Bank Lawyer's Blog

Save Me From Myself

Marvin Umholtz's latest CU Strategic Hot Topics email newsletter contains a lengthy discussion of a position paper issued late last month by the National Consumer Law Center (NCLC), which calls on the CFPB to restrict bank and credit union overdraft fees to the "reasonable and proportional" standard applied to credit card penalty fees by the terms of CARD Act, notwithstanding the fact that there is no express statutory requirement to apply such a limitation to overdraft fees. The NCLC argues that the CFPB has such authority by virtue of its ability to ban "unfair, deceptive, and abusive practices."

Of particular interest to Marvin, and to me, is the use of behavioral economic theory (previously discussed here) as support for the argument that overdraft fees are inherently "abusive" and "unfair."

This correspondent found of particular interest the NCLC white paper’s discussion about how the CFPB should leverage unfair, deceptive, or abusive practices authorities to price-control overdraft fees. It argued that overdraft fees were inherently unfair because they were not avoidable by a reasonable consumer. The NCLC said, “Accordingly, the analysis should take into [account] consumers’ likely knowledge gaps and their optimism bias, which has been shown by behavioral economics research. The information differential between banks and consumers is stark. As discussed in Sections II and III.B, supra, banks use sophisticated systems to keep track of consumers’ transactions and maximize overdrafts. In contrast, behavioral economics research shows that consumers are over-optimistic and tend to discount the likelihood of negative events. Nor do they have the capacity to quickly and accurately assess the risks associated with such contingencies. This gives banks the opportunity to attract consumers with, for example, a promise of ‘free checking,’ while at the same time charging high fees for overdrafts and engaging practices to maximize them that will far outstrip any savings from lack of a monthly maintenance fee. As a result, overdrafts and their associated fees may not be reasonably avoidable by consumers – especially the lower-income consumers who bear the brunt of these fees.” The NCLC’s anti-bank rhetoric is specious and mean-spirited.

Behavioral economics assumes that many consumers are uninformed and irrational and that consumers make systemic mistakes in their choice of credit products. Rather than let people make their own decisions behavioral economists believe that a central regulator should adopt policies designed to address that ignorance and irrationality. Behaviorists use these premises to justify big government intervention in the market to prevent consumers from harming themselves. The NCLC’s anti-overdraft narrative is reliant on this everyone-is-a-victim belief.

I couldn't have said it better myself. And now, I don't have to.

Marvin continues:

As the NCLC points out, the Dodd-Frank Act defines a practice as abusive if the CFPB finds that it (1) Materially interferes with a consumer’s ability to understand a term or condition of a consumer financial product or service; or (2) Takes unreasonable advantage of – (A) A consumer's lack of understanding of the material risks, costs, or conditions of the product or service; (B) A consumer’s inability to protect his or her own interests when selecting or using a product or service; or (C) The consumer’s reliance on a covered person [the financial services provider].  The NCLC white paper came to the simple conclusion that due to the inherent nature of overdrafts they were abusive.  NCLC wrote, “When choosing a bank or type of account, consumers cannot be expected to be able to know or compare how banks process transactions or what steps the bank will do to induce overdrafts.  The way in which transactions are processed by a bank is a complicated matter that consumers cannot reasonably understand.  Again, banks take advantage of the consumer’s reliance that the bank will not engage in activities to deliberately trip them into incurring overdrafts and being charged overdraft fees.”  Why does the empowering of the CFPB to make arbitrary and capricious “abusive” findings remind this correspondent of the in loco parentis “ability to repay” determination in other Dodd-Frank Act-mandated CFPB rules?  Apparently the ideologically questionable behavioral economists at the CFPB will know “abusive” when they see it.  Do the CFPB behavioral economists have any respect for individual rights – like the right to make one’s own decisions even if mistaken?

I think that the answer to that question is "No." Or, perhaps, "Hell, No!"

