit, the plaintiffs said that between 2013 and 2019, Capital One advertised the 360 Savings account as a “high-interest” account, and that it later used similar language to describe the 360 Performance Savings account.
Capital One, in its filings last week, noted that the plaintiffs did not allege that Capital One promised to pay any specific rate. The bank wrote that the description of its accounts as offering “high” interest “is too vague and subjective to be an actionable misrepresentation.”
Editor’s Note: This is an update of an article that originally ran on September 20, 2023.
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The Federal Reserve on Wednesday chose not to raise its key interest rate, the same decision it took following its September meeting, leaving its benchmark lending rate at its highest level in 22 years.
Given that the Fed influences — directly or indirectly — interest rates on financial accounts and products throughout the US economy, savers and people with surplus cash still have many opportunities to get a far better return on their money than they’ve had in years — and even more importantly, a return that outpaces the latest readings on inflation.
Here are low-risk options to get the best yield on funds you plan to use within two years, and also on cash you expect to need within the next two to five years.
The average annual percentage yield on bank savings accounts was just 0.59%, according to an October 31 survey from Bankrate. That average is kept low by a nearly zero APY at the biggest brick-and-mortar banks like JPMorgan Chase and Bank of America, which were each offering rates of just 0.01%.
But many online, FDIC-insured banks are offering well north of 5% on their high-yield savings accounts.
Those accounts are a great place to deposit money that you will likely deploy within the next two years — to cover anything from a planned vacation or big purchase to an emergency expense or an unexpected change of circumstance like a job loss.
While bank deposit account yields can change overnight, they have remained high for months and are likely to continue to do so. “In the last few months, the Fed has signaled that it intends to keep rates higher for longer. … Some banks have responded to this new ‘higher for longer’ expectation by offering promotional rate guarantees on their savings or money market accounts. In the guarantee, a competitive rate is guaranteed to last for several months on the savings or money market account,” said Ken Tumin, founder of DepositAccounts.com.
An online savings account is what certified financial planner Lazetta Rainey Braxton, co-CEO at 2050 Wealth Partners, calls your “cushion” account. She likes the word “cushion” because it describes the flexibility and options such an account gives you to handle both what you want to do in the near term and what you might need to do.
Another way high-yield accounts can be useful, Braxton said, is to house money you’ll need to pay off a purchase for which you’ve secured a 0% financing deal for a limited period of time. In that case, you won’t owe interest on your purchase so long as you pay it off in full before the end of the promotion period, which can be anywhere from six to 24 months. In the meantime, the money can grow by 4% to 5% a year in your high-yield account.
For your regular household bills, Braxton recommends keeping just enough cash to cover a month or two in a regular checking account for fastest access. “Not too much, because [those accounts] won’t yield much,” she said.
You can always link your high-yield account to your checking account to transfer funds when needed — just know it may take up to 24 hours for the transferred money to show up in your checking account, Braxton noted.
Money market accounts and funds
If you don’t want to set up an online savings account at another bank, your own bank may offer you a money market deposit account that pays a higher yield than your regular checking or savings accounts.
Money market accounts may have higher minimum deposit requirements than a regular savings account, but they are more liquid than a fixed-term certificate of deposit or Treasury bill, meaning they give you access to your money more quickly while still potentially giving you some of the highest yields available, said Doug Ornstein, senior manager for integrated solutions at TIAA Wealth Management.
But don’t confuse money market accounts with money market mutual funds, which invest in short-term, low- risk debt instruments. As of Oct 31, they had an average 7-day yield of 5.19%, according to the Crane Money Fund Index, which tracks the top 100 taxable money market funds.
Unlike money market deposit accounts, money market mutual funds are not insured by the FDIC. But if you invest in a money market fund through a brokerage, your overall account is likely to be insured through the Securities Investor Protection Corp (SIPC), which offers protection in the event your brokerage ever goes under.
Another high-return, low-risk investment that is great for money you likely won’t need to tap for a few months or even a couple of years are certificates of deposit.
You can get the best returns on CDs through a brokerage such as Schwab, E*Trade or Fidelity. That’s because you can comparison shop for CDs from any number of FDIC-insured banks and will not have to set up individual accounts with each institution.
To get the greatest benefit from a CD, you have to leave the money invested for a fixed period. You can always access your principal sooner if you need to, but if you do you will forfeit at least some interest.
As of November 1, CDs listed on Schwab.com with durations of three months, six months, nine months, one year and 18 months were all yielding at least 5.5% .
