Views Of A Consumerist

At ABAs National Graduate School of Compliance Management, Stephen Brobeck, Executive Director of the Consumer Federation of America, shared his views on banks and consumerism.

Brobeck believes that one of most significant aspects of the consumer movement is to make consumers more aware of their interests and more determined to realize them. He outlined four key consumer concerns that drive compliance in banking law: availability, cost, information, and customer service.

Availability of Banking Services
Banking products are a high concern for consumers because the products are a necessity, not a luxury For example, the allegations and concerns about redlining are driven by the need for and limited availability of mortgage credit. Owning a home is important in our society Banks play a pivotal role in making mortgages available.

Brobeck believes that CRA is a great societal success because it has directly led to an increase in homeownership. CRA is a direct result of consumer lobbying efforts. Their documentation of redlining and of discrimination against some segments in our society led to passing of CRA.

Brobeck recognizes that CRA is a problem for banks because interpretations continue to change. The constant change in interpretation provides confusion and problems for consumers as well as for banks. Bankers should monitor this evolutionary process in CRA as it opens up new areas for CRA applicability. Consumer groups are noting a rising concern about the availability of branch services. There is now anecdotal data that some low income neighborhoods are losing branches. A Consumer Federation of America survey found that most low income neighborhoods have lost branches. Generally, these losses are the result of mergers.

He warns that technology and alternative services may not be a satisfactory substitute for bricks and mortar. Where can you go to deposit $50 every two weeks from your paycheck if there is no branch in your neighborhood?

Cost
Cost is a priority issue for consumers. The CFA is working on the cost of bank products relative to vulnerable members of population.

Brobeck shared several observations about the cost of bank products. First, consumers believe that some banks charge loan rates that are too high. This is not true for mortgages, for which prices are set in a competitive market. However, the cost of credit cards is, he believes, too high. The credit card market is not a price competitive market. Moreover, he observed that card issuers have such a large profit margin that they can afford a "stupendously large" marketing effort. CFA is finding that lowand moderate-income households are being offered credit products with a high cost profile.

A second cost element is banks offering related products at a fairly high price. In this area, most of the consumerist's attention has been given to credit insurance and credit life insurance.

Third, Brobeck observed that some bank fees are too high and are proliferating too rapidly What is happening is explicit pricing of services. First, Brobeck believes that price should be adequately disclosed. Second, the price should bear a reasonable relationship to the bank's actual cost. Otherwise, the bank is "gouging," according to Brobeck.

Information
Information is essential for consumers. If consumers do not have useful information, they will not make good decisions and the market will not function efficiently This information need has led to a whole array of disclosures that compliance managers deal with.

To ensure that consumers have the information they need, Brobeck advises that banks should provide useful information on a timely basis. Second, the information should not be misleading. The purpose of the information is to help the consumer make an informed and effective decision.

Brobeck offered the investable balance method of calculating interest on deposits as an example of what triggers compliance law. Unless a few banks had tried that, he stated, there would be no Truth in Savings Act today. It was the misleading nature of the advertisements for these accounts that provided the necessary momentum to pass the Truth in Savings Act.

One of the current information concerns is banks' disclosures of uninsured investment products. Brobeck believes that if banks fail to adequately disclose risk, there will be regulatory requirements.

Customer Service
Convenience is the most important aspect of customer service. "Never underestimate the consumer's desire for convenience." Consumers will pay more for a product that is in a convenient location. The higher price may be balanced by the opportunity savings for the customer.

Brobeck believes that the immediate future challenge for banks is winning acceptance for new technologies that have the opportunity to reduce cost and increase customer convenience. The difficulty in achieving this is that there is still continuing consumer demand for human services. The people who most want access to people instead of machines tend to be the older population. These people are among the best customers of banks.

It will not be easy to guide customers to make the change from human-based services to automated services. Some techniques that banks have tried, such as charging a fee for using a teller, have been controversial.

Compliance Managers
In Brobeck's view, compliance managers play an important role in the bank. It is the compliance manager's responsibility to help keep the institution out of trouble.

Even more important, an effective compliance manager can help make the institution more competitive by using compliance to learn about what the customer base wants and passing it on to bank management.

ACTION STEPS

Share this information with your bank's management. For example, use it in a board briefing and relate it to current compliance issues in your bank.
Talk with staff throughout your bank about the concerns that motivate consumers and about ways the bank can anticipate and respond to those concerns.
Review your pricing and compare it to the pricing of other banks and other financial service providers.
Review your disclosures, advertisements, and information brochures. Evaluate how clear and informative they really are. Look for ways to improve them (when the existing supply runs out).
Talk with branch managers and staff involved in your bank's CRA program about customer service ideas. One good idea will make your bank more competitive, support the CRA program, and possibly help to prevent more regulations.