None of this should come as a surprise. Liz Warren's purpose in birthing the idea for the CFPB was to create a powerful independent federal agency, free from most oversight and any chance of "regulatory capture," to decide whether consumer financial products and services were "safe" for consumers. In other words, the basis for the CFPB is a belief in the use of the Nanny State to protect the proles from themselves because the state knows what's best for them even when they don't. Behavioral economic theory is the bedrock on which this house of cards is built. Moreover, the CFPB has been manipulating statistics in its war on overdraft fees for some time.

Get used to it, folks, because barring a "counter revolution," this is only the beginning.

Camden Fine Fires Off A Fine Salvo

In  recent opinion piece for Bloomberg News, ICBA CEO Camden Fine was in fine fettle, ranting about his favorite topic: new regulatory burdens are strangling community while the largest banks are doing just fine, thank you very much. Among his salient points are the following:

The megabanks are benefiting from what Bloomberg View calculated is an $83 billion annual taxpayer subsidy, the value of implicit guarantees by the U.S. Treasury. Bloomberg View was correct to characterize the too-big-to-fail subsidy as “a major driver of the largest banks’ profits.”

Perversely, Federal Deposit Insurance Corp. data show that large banks have both the lowest credit quality and the lowest cost of funds in the industry. Community banks rank the highest in both categories even though they have had to compete for years against the megabanks’ access to cheaper money in pricing loans. In addition, community banks must compete against the big lenders’ lower comparative costs in handling regulatory paperwork.

While Cam complains that this is "morally wrong," I suspect that in a nation overrun with Pontius Pilates who sneer in the throes of their born-again relativism "What is 'truth'?," appealing to "morality" as a behavior influencer will have as much impact on Congress as a stern talking to by Pope Francis would have on Charlie Sheen. More effective on the morally challenged is likely to be his economic arguments.

Community banks should be putting their capital to work in the small towns, rural communities and middle-class urban enclaves they know well. Instead, they are focusing too many of their precious human resources on onerous paperwork and time-consuming compliance measures.

Community banks are the source of almost 60 percent of all small-business loans of less than $1 million, as well as mortgage and consumer loans tailored to the needs of their local communities. Large banking organizations with more than $50 billion in assets hold almost 40 percent of outstanding small loans to businesses, according to the Federal Reserve, but loans to small businesses aren’t a significant portion of large-bank lending. Small-business loans represent less than 5 percent of the large banks’ total domestic lending.

Cam outlines five specific steps Congress and the federal regulators could take to help community banks (and credit unions, for that matter, although Cam would choke on his own tongue before admitting it). They include:

• Easing up on some of the more onerous residential mortgage lending and servicing rules.
• Eliminating the requirement that community banks report on every new small business loan application.
• Requiring a cost-benefit analysis for all new regulations and prohibiting the issuance of any regulation where the cost exceeds the benefit.
• Raising the threshold to $350 million in assets for the requirement for an audit of a bank's internal controls.
• Eliminating the annual requirement for sending no-change privacy policies.

These are all helpful suggestions, but  I'm frankly surprised that he didn't also call for the carpet bombing of CFPB's D.C. headquarters and insist that Jamie Dimon's king-size bed be short-sheeted. Oh well, the year is not even half over. There's still time to get down to the really important stuff.

A Change of Policy, But Only in Two States

While the epic "Yo Mamma" wars between banks and credit unions have been well-documented (and often lamented) on this blog, I have no explanation for the recent activities of Chase Bank and Huntington Bank, as outlined in a recent article in Credit Union Times.

As many as 30 credit unions in West Virginia and Ohio have been scrambling to establish new correspondent vendors after a regional and national bank terminated their accounts over the past few weeks.

The $1.4 billion Volunteer Corporate CU and the $3.7 billion Corporate One FCU both reported the closed accounts, and in both cases said members reported the banks cited Bank Security Act and money laundering risk.

Charlie Thomas, VolCorp’s senior vice president of West Virginia operations, said the Nashville, Tenn.-based corporate first became aware of the terminated correspondent relationships in late March when a member called, asking for assistance. He said the two banks were the Columbus, Ohio-based Huntington Bank and New York-based Chase Bank.

