Bank of America, one of the first banking giants to announce that it would charge consumers a fee for using their debit cards was one of the last to back away from that plan in the face of a ferocious backlash from consumers and withering criticism from politicians and media commentators.
Wells Fargo, JP Morgan Chase, Sun Trust, and Regions Bank all had imposed debit card fees or were testing them, saying the charges were needed to offset revenue losses resulting from new regulations capping the fees banks can charge retailers for processing debit card charges. But in the space of a few days, all dropped those plans, citing negative feedback from their customers.
That’s putting it mildly. The charges spurred consumer protests in Los Angeles and Boston, drew public criticism from President Obama and Vice President Biden who said the fee was “incredibly tone deaf" and led one irate B of A customer to initiate an on-line petition protesting the fee that attracted 300,000 signatures from equally annoyed consumers. “The American people bailed out Bank of America during a financial crisis the banks helped create,” the petition read in part. “How can you justify squeezing another $60 a year from your debit card customers? This is despicable.”
When B of A finally jointed the parade of banks abandoning the fee, Change.org, the Web site on which the petition had been posted, announced, “We won.” But industry executives warn that the consumer victory, while impressive, may be short-lived. The $8 billion revenue gap banks are trying to fill still exists, Bart Narter, a senior banking analyst at Celent, a national consulting firm told Bloomberg News. If they can’t make it up through the debit fee, he said, they will simply find other sources of revenue. “They might start to require higher balances or direct deposits from paychecks.” One way or another, Narter said, “they will try to change consumer behavior to make them less expensive to serve.”
The primary beneficiaries of this scuffle, at least in the near a term, have been the community banks and credit unions that are welcoming many of the customers that are expressing their anger at the larger banks by taking their business elsewhere. The Credit Union National Association reported that 650,000 new members joined credit unions between Sept. 29th and November 1. “To put that in perspective,” one liberal blogger noted, “credit unions added only 600,000 members in all of 2010.”
“Consumer voted with their money and Wall Street institutions finally got [the message],” Fred Becker, president of the national Association of Federal Credit Unions (NAFCU) told News Now, NAFCU’s on-line news service. But Becker thinks banks will be hard-pressed to repair the damage caused by the debit fees and others banks have begun to impose. “Recalling debit fees now is like trying to put toothpaste back in the tube,” Becker said. “It simply does not work.”
Housing and income statistics in Massachusetts largely reflect the painful national trends, with incomes strained, poverty rates up, and housing costs problematic both for homeowners struggling with underwater mortgages and renters trying to find affordable housing in a shrinking rental pool. A recent report by Citizens’ Housing and Planning Association (CHAPA) documents those pressures. Among the findings:
- Home prices in the state (not adjusted for inflation) roughly tripled between 1999 and 2010 while median household incomes, also unadjusted for inflation, increased by 23 percent.
- As is the case nationwide, the Massachusetts homeownership rate has declined since 2006 as home buying activity has declined and many existing owners have lost their homes to foreclosure. The foreclosure rate plummeted this year, largely because court challenges alleging abusive practices delayed the process. The report estimates that 20,000 homes are in the foreclosure process in the state and another 25,000 homes are owned by borrowers who have fallen more than 90 days behind on their mortgage payments. Approximately 15 percent of all Massachusetts homeowner’s with outstanding mortgages are current on their loans but underwater and “vulnerable to foreclosure if their incomes decline,” the report notes. “This could further depress housing prices, especially because it has become much more difficult for would-be buyers to obtain mortgages.”
- Although rents have been essentially flat since 2006, renter incomes have declined, creating affordability strains for many. Approximately one-in-five renters in the state receive federal housing assistance, but nearly 200,000 unassisted, low-income renter households were paying more than half of their income for housing in 2008; nearly half (46.3 percent) of all renter households in the state were paying 30 percent or more of their income for housing, up from 36.3 percent in 2000.
- More than 94,000 households were on the waiting list for Section 8 rental housing subsidies as of February of this year – 10,000 more than last year.
- The lack of new housing construction poses a serious and increasing problem for the state. New construction and renovation of existing structures have added about 2,000 housing units annually to the affordable pool. But the state is on track to permit fewer housing units this year than in any year since the Census Department began tracking this data in 1960, the CHAPA report notes. At the current pace, the state could face a housing shortfall of nearly 30,000 units by the end of this decade.
DRILL BABY DRILL
It isn’t just environmentalists who find that advice objectionable; mortgage lenders, it turns out, also have cause to be concerned. The search for natural gas has led energy companies to the back years of many homeowners, who have eagerly accepted the large sums the companies offered for the right to drill on their land. The environmental pros and cons of that mantra aside, it may not be the best advice for homeowners. But those leases may come back to bite the owners and lenders, if the drilling leaves gallons of toxic wastewater on the property. Anticipating a hazardous waste risk of enormous proportions, many lenders will not approve mortgages on properties where the owners have approved drilling leases, a recent article in the New York Times reported. Some are requiring energy companies to agree in advance to pay for any damages their drilling causes and some are requiring prospective home buyers to agree not to grant any drilling leases as a condition of obtaining a loan. While this latest conflict isn’t expected to trigger new foreclosures, lenders say “many of the leases do constitute ‘technical defaults’ on the mortgages,” the article reported. The likely result: “new rules from local banks and additional hurdles to getting a home loan or refinancing a mortgage.”
The Real Estate Settlement Procedures Act (RESPA) clearly prohibits lenders from accepting “kickbacks” from other entities providing settlement services to borrowers. The U.S. Supreme Court is going to decide whether that law also prohibits providers from directly charging consumers fees unrelated to the services the lenders provide. Plaintiff/borrowers in the case sued Quicken Loans, alleging that the company violated RESPA by charging the borrowers fees for loan discounts the lender never provided. The Fifth Circuit Court of Appeals ruled that RESPA targets only third party fees, paid by one provider to another; it does not cover nor prohibit unearned fees in general. Four other Appeals Courts have ruled similarly, that RESPA applies only to fees shared by multiple providers, but three have held that the law prohibits all unearned fees. That’s the position the Department of Housing and Urban Development (HUD) has asserted repeatedly in its RESPA guidance, revised and clarified several times, to assert that fees services providers charge must be reasonably related to the specific services they provide. The Supreme Court decision, presumably, will resolve the dispute.
WHAT CONSUMERS DON’T KNOW
Consumers don’t know as much as they think they know about the home buying process, and they probably know less than they should. That’s the conclusion suggested by a recent poll in which Zillow.com asked buyers a number of relatively basis questions about home buying specifically and the housing market generally. Their scores weren’t awful: Respondents answered about half the questions correctly. But what they didn’t know was disturbing, Zillow found. For example, 56 percent didn’t know the difference between an appraisal and an inspection, 20 percent thought they were required to purchase private mortgge insurance regareldss of their loan amount, while more than one-third thought homeowner’s insurance was optional. On the other hand, 87 percent understood that closing costs are negotiable – a good thing, Zillow analysts agreed – but more than 40 percent said they expect home values will appreciate by 7 percent annually in the future.
“It’s great that buyers seem to have a fairly solid grasp of the home-buying process,” Stan Humphries, chief economist for Zillow, said in a press statement. “But it is troubling that we’re still in the midst of one of the worst housing recessions in history, and yet prospective buyers continue to have such high expectations for home value appreciation. Over-estimation of the appreciation potential will lead many to buy real estate when the time in which they plan to live in the house may make renting a better strategy,” he warned.