How Inequality Hurts

Wall Street’s Protection Racket: Still Rolling

To really reform big bank behavior, we need to scuttle the pay system that ‘entitles’ Wall Streeters to however much loot they can grab.

By Sam Pizzigati

Too many Americans, conservative ideologues often lament, feel entitled to the good life, even if they haven’t worked to achieve it. Conservatives typically go on to blame this sorry state of affairs on government, all that taxing of the “successful” to bankroll handouts to the “undeserving.”

In fact, we do indeed have a “culture of entitlement” here in the United States — and a dangerous one at that. But you won’t find this dangerous entitlement culture in poor neighborhoods. To witness the entitlement culture that actually threatens our social order, you have to look up the economic ladder — into the executive suites of our biggest banks and corporations.

CEO survey

The power suits who sit in these plush offices have come to feel absolutely entitled to the multi millions that get stuffed into their pockets. And to keep that stuffing going, they feel entitled to our money, too. And they keep grabbing at it, with the single-minded desperation of addicts racing for their next fix.

We saw that desperation last week. On Monday, the new credit card reform law enacted last year — legislation designed to protect consumers from excessive credit card fees and penalties — went into effect.

By Wednesday, consumer watchdogs at the Demos think tank in New York were reporting that banks nationwide were blitzing consumers with “a wide range of new and excessive fees and penalties” that sidestep the new law’s prohibitions.

One example: The credit card reform law prevents banks from automatically enrolling their debit card customers in “overdraft protection” programs.

A decade ago, merchants would simply reject transactions when consumers walked up to checkout counters without enough money in their debit card accounts to cover the items they wanted to buy. No big deal — and no penalty either for the consumer, beyond having to postpone the purchase.

But then the subprime crash sent banks scurrying for new cash cows. Enter the automatic overdraft protection program. Banks started letting consumers complete transactions even if their debit card accounts couldn’t cover them. The catch: The banks charged consumers stiff penalty fees — an average of $34 per incident — for this “benefit” they had never requested.

Consumers, on average, were soon paying a $34 penalty fee on purchases that averaged only $20. Needless to say, this overdraft protection proved incredibly lucrative for banks. In 2009, the industry collected $20.2 billion in debit and ATM card overdraft fees.

The new credit card law’s prohibition against automatic overdraft protection puts all these billions at risk. But the law has a loophole. Banks can continue charging exorbitant penalties if consumers “agree” to sign up for “overdraft protection.”

The banks, no surprise, are going all-out to gain that agreement. The industry, the New York Times reports, is “mounting an aggressive campaign aimed at keeping billions of dollars in penalty income flowing into its coffers.”

The core of the campaign: torrents of misleading letters and emails designed to panic consumers into agreeing to keep their “overdraft protection.”

The new credit card law now in place has enough loopholes to make this sort of scare campaign well worth the banking industry’s effort. Thanks to these loopholes, predicts Washington Post consumer reporter Michelle Singletary, lenders won’t have any trouble finding “ways to continue pummeling consumers.”

signupThis pummeling makes an arrogant mockery of the claims banks made back in the 1980s and 1990s, during their push to deregulate the financial sector. Bank executives argued back then that letting banks merge into every larger national agglomerations would, as JP Morgan’s Michael Patterson testified, bring “greater convenience, more innovation, and lower costs” for consumers.

Reality has brought the exact reverse. The giants that now dominate consumer banking — just five banks now hold 48 percent of all U.S. banking assets — don’t need to innovate to increase revenue. They need only squeeze customers — and they have all the marketplace might they need to do that squeezing.

The nation’s banking giants, as industry analyst Stacy Mitchell pointed out last week, charge consumers higher fees than local community banks on everything from bounced checks to stop-payment orders — and pay consumers much less on interest-bearing savings accounts.

Economic innovation, adds the New America Foundation’s Barry Lynn in a new Washington Monthly analysis, flourishes in societies that encourage small enterprises to take root. But small enterprises can’t take root when powerful corporate giants dominate the marketplace.

This dominance has worked wonders for our executive class. At JP Morgan Chase — the banking colossus that came into being after JP Morgan swallowed up Chase in 2000, BankOne in 2004, and Washington Mutual in 2008 — CEO Jamie Dimon took home $17.6 million in 2009.

Four other JPMorgan execs — vice-chairman Steven Black, chief investment officer Ina Drew, managing director James Staley, and executive vice president Charles Scharf — each took home at least $10.2 million.

Jamie Dimon and his fellow JPMorgan execs are now fiercely opposing any attempt to create an independent Consumer Financial Protection Agency strong enough to keep banks from pummeling consumers. They’re currently paying, the Los Angeles Times reports, over 30 lobbyists to gut real financial reform.

And if any meaningful reform should get through, JPMorgan’s Staley matter of factly observed at a conference last Thursday, his bank “would respond to stricter regulation by passing any extra expenses on to its customers.”

And why not? Who could possibly be more entitled?

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your inbox.

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