[...]

Thomas said a letter he’d seen from Huntington to a credit union said the decision to terminate the business relationship was the result of regulatory requirements, “some of which may be new or been amended since the credit union opened its account.” The decision reflected a change in bank wide strategy, and was not a reflection on the credit union, the letter added.

The two banks aren't providing a more detailed explanation and the Fed refuses to comment to reporters on the matter, including indicating whether the banks were directed to close the accounts by their primary regulators because of BSA concerns. Speculation includes the theory that the banks are trying to reduce volatility of deposits, but other observers note that those banks are so large that the 30 banks would be but a blip on the radar screen. Also, why only banks in those two states? Is there some massive money laundering risk suddenly emerging from coal country? Are moonshiners now allied with Mexican drug cartels and laundering massive amounts of illicit cash through these credit unions?

This may be worth following. Or, it may not be. If anything interesting pops, I'll post.

The Real Deal? Not...

From time to time on this blog, I express the wish that banks and credit unions would stop sticking forks in each other's faces long enough to cooperate on issues of common concern. Credit unions in Missouri have obviously been reading my blog posts, taken them to heart, and decided to tell me to stick my feel-good bloviations where the moon don't shine.

The gist of their advertising campaign appears to be that all commercial banks are tied directly to Wall Street and all credit unions are tethered tightly to The Cosmic Muffin. I guess all residential mortgage loans that are made by credit unions remain in portfolio and none ever end up in a mortgage backed security that's prepared, packaged, rated, bought, or sold by a Wall Street firm. That's certainly believable.

I also love the "real" customer quote on the "How To Switch" page about how banks have "all these different policies." I guess credit unions have only one policy that deals with everything, is that correct? Credit union compliance officers, let me hear from ya' on that aspect. As for being quick-on-the-draw regarding decisions and actions, my wife's recent attempt to set up a simple traditional IRA jumbo CD account at a credit union down the street ran aground on the shoals of the credit union's complete befuddlement with the concept of a trustee-to-trustee transfer. It took them a long time to screw that up and an even longer time to unscrew it up.

In fairness to credit unions generally, the community bank across the street from that credit union understood the quick-decision concept quite well, but then fatally enraged your trusty correspondent, who was also trying to set up a checking account, by insisting that Texas law required a legal professional who practiced under his or her own name to file an assumed named affidavit (Texas law does not require this). It was bad enough that the legally-challenged bank officer repeatedly argued with your favorite bloviator on this point of law, but then pulled out the account application of a woman who had set up a sole proprietorship under an assumed name and showed me reams of personal information about this woman. I told him that I could never do business with a bank whose deposit account officers routinely violated not only bank privacy policies, but state and federal privacy laws. His shocked expression was quickly succeeded by a look that conveyed his dawning realization that he had stepped in something squishy and foul-smelling, which, in turn, was succeeded by the vision of the swiftly moving bodies of my spousal unit and myself exiting the bank's premises.

The Bozo Factor: it's an equal opportunity affliction. It strikes credit unions and community banks with a distinct lack of partiality. I know as many banks that can make quick decisions for customers as credit unions that couldn't make a correct decision quickly if their pants were on fire and a quick, correct decision would enable them to jump into a barrel of pleasantly cool river water. And vice versa.

Thus, if you want to harp on legitimate distinctions between banks and credit unions, be my guest. For example, the advertisements do state that credit unions generally offer better rates, which is true, but fail to note that this is due to the fact that they don't pay income taxes. Yet, they yearn to be not only just like banks, but better banks than banks, only better banks that shirk their patriotic duty to fund state and federal government raping and pillaging of taxpayers like their for-profit commercial banking brethren and...oh yeah...credit union members must do. That might make for a fascinating fact-focused ad campaign, don't you think?

At least these ad campaigns give us all something to do in between wondering whether the washed up actor, the washed up comedian, or the washed up athlete will be the next bad dancer booted off "Dancing With The Stars." For that, we can be grateful.

