Personal Finance

10 Things Banks Should Apologize For

By Dan Simon

Confidence in banks is at an all-time low. That’s not surprising given the awful financial situation at the moment and a constant stream of bad press. While simply saying ‘sorry’ might not be enough to completely change the public perception of banks and bankers or undo the damage, it would be a good start.

These are ten things that banks should definitely apologize for – have they?

For their awful customer service

Ever had a bad experience with customer support when dealing with your bank? You’re not alone. Based on thousands of reviews received by customerservicescoreboard.com three of the four big banks (Wells Fargo, Citibank and Bank of America) were rated ‘terrible’. Meanwhile, Chase is classed as ‘disappointing’ across categories such as friendliness, issue resolution and reachability. Of course, bad customer support isn’t necessarily extended to everybody – if a bank has plenty of your money invested in it they’re far more likely to keep you sweet.

No apology given – but plenty of corporate talk about continually improving services from all banks.

For punishing whistleblowers rather than encouraging them

Eileen Foster was concerned bout fraud at Countrywide (which has since been bought by Bank of America). A subsequent report into practices of subprime lending in Boston branches confirmed her suspicions – vital documents were regularly forged or destroyed. As a result 44 employees were fired and eight branches were closed. The next year Foster’s contract was terminated, supposedly because of ‘inappropriate and unprofessional conduct’. After a lengthy investigation of its own, the Labor Department in September 2011 found that Foster was fired unfairly for whistleblowing.

As long as banks try to cover up bad practice rather than encourage people to report it and root it out there is no chance of developing a banking culture that values integrity and transparency rather than one where corruption, fraud and greed lingers.

No apology given – in fact, Bank of America has appealed the decision, and a further hearing will take place later this year.

For closing branches in low-income areas

While telephone and internet banking is a great convenience, there’s no point trying to deny that sometimes nothing but a physical branch and the opportunity to speak to somebody one to one will do. It’s no wonder then that some people will be concerned about branch closures. Analysts such as Bob Meara from Celent have claimed ‘the industry is overbranched’, but the fact is that branch closures are disproportionately affecting people in the poorest areas. There is concern that the closure of such banks could see payday loan providers and other predatory lenders moving in and exploiting abandoned customers. Furthermore, thousands of people will lose their jobs, adding to the unemployment line in already deprived areas.

No apology given – banks claim closures are necessary to reduce costs and that customers can use alternative services.

For trying to slip in extra fees

In September 2011 Bank of America announced a new fee for its customers (yes, another one). The idea was that if you used your debit card in any given month you would be charged $5. A month later they dropped their plans after there were masses of complaints, closed accounts and announcements from other banks that they too would be dropping similar fees. Fast forward to March and Bank of America have started trialing new fees in three states. The people who will pay fees? Those who can least afford it, because if your balance is high enough you could be exempt. Of course, other banks such as Chase and Wells Fargo are already charging fees for basic checking accounts.

No apology given – but if there’s enough of an uproar the bank could perform another u-turn.

For failing to understand the basic concept of bonuses

Many people have been angered by the fact that it took banks no time at all to start awarding themselves bonuses after the government bailed them out. Even more shocking however was the fact that John Thain, when negotiating the sale of Merrill Lynch to Bank of America, made plans to bring forward $4 billion worth of bonuses to employees of a company that made a $15 billion loss in the fourth quarter of 2008 – Thain was forced to resign shortly after. But it gets worse: it’s thought that some of the TARP fund – money put aside to strengthen financial institutions in the aftermath of the subprime mortgage crisis – was used to pay for these bonuses.

No apology given – and to make it even better, John Thain now has a $6 million basic salary as Chairman and CEO of CIT Group.

For spending $35,115 on a gold-plated commode

In January 2009 it was reported that John Thain (yep, him again) spent $1.22 million of the bank’s money to renovate a couple of conference rooms, his office and a reception. Among the list of items purchased were a $1,100 wastebasket, a $68,000 credenza and a $35,115 gold-plated commode. We can safely assume that not every bank executive is spending obscene amounts of money on gold-plated commodes, but that might be as optimistic as we should be. Many people are troubled by the thought that bankers are spending ridiculous amounts on office furniture or other frivolous items in an attempt to isolate themselves from the financial realities their customers face.

Apology given – Thain apologized for spending his company’s money when it was brought to the public’s attention saying ‘it is clear to me in today’s world that it was a mistake’. It’s a shame he hasn’t been able to say sorry for some of his other errors of judgment.

For fixing libor

Libor (London Interbank Offered Rate) is the rate at which banks based in London borrow from each other – it affects people on a personal level because some mortgages are directly linked to Libor rates and savings can also be affected by the rate. It’s no wonder that when it became clear Barclays, a London based bank, was trying to fix Libor rates a scandal erupted in the UK and reignited the belief that top bankers may be participating in fraudulent and corrupt activity. If you think that this is an isolated incident or restricted to the UK think again – the consequences go far beyond British shores. In fact, many experts believe that some of the biggest US banks could be involved. The US Justice Department certainly thinks so: it’s already started investigations into Barclay’s operations and has its eyes on other banks closer to home.

Apology given – Bob Diamond, former group chief executive of Barclays, has apologized for Libor fixing. Others may yet need to say they’re sorry.

For insider trading

Insider trading is just another example of how bankers can user their position to unfairly make money. It’s feared that insider trading could be a big problem, and it’s in the spotlight right now because of the actions of Rajat Gupta. It doesn’t matter how sorry Gupta is – four criminal counts of insider trading could see him serving up to 20 years in prison. The former Goldman Sachs board member allegedly leaked boardroom secrets to Raj Rajaratnam, who is serving 11 years himself. It’s hoped that the conviction of such a high-profile figure will show that nobody can get away with insider trading.

No apology given – Gupta maintains his innocence

For fixing ‘swipe’ fees

For seven years credit card providers such as MasterCard, Visa and American Express, along with the nation’s biggest banks have been in a dispute over the way swipe fees – the fees merchants pay when a customer used a credit or debit card. Swipe fees are often passed on from merchants to consumers, earning banks and credit card companies a lot of money. While MasterCard, Visa and the banks have agreed a record settlement worth $7.25 billion, American Express still maintains it has done nothing wrong. No apology given – just seven years of feet dragging before responsibility was finally accepted.

For recklessly selling subprime mortgages

Whether or not you believe that the subprime mortgage crisis was the cause of the global recession there’s no denying that it caused major damage to the economy. The crisis meant banks had to be bailed out with taxpayer’s money. It meant that thousands of houses were foreclosed. It meant that unemployment rose dramatically.

Apologies given – among those giving apologies were Robert Rubin and Charles Prince, former Citigroup executives who kept millions and millions of dollars in compensation.

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This post was written by Dan Simon from 55 Plus Equity Release – a UK-based company specialising in equity release.

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