Say you invest $10,000 in a six-month CD with a 5.5% APY. At the end of that period, you’ll get your principal back plus nearly $274 in interest when the CD matures, according to Bankrate’s CD calculator. If you put it in a one-year CD you’d earn $555 in interest, while an 18-month term will generate $844.
If you don’t go through a brokerage you may get a reasonable deal from your primary bank. Tumin said. For example, he noted, Citi came out with an 11-month CD Special with a rate of up to 5.65% APY. But he cautions that with any big bank CD you should take your money out at the end of the term, otherwise your bank may automatically renew it and lock you in to a much lower-yielding CD.
Another option for money you can leave untouched anywhere from several months to a few years are short-term Treasury bills, which are backed by the full faith and credit of the United States.
Three- and six-month bills had yields of 5.46% and 5.54% respectively on November 1, while nine-month and one-year bills were offering 5.46% and 5.43%, according to rates posted on Schwab.com for a $25,000 investment.
If you’re someone who manages your portfolio like a hawk, you may feel comfortable buying T-bills on your own from TreasuryDirect.gov. But if you don’t, it might be easier just to buy new issues through your brokerage account or invest in a short-term bond index fund or ETF, said Andy Smith, executive director of financial planning at Edelman Financial Engines.
And if you’re looking at money that will be needed in three to five years, you might consider a diversified fund of highly rated government and corporate bonds, Ornstein said. Yields on four-year, AAA rated corporate bonds, for instance, were yielding 4.97% this week, and three-year AAA-rated municipal bonds (which are issued by local governments) had rates of 4.59%, according to Schwab.com.
When deciding on the best accounts and investments for your specific goals and peace of mind, it may pay to consult a fee-only fiduciary adviser — meaning someone who doesn’t get paid a commission to sell you a particular investment.
What you’ll always want to do is build in flexibility for yourself so you can easily access cash, regardless of your timeline for key goals. “What happens if something changes and you need that down payment a lot sooner — or your parents need medical care fast?” Smith said.
That means balancing your desire for great yield with a need and desire for ease of access without penalty. Translation: Don’t chase yield for yield’s sake.
Think of it this way, Ornstein said: Unless you have huge sums to invest or are an institutional investor, the difference between getting a 5.1% yield versus 5% is negligible, and in fact it could even cost you more if there are penalties for taking your money out early. “Most of the time convenience is really important. Give up the 0.1%,” he advised.
The roots of consumer trust in financial services firms can vary depending on the community, writes Domarina Oshana.
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Here’s a brain bender: We can share the same values, but not completely trust each other.
Humans hold complicated and sometimes contradicting emotions, so skepticism can exist even when there is alignment in deeply held beliefs. There’s a complexity about trust that is reminiscent of theduality that exists between joy and grief. As Proverbs 14:13 puts it, “Even in laughter the heart may ache.”
At The American College Cary M. Maguire Center for Ethics in Financial Services, we wanted to better understand the dynamics of trust in the financial industry so we could uncover these contradictory dynamics. Our inauguralTrust in Financial Services Study underscored the dualities of trust. As one consumer put it, “You can hold the same values as me and still screw something up. Just because you love animals like I do, doesn’t mean that you’re not going to steal my money.”
That consumer’s remark underscores a key takeaway from our research — consumers hold complex beliefs about financial companies. We found that for seven in 10 consumers (67%) alignment around values is key to understanding the mechanics of consumer trust. Today’s financial services professionals need to know the consumer values that influence company use. Why? Because understanding consumers’ values can help financial companies build trust with consumers.
Yet, awareness of, or even alignment with, consumer values is not enough to win consumer trust. What’s needed is an understanding of consumers’ unique reasons for trust, as this can help financial companies to close gaps in trust, and, thereby, build their trustworthiness. First, let’s unpack the values.
There is aspectrum of values that influence company use. These “influential values” include “hot-button issues” such as company contributions to social justice and diversity, treatment of employees, community involvement, customer service and honesty/transparency. There are also more mundane values such as price/perceived value of a product or service and the convenience of accessing money.
While consumers desire values alignment, they are also cognizant of tradeoffs they must make due to practical considerations such as price, convenience and lack of choice. For instance, sometimes short-term budgetary constraints or maintaining longer-term financial goals take precedence over core values such as social justice and environmentalism. Much like the scenario that plays out with utility companies, it can be difficult for some consumers to completely avoid companies that don’t align with their core values, as they may not be able to find a particular product or service otherwise. Yet, one deal breaker for consumers seems to be instances where they see a company treating people unfairly.