Beating The CFPB To The Punch

Community banks have been concerned that, although they might be exempt from direct supervision and enforcement by the CFPB, they would be recipients of a "trickle down" effect that would result when their primary federal bank regulator would attempt to demonstrate that it could stay abreast, or even ahead, of the CFPB when it comes to cracking down on unfair, deceptive, and "abusive" practices. Fraud, small banks understand, but they tend to fear zealots who may not be able to define an "abusive" practice with precision, but sure as shooting know it when they see it.

An article in the most recent issue of Bank Safety & Soundness Advisor (paid subscription required) indicates that community bankers' fears are not without some foundation.

In a recent Webcast, officials from the Fed along with the Federal Reserve Bank of San Francisco showcased a broadbased enforcement approach to UDAP rules and regulations, and some high expectations for how banks should be identifying and resolving complaints involving abusive or deceptive practices.

While some of the examples cited, including inflating borrower income on loan applications and charging "bogus points and origination fees" are clearly fraudulent, the net appears to be cast widely by the Fed.

Officials indicated they view as a kind of red flag banks pushing new or modified products and services to generate new revenue, especially if done in conjunction with third-party vendors where fees are shared.

“While searching for revenue is part of what a bank needs to do, there is also a need to make sure
there is compliance with UDAP and consideration of UDAP risk,” said Maureen Yap, the Federal
Reserve’s special counsel for fair lending.

And the officials underscored the idea that an act or practice does not have to violate another law to be unfair or deceptive. A potentially tell-tale sign of that: cases where revenue growth depends on consumers making what regulators and examiners feel are poor financial choices.

There you go: what an examiner "feels is a poor financial choice" by a consumer is the acid test. That gives a whole boatload of precision and certainty to the determination of what is and is not "abusive." Every bank will have to have a Potter Stewart on staff to make the call, I guess.

The potential burden is not going to be light.

For individual institutions, the potential coverage is huge, including not only all products and services, but every phase of the life cycle, including development, marketing, and loss mitigation activities.

One bank's "bogus points" scam, perpetrated by rogue loan originators, led to a determination that it had a "disparate impact" on minorities, and earned that bank a referral to the Justice Department. So, there's that potential liability to look forward to, as well.

What's a small community bank to do? Fed officials tried to be helpful.

Officials declined to address specific fact situations bankers posed during the March 5 webcast. They suggested that banks use the same sort of analysis that regulators do in assessing potential misconduct.

Yap said the Fed tells examiners to focus on the “INN” in determining whether conduct is unfair under the law. There must be “injury” to the consumer or group of consumers, the injury is “not reasonably avoidable,” and there are “no countervailing benefits.”

She said Fed examiners focus on the “MRM” to judge whether behavior is deceptive. Does the representation or omission “mislead” the consumer? Is the consumer response “reasonable”
given the representation or omission? Is the misrepresentation or omission “material”?

“The act or practice does not have to violate another law to be unfair or deceptive,” she said.
“If the prongs of the analysis are satisfi ed a UDAAP violation can be cited.” She said CA Letter 07-08 — a joint Federal Reserve/FDIC statement on consumer compliance exam procedures for UDAP — was “very instructive” in the types of questions bank should expect.

There's your heading on a course through the fog-bound waters of "abuse": think like an examiner.

And after you take that journey down a rabbit "warren" (pun intended), you can resurface and start walking like an Egyptian.

You've got your marching orders, folks. You can get with the program or you can get out of the business. Welcome to this brave new world.

Cyberheists: Big Banks Increase Small Banks' Losses

Internet security guru Brian Krebs had an excellent post a few weeks ago about much of the attention on cyberheists may be focused on the security vulnerabilities of small banks and their business customers, the large banks are playing a large role in small banks' losses.

A $170,000 cyberheist last month against an Illinois nursing home provider starkly illustrates how large financial institutions are being leveraged to target security weaknesses at small to regional banks and credit unions.

