FDIC Warns Banks on Fee Claims

FDIC Warns Banks on Fee ClaimsThe Federal Deposit Insurance Corporation (FDIC) has issued a warning to banks over their fee claims, following a number of depositor complaints.

The FDIC is the insurer for 7,309 banks and thrifts in the United States and is funded by the financial institutions it insures, The Chicago Tribune explained. And, while it cannot prohibit those institutions from passing deposit insurance costs to its depositors, it should not describe these fees in connection with the FDIC; for instance, as “FDIC Assessments,” “FDIC Insurance Premiums,” or “FDIC Insurance Charges.” The FDIC insures some $10 trillion of U.S. bank deposits, The Wall Street Journal said.

In a letter sent to the banks it insures, the FDIC wrote that it has “received a number of complaints from depositors” that state their banks/thrifts have charged them with an “FDIC fee,” said The Tribune. Premiums assessed on banks are based on a formula that takes into consideration the institution’s financial health and asset size, capital levels, loan portfolio, age, and business practice risks, The Journal explained. FDIC ratings are confidential.

The FDIC points out that by naming these fees as related to the FDIC, banks are either issuing misleading information or inaccurately indicating that the FDIC is charging the fee or mandating banks to do so, said The Tribune. The FDIC also pointed out that these descriptions might “reveal information that could be used to determine an institution’s confidential supervisory ratings.” The FDIC said it received about 100 customer letters of complaint, to date, but did not name the banks.

In some cases, the banks have advised customers to speak to the FDIC about the fees. “The FDIC is concerned that labeling a fee as ‘deposit insurance’ or referring customers to the FDIC for an explanation of the fee may create the impression that the FDIC is requiring institutions to charge its customers the fee,” the regulator said, wrote The Tribune.

According to The Journal, the regulator’s move is just one of some recent actions it has taken against the controversy of bank fees to customers in response to new regulations that affect profits. For instance, after a huge uproar from consumers following banks’ plans to impose monthly debit-card fees, banks backed down. “The FDIC doesn’t want to get dragged into this fee war,” Jens Baumgarten, a managing partner who specializes in banks at consulting firm Simon-Kucher & Partners in New York, told The Journal.

The FDIC, which manages the deposit-insurance fund, in place to protect customer deposits should a bank fail, said the recent fees only “create confusion,” Luke Brown, associate director for supervisory policy at the FDIC’s division of depositor and consumer protection, told The Journal. “The FDIC doesn’t charge deposit-insurance assessment fees to bank customers,” he pointed out.

Banks paid $3.7 billion in FDIC assessments in the first quarter of this year, which is an increase of 30% from three years ago, said The Journal, noting that the FDIC has raised its assessments in response to the spate of bank failures—nearly 450 since 2008—seen in the current economic crisis.

The FDIC warning came in the form of agency “guidance”; many banks say they are frustrated with FDIC fees in an economy in which banks are still struggling and regulators are seeking increased transparency, said The Journal.

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