Why Are Banks Special?

Everyone complains about regulatory burden. But banks do seem singled out. Not only are banks a special target for consumer protection legislation, banks are held to a higher standard of customer service than most businesses.

Take returned checks, for example. A bank is frowned upon if it charges more than its actual cost for processing the check. Judges have calculated this cost to be less than $3.00. But my local grocery store charges $25.00 for returned checks. They've been doing that for years and no-one has sued them. What's the difference?

Banks are, in fact, held to a higher standard than other businesses. It's the nature of banking. Banking is all wrapped up in fiduciary responsibilities and trust. They are the conduits and repositories for our money.

Banks have historically been controversial in this country. There have been some politicians - Andrew Jackson for one - who wanted to do away with banks altogether. But it became clear during the Great Depression that banks are vital to our economy and that it is in the national interest to establish and maintain a sound national banking system.

In the early `30s, new laws were designed to create a sound national banking system. Deposit insurance was the keystone intended to re-establish faith in banks and induce people to deposit their funds in banks.

Since the `30s, we have worked hard and consistently to build and maintain faith in the banking system. Banks wanted people to feel safe putting their money on deposit. Bankers worked hard to stand for safety and trust. Bankers have been so successful at this that now we expect more of banks than of other businesses. Everyone agrees that banks are special. That's why we have a regulatory price to pay. People expect more from banks.

Practices that can be acceptable in some businesses - such as charging $25 for returned checks - are unacceptable in banking. Banks are expected to give their customers a better deal. This view was expressed by members of the Consumer Advisory Council who observed that simply charging less than check cashing businesses to cash checks was not good enough.

Customers expect to be able to understand - and get help understanding - the products and services they obtain from banks. Disclosures are designed to provide this information. They expect service. They expect bankers to be familiar with the products they are selling.

Consumers expect honesty from the people that handle their money Bankers are held to a higher standard of business practices, such as advertising, than other businesses. Used car dealers simply aren't held to the same standard. But when a bank runs a bait and switch ad, consumers feel betrayed. Moreover, because they expect a higher standard of bankers, consumers are more likely to be deceived by any misleading advertising practices of banks.

This means that banks must be especially alert to what consumers want and the best way to provide it. Anticipate the bank product needs and meet them. Fundamentally, all of banking is like CRA. We need to understand consumers, find out what they want, and design ways to deliver it.

It also means that banks need to look for ways to provide better service as a matter of routine. It isn't enough to stay in one place. Consumer concerns and interests are constantly evolving. Banks need to watch and adjust with the change.

That's the best way we know of to stave off more regulatory burden. It's also the best way we know of to be the best in the business.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 8, 7/97