I have written about more than 80 organizations that were victims of cyberheists, and a few recurring themes have emerged from nearly all of these breaches. First, a majority of the victim organizations banked at smaller institutions. Second, virtually all of the money mules — willing or unwitting individuals recruited to help launder the stolen funds — used accounts at the top five largest U.S. banks.

Krebs responds to a question often asked of him, whether it's safer for a business to bank with a large bank rather than a small bank, by asserting that it's a difficult question to answer "because banking online remains a legally and financially risky affair for any business, regardless of which bank it uses"

Businesses do not enjoy the same fraud protections as consumers; if a Trojan lets the bad guys siphon an organization’s online accounts, that victim organization is legally responsible for the loss. The financial institution may decide to reimburse the victim for some or all of the costs of the fraud, but that is entirely up to the bank.

That's right. Regulation E does not apply to business customers. That's something that sometimes comes as a shock to small business customers, especially those who were too cheap to hire legal counsel to review the account and other online banking agreements before they were signed. "Forewarned is forearmed" is an old adage with a lot of wisdom behind it. It's not that banks will negotiate the terms of their agreements (most of them will not, especially with small customers), but that customers who understand their legal position going into the relationship are more likely to be concerned about doing due diligence on the bank's security procedures and track record and considering other methods to lessen and cover their risks (I've seen a few who suddenly realize that having a PC dedicated solely to online banking transactions and no other activities is not such a waste of money, after all).

Krebs also points out that since larger banks are more likely to have the resources to settle even large losses to avoid the reputational risk of cyberheists, it may be difficult to know how many instances of loss occur. However, it's reasonable to assume that the large banks spend a lot more money and person-power on security measures than do small banks.

Wearing my cyberthief glasses, if I’m looking at a huge pile of data stolen from thousands of victims, I’m probably more apt to target victims at smaller banks based on one simple assumption: Because I’m going to have a much higher success rate than I would targeting customers of larger institutions.

Krebs takes a shot at technology service providers who service many of the smaller banks for not doing more to secure online banking transactions.

Case in point: Optimumbank’s service provider is Fiserv, one of the largest banking industry service providers. According to Fiserv’s site, at least 52 percent of the nation’s $19 billion in ACH payments are processed using Fiserv software. If this is true, one might think that Fiserv’s systems handled about half of the mule transfers that were sent from Niles Nursing’s hacked bank account.

But according to Murray Walton, Fiserv’s chief risk officer, the software that most of its customer banks run — called PEP+ – is a client solution that does not interact with the company’s data centers. He said while Fiserv does offer an antifraud solution called FraudNet, that tool is designed for online bill pay services that banks can use to detect fraud patterns on consumer accounts.

“There are vendors who can knit it all together for banks, but that isn’t what we do,” Walton said in an interview. “For various and sundry reasons we don’t offer an engine that does the same thing as [an anti-fraud provider like] Guardian Analytics. Realistically, the client and end-user have responsibilities that they can’t abdicate to us. Everyone in this needs to take it seriously and not think that someone else has their back.”

I understand Walton's point, but on the other hand, a small bank's takeaway from those three paragraphs might be "Fiserv doesn't have your back, so look elsewhere." A competing core platform and processing vendor that "does have your back" might have a tag line to use.

Large banks are also lambasted for allowing so many "mule accounts" to be established.

As it stands, the big banks don’t have an incentive to police new accounts for mule activity, because it’s generally not their customers who are getting robbed from this activity, said Avivah Litan, a fraud analyst with Gartner Inc.

“The bad guys shouldn’t be able to set up these mule accounts in the first place,” Litan said. “The bigger banks are not doing a good job of screening for this activity because they’re not the ones eating the fraud on these attacks on smaller bank customers. [The bank service providers] should be spending more money. And the regulators should be coming down on them harder.”

Krebs suggests that, perhaps, "small, regional and local banks can pool their clout and resources to extract more from service providers than what those companies are currently offering." Fat chance. Several years ago, some of the largest users of technology services in the country made a concerted effort to get giant service providers to take more contractual responsibility for the performance, and vulnerabilities, of their technology. It fell flat. Unless the bank regulatory agencies intervene directly with the service providers, they'll continue to do what they do best: collect fees and deny liability.