Consumers want companies to not discriminate and to treat all customers fairly. Some consumers will actively avoid using companies that they feel do not treat everyone fairly, though they acknowledge it can be difficult to completely bypass them.
As the financial industry considers how to manage the changing U.S. demographic landscape, understanding the nuanced trends in consumer viewpoints can inform efforts to close gaps in trust. Financial companies can position themselves as trustworthy to consumers by acting on what is important to them when it comes to placing their trust in a financial company.
For instance, from our research, we learned that financial companies could stand out as trustworthy to communities of color by acting on their differentiating reasons for trust. These are (in order of importance): provide a website/app with detailed information on products and services; train employees to understand different ethnicities and backgrounds, and to check on them throughout the year; have advertising that shows the company cares about people like them; demonstrate that employees share their personal values; offer services that are nearby, and that are used by those known in the community; and guide decision-making with pros and cons. African American consumers are significantly more likely to trust for this last reason than other consumers.
To benefit from financial products and services, consumers need to feel good about the institutions and professionals entrusted with their money. Leaders can develop an awareness of trust’s relational and situational nature. It’s a building block to gaining perspective on what motivates consumers’ behaviors and their feelings about the trustworthiness of the financial institutions with which they have relationships.
Under the contract with the Department of Defense, Navy Federal would operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific.
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Navy Federal Credit Union’s contract with the Department of Defense to provide banking services to military personnel serving abroad faces an obstacle bigger than any bank lobby — the credit union’s own regulator, which insists it cannot provide deposit insurance under the terms of the deal.
The Department of Defense established the overseas banking program after World War II to provide active-duty military members with retail, financial and cash services. The Vienna, Virginia-based Navy Federal is taking over the contract that had been held for 40 years by the $3.1 trillion-asset Bank of America.
The agreement was already under fire from the banking industry, and now the National Credit Union Administration says federal law prevents it from insuring any accounts offered through the program.
Under the terms of this program, the service members become customers of “Community Bank, operated by Navy Federal Credit Union,” and not members of Navy Federal itself — a distinction that would make it neither “permissible [n]or proper” under the Federal Credit Union Act to insure those accounts through the National Credit Union Share Insurance Fund, an NCUA spokesman said.
“Deposits made by customers of the Community Bank as part of the Overseas Military Banking Program are separate and apart from those deposited by members of Navy Federal Credit Union,” said the spokesman, Joe Adamoli. “Navy Federal would only be acting as a servicer for the DoD program, and the deposits from that program would not be those of Navy Federal’s members.”
Navy Federal isn’t satisfied with this explanation. In an email to American Banker, Mary McDuffie, president and CEO of the $165 billion-asset credit union, said that under the law, the NCUA can insure any credit union activity it determines to be proper.
“But somehow, it has not found it ‘proper’ to provide insurance to a DoD program that supports deployed overseas service members and their commands,” she wrote. “It is rare that we see resistance to our mission-driven efforts that we are experiencing from the NCUA. Without a committed insurance partner in this OMBP endeavor, the NCUA is going to leave service members and their families overseas without the financial support that they deserve.”
Under the contract, Navy Federal would operate 60 banking facilities and 275 ATMs throughout Europe and the Pacific.
Anthony Hernandez, president and CEO of the Defense Credit Union Council, which advocates for the interests of America’s credit unions serving the military and veteran communities, said the Department of Defense was asked to brief the Senate Committee on Armed Services about the issue last week.
“From what I understand, DoD acknowledged the problem and discussed a few alternatives,” Hernandez said. “[The council] is always concerned when DoD or anyone else speaks to Congress about any aspect of its banking program. This issue directly impacts each of our member credit unions who serve on military installations without the benefit of a government contract.”
Even if the issue of deposit insurance is resolved, the deal faces other hurdles, as representatives from the banking industry have highlighted.
The Association of Military Banks of America has several issues with the contract being awarded to Navy Federal, including that the Department of Defense will no longer be able to credibly enforce its “one bank-one credit union” policy in the United States, said Steven Lepper, the association’s president and CEO.
That policy has been in force for a couple of decades and precludes banks from competing with other banks, and credit unions from competing with other credit unions, on military installations. When Bank of America held the contract, a credit union could open a branch on the same base without tipping the balance; with Navy Federal taking over for BofA, it would add a second credit union to the bases that already have one.
The policy is meant to give military personnel, families and military organizations a choice of types of financial institutions, products and services without overpopulating bases with banks and credit unions, Lepper said.
Credit unions are exempt from the lease costs that banks would pay to operate on these bases, Lepper said. This made it easier for credit unions to come in and compete with Bank of America, but any banks that choose to compete with Navy Federal would not have the same advantage, he said.
