WASHINGTON — Despite an order last month from the Federal Deposit Insurance Corp. to its 7,241 member banks to stop using its name on any fees charged to business account holders, many banks continue flouting the instructions and are socking businesses with extra charges, McClatchy has found.
By using the agency name in charging an "FDIC assessment" or fee, banks mislead customers into thinking that the agency charges depositors for deposit insurance, or that the financial institutions are simply collecting and passing through a government fee.
Although the practice is prohibited, McClatchy's investigation found that it remains common. The so-called FDIC fees appear to be imposed mostly on noninterest-bearing accounts that belong to businesses. These are the job creators, in today's political speak, and banks are hitting them with fees on accounts used for payroll and cash-flow purposes. These accounts enjoy unlimited FDIC insurance under a special program that expires this year.
The expiration and the improperly labeled fees grow out of the 2010 revamp of financial regulation, shorthanded as the Dodd-Frank Act, in which banks were forced to hold more capital to protect against losses and the FDIC increased what it charges the banks for providing deposit insurance. The insurance protects account holders in the event of a bank run or a bank failure.
The FDIC adopted the rule that finalized the changes in February 2011, and the new rates charged to banks began April 1, 2011. Since then, some banks have passed along these costs to unwitting business customers, burying the fees in the footnotes and fine print of fee disclosures that often are unavailable to the general public.
The FDIC sent a letter July 9 to banks across the nation in response to complaints from businesses about such fees. The letter provided regulatory guidance to the banks and spelled out the regulator's concerns about and expectations for them.
The FDIC does not charge bank customers for deposit insurance, Mark Pearce, the FDIC's director of depositor protection, said in the letter. Yet more than a year after the new rules took effect and six weeks after the FDIC's warning letter, the improperly named fees continue.
Citibank, which required the largest taxpayer bailout in the 2008 financial crisis, explains in a footnote on its schedule of fees for business accounts in the nation's capital and surrounding states that it charges an "FDIC insurance fee" at an annual rate of 13 cents per $100.
Here's what it says in the fine print of Miami-based BankUnited's fee schedule:
"For some business accounts, we may charge a Federal Deposit Insurance Corporation (FDIC) assessment based upon the assessment rate the FDIC charges us. The FDIC assessment may include deposit insurance charges and other fees, charges and assessments provided by law."
Contacted about the improperly labeled fee, BankUnited said it would investigate the matter.
However, that BankUnited tells customers it generally calculates the fee using the same calculation as the FDIC is a big problem for the agency. It warned in the July letter that banks may be indirectly revealing information used to determine a bank's confidential supervisory ratings, something that could land them in hot water with regulators. Regulatory information is confidential to protect against bank runs and market manipulation by investors.