As for watching your own back as it applies to business customers, Krebs offers some good suggestions, among them:

• Shop around for banks until you find one that assures you that it uses layered security.
• Use "Positive Pay" if your bank offers it because it not only deters check fraud but other unauthorized transfers, online and off (I heartily concur).
• Use Live CD to temporarily covert your PC from Microsoft to Linux for doing online banking transactions.

Krebs also offers an online "best practices" guide for businesses. As with much of his material, it's good stuff.

PATCO Played Out: A Few Lessons Learned

The last time we discussed the PATCO decision, the appellate court had found that the bank's security procedures to defeat account takeover were not "commercially reasonable," but had sent the case back down to the trial court to determine what legal responsibility the customer might have to prevent account takeover. Following that action, the bank and PATCO settled the case, so that burning legal issue was not resolved.

Recently, PATCO co-owner Mark Patterson and counsel Dan Mitchell were interviewed by Bank Info Security's Tracy Kitten about the lessons they think they learned from the case. Among those (along with my observations) are:

• PATCO approached the bank within the first month of the incident with a settlement proposal that turned out to be a heck of a lot less than what the bank eventually paid in settlement after three years of litigation. Both sides ended up enriching their legal counsel needlessly. Sweet!
• Community banks seem more willing to settle quickly than do larger banks. Mitchell and Patterson think that's because community banks are more concerned about the reputational risk if the dispute hits the press. Might this be a potential competitive marketing advantage for community banks? "Bank with us! We'll pay for your negligence!"
• Most cases of corporate account takeover are settled quickly, and off the radar screen. That certainly appears to be accurate from our personal experience. While many lawyers live to engage in disputes, bankers live to make money the old fashioned way: by doing business. It's hard to do business when you're the defendant and your customer is the plaintiff.
• Prospective litigation costs and reputational risk can be as much of a deterrent to bank customers pursuing litigation as they can be to banks.
• There's not much case law on these issues. Until there is, there is likely to be much jockeying for position, blustering and posturing by lawyers for both sides, unless responsible business leaders on each side of the table seize control early in the game and keep their eyes on the prize: salvaging the relationship (if possible) without breaking either the bank or the customer.
• Patterson thinks ACH should not be done by businesses, no matter how allegedly "strong" the security devices or procedures used. He claims that his business will use ACH only for tax payments. The reasons for his revulsion: the one-sided nature of the agreements prepared by the banks, which place almost all liability on the customer. Hey, that's why banks pay us the big bucks, Mark!
• Patterson and Mitchell do believe that customers have "some responsibility" for protecting their accounts from takeover. However, they claim that banks bear more responsibility than customers because they are "in a better position" to prevent and detect takeovers. While I don't disagree that banks should be more sophisticated in this area than the average small business owner, I'm still not willing to go as far as Patterson and claim that using a dedicated separate PC solely for online banking (and not for cruising Internet porn sites) is cost prohibitive for most small businesses. That simply doesn't pass the smell test for me. On the other hand, I'm an alleged elitist, so perhaps my view is slanted toward my liege lords and masters, "The Banks." Perhaps a refurbished eMachine for $250 is simply beyond the reach of the average small business. If that's the case, how much money would they stand to lose from any of their corporate accounts? Wouldn't cybercrooks just enter, laugh, and leave?

Whether you represent banks or bank customers, Mitchell's final words ring true.

I would bet my bottom dollar that there will be more lawsuits in the future in this area. What types of questions will come up really will depend on the unique circumstances of each case. But given the prevalence of corporate account takeover, you can bet that there will be more cases.

The Wages of Sin and Stupidity

I promise you that this is the last of the bank robbery stories for awhile; however, my readers have been firing them at me so quickly, and so many of them are so astounding, that I can't pass them by. Since this is a post for a mostly Friday readership, I'll indulge myself one more time. I'll save any more I receive for later posting, after I strain to find some topic of actual use to my readers.