“The departure of banks from military bases, driven by a disparity in lease costs, will accelerate if multiple credit unions can fill the resulting void,” Lepper said.
Lepper said the contract “debacle” has illuminated the dysfunction inherent in the Department of Defense banking program.
Both the American Bankers Association and the Independent Community Bankers of America declined to comment on Navy Federal’s involvement in the overseas banking issue. But in a post on LinkedIn, the ICBA’s president and CEO, Rebeca Romero Rainey, said Navy Federal appears to be trying to mask the fact that it is a global financial institution that does not pay taxes or meet the same level of regulatory standards as community banks.
“With large credit unions now apparently insecure enough about their industry to want to pretend they’re community banks, Congress should use this opportunity to investigate the nation’s outdated credit union policies — and whether the government should continue subsidizing acquisitions of real, local, taxpaying community banks,” she wrote.
Lepper said he is concerned that more banks will leave military installations if credit unions feel emboldened by BofA’s departure. He said the credit union lobby has already prevented AMBA from securing legislative relief allowing banks to operate free of lease charges on military bases — a benefit credit unions already enjoy.
“We fear that the credit union lobby will shift into overdrive to ensure rising lease costs close the few remaining banks on bases so that credit unions can take their place,” he said.
Recent “favorable credit outcomes” alongside deposit growth mean Cincinnati-based Fifth Third “can return to growing loans next year,” CEO Tim Spence told analysts.
The strong credit performance at Fifth Third Bancorp has positioned the regional bank to expand lending in growth markets at a time when many banks are tightening their loan standards, its leaders said when announcing third-quarter earnings.
The $213 billion-asset company’s credit quality has “remained strong” throughout a year of economic uncertainty and volatility in the banking sector, according to Fifth Third CEO Tim Spence.
“Favorable credit outcomes” alongside deposit growth provide Cincinnati-based Fifth Third with an opportunity to continue applying “conservative underwriting policies” as the company moves forward with expansion efforts in the Southeast, Spence told analysts during a quarterly earnings call on Thursday.
“We can return to growing loans next year,” Spence said.
Between July and September, Fifth Third reported $316 million in early-stage loan delinquencies, a 7% decline from the second quarter and 6% lower than in last year’s third quarter.
Nonperforming loans more than 90 days past due totaled $29 million and decreased by 43% since the second quarter and by 51% compared with a year earlier.
And although net charge-offs of $124 million doubled compared with the year-ago period and climbed by 38% since the second quarter, the increase was “in line” with Fifth Third’s expectations earlier this year, according to Spence.
“From an overall credit management perspective, we have continually improved the granularity and diversification of our loan portfolios through a focus on generating and maintaining high-quality relationships,” added James Leonard, Fifth Third’s chief financial officer.
During the third quarter, Fifth Third focused on lending to homeowners as a “segment less impacted by inflationary pressures,” Leonard said. The strategy resulted in net charge-offs of $60 million in the consumer banking business, an increase of only three basis points from the second quarter, he said.
Meanwhile, Fifth Third’s commercial real estate exposure remains “very well behaved,” with higher-risk and delinquent loans in the portfolio improving during the third quarter, he said.
Office-related CRE loans, which have become a primary concern this year among investors, are “significantly better” than industry averages, according to Leonard. Fifth Third reported no new office-related delinquencies or charge-offs and decreased its loan balances by 8% “without any loan sales,” he said.
“Credit quality in the office portfolio has remained very strong, and we continue to believe the overall impact on Fifth Third will be limited,” Leonard said. “We nevertheless continue to watch it closely given the environment.”
Lending at Fifth Third was flat compared with last year’s third quarter and declined by 1% since the second quarter to a total portfolio of $122.3 billion. It reported total deposits of $167.7 billion, 2% higher than in the third quarter and 4% greater than in the same period last year.
The company reported a 74% loan-to-deposit ratio during the third quarter “as a result of our balance-sheet positioning and success adding new deposits,” Leonard said.
Total revenue fell nearly 1% year over year to $2.2 billion, while net income of $660 million was up 1% during the same period. Net interest income fell 4% to $1.4 billion, and noninterest income increased 6% to $715 million, since last year’s third quarter.
Fifth Third’s quarterly earnings received positive responses from analysts.
The bank’s “healthy” credit metrics and lower-than expected loan-loss reserves of $119 million — down 25% from a year earlier — led to an increase in Fifth Third’s earnings-per-share expectations, David Chiaverini, an analyst at Wedbush, wrote in a research note on the company’s results.