The first story comes from a Washington, D.C. senior trade association official, who noted to me the following truism: "If you are going to rob a bank, don’t post a YouTube video."

Authorities say a woman accused of robbing a bank in eastern Nebraska posted a video on YouTube bragging about the robbery.

York County Sheriff Dale Radcliff said a copy of the video will be turned in as evidence against Hannah Sabata of Stromsburg. The 19-year-old was arrested on Wednesday in connection with a robbery the day before at the Cornerstone Bank branch in Waco. She faces robbery and theft charges.         

The video was posted the same day Sabata was arrested. It shows a woman holding handwritten signs that say she robbed a bank and stole a car. The woman then holds a large bundle of cash, what she says is $6,256, in front of the camera. She also holds up what appears to be a bag of marijuana. 

The video caption says, "I just stole a car and robbed a bank. Now I'm rich, I can pay off my college financial aid, and tomorrow I'm going for a shopping spree."

The woman in the video explains herself as a victim of the government -- how authorities took her baby before she could take the baby home, charging the woman with neglect.

The bank robbery charge is a step up from her record as a juvenile, when she was arrested for "making terroristic threats."

The linked article contains more details and videos of a TV news report and of the actual Youtube video posted by the alleged humanoid bandit. As I told my correspondent, "This is stupidity of such cosmic proportions that it makes you question the theory of evolution."

The second story concerns a bank CEO with whom a partner in my law firm and I had dinner a few months ago at the Missouri Independent Bankers Association. If I'd known the guy was packing, I'd have shown him even more respect, as opposed to the servile groveling I usually employ when in the presence of bank executives.

Maybe the bank robber couldn’t see very well through the holes in his mask — the face of Chucky from the “Child’s Play” horror movies — as he walked into Peoples Bank & Trust Tuesday afternoon.

After all, it says right on the door that concealed weapons are allowed in the bank. They’re practically encouraged by the sign: “Management recognizes the Second Amendment to the U.S. Constitution as an unalienable right of all citizens.”

So when the robber walked out of the bank a short time later with a red bank bag full of cash, maybe he shouldn’t have been surprised that bank president David W. Thompson followed him out to the parking lot. Thompson watched the masked robber get in a Ford pickup parked in a handicapped spot up front, then pulled his Colt .380 handgun and pointed it at the man.

“Sir, get out of the truck,” Thompson, 58, recalled demanding. “You’re not going anywhere.”

And when the man put his hand in his jacket pocket, as if he had a weapon, Thompson scolded him again.

“You don’t want to go there,” Thompson said. “This will end badly.”

Fortunately the robber listened. It turned out the man had no weapon of his own. Thompson and another bank official who also carries his own weapon pulled the man from the truck and held him at gunpoint until police arrived.

“I didn’t have time to get scared,” said Thompson, a life member of the National Rifle Association who supports concealed-carry laws. “I was excited. Your adrenaline pumps. He robbed a bank, he menaced my employees, and I don’t allow that.”

Hey, it's not just me that thinks Dave's a stud. The local police chief, a state bank trade association chief, even the local chief of souls, a priest, expressed the opinion that, from now on, if anyone asks where Dave is, we'll tell them that he's out walking on water.

And it's not just a gun in the hand that bucked up Dave's courage (although that's generally sufficient for me).

Thompson said he never worried he’d be hurt in a confrontation with the robber. Not only was Thompson armed, but he’s a black belt. The robber “was frail enough and slow-moving enough that I’d already ascertained I could physically handle him,” he said.

The robber's luck that Dave didn't launch a Chuck Norris roundhouse kick to the face. Especially when Dave realized who the miscreant was.

Police arrived quickly, forced the man to the ground and pulled the mask off his face, Thompson said. The officers opened the man’s wallet, and Thompson saw a debit card for Peoples Bank.

“That’s when I realized he was one of our customers,” Thompson said.

Thompson didn’t recognize the man, but one of his tellers later said she did. Turns out Lee had opened an account with the bank in April, Thompson said.

I guess Lee didn't like the terms of the "overdraft" protection offered by the bank and decided to make an unconventional "out-of-channel" overdraft himself.

You'll note that in none of these, or other recently reported, incidents involving bank robbers was the robber shot. In the case of credit unions, the robbers have not been so lucky. As one reader suggested to me, bankers will now have a new rallying cry: "Guns don't kill people, credit unions kill people. Ban credit unions!"

Wal-Mart's Latest Offering To The Underbanked

Last year, Wal-Mart rolled out a prepaid debit card product in league with Green Dot, designed to serve Wal-Mart's favorite targeted market: the unbanked and the underbanked. This week, the retail giant unveiled a partnership with an even bigger partner, American Express, to launch "The Bluebird Account."

The Bluebird accounts will have no minimum balance requirement and no monthly maintenance, annual or activation fee. Customers can access their money for free using one of 22,000 American Express MoneyPass ATMs, but will be hit with a $2 fee if they are not enrolled in direct deposit.

Walmart says the card was launched in response to consumers who say they are not getting the value they expect from traditional bank accounts with debit cards because of their increasingly higher fees.

According to the linked article by Fortune's Halah Touryalai, American Express is treating these transactions in the same manner it handles its traveler's checks and not as debit card transactions, which, according to bank analysts Dick Bove, permits Wal-Mart and Amex to avoid the Durbin Amendment's limit on interchange fees. The fact that it looks to the consumer like a debit card, and effectively works the same way, means that it's bound to attract some people who are put off by bank fees or otherwise wouldn't have a bank account.

The FDIC isn't keen on non-bank prepaid debit cards, which is no surprise. The FDIC claims that "[p]articipation in the banking system...protects households from theft and reduces their vulnerability to discriminatory or predatory lending practices."

Would those alleged "practices" by non-banks be akin to the alleged "discriminatory" practices in which the US Justice Department alleges that FDIC-insured banks engage? The kind of practices that have a "disparate impact" on minority groups? I'm not saying that such disparate impact allegations have any merit, but when it comes to finger pointing by the FDIC toward non-FDIC financial service providers, I'd suggest that the pot not be calling the kettle black. Wal-Mart and American Express don't seem to pose any more threat to prepaid card users than, say, Wells Fargo does to the FHA.

Wal-Mart scares the pants off of bankers. It should. As I asserted a few years ago, since it was effectively prevented by the FDIC from obtaining a bank charter, "Wal-Mart is using the avenue open to it (not ideal, but workable) to cement its relationship as a low-cost provider of financial services to working class Americans. The Beast of Bentonville refuses to be tamed."

Another point: if Wal-Mart has found a way around the Durbin Amendment, wouldn't financial institutions be advised to take a closer look?

Targeting TAG

ICBA CEO Cam Fine pulled off another Howard Beale impersonation today, this time over a Wall Street Journal editorial that opposed the extension of the TAG program, which is set to expire at year end. Cam's fires have been especially stoked by the fact that the WSJ refuses to publish the position of the ICBA and its allies that the transaction account guaranty program helps community banks at a time when they need all the help they can get, while the Too Big To Fail banks and Wall Street firms that the WSJ (allegedly) speaks for have gotten the lion's share of government bailout largess. Cam rightly points out that TAG is a risk primarily to the FDIC, not to the American taxpayers, since the FDIC is funded by assessments paid by FDIC-insured financial institutions. He ignores the fact that, ultimately, the American taxpayer backs the FDIC insurance of accounts, but his essential point is correct.

Here is the meat of his argument:

And while detractors point out the largest banks hold the bulk of TAG deposits, this should come as no surprise—they hold most of all the nation’s deposits. The four largest banks alone hold 40% of the nation’s deposits, a dangerous concentration that continues to grow. This is all the more reason why extending TAG is so important: if the program is allowed to expire, the largest banks will still hold over $1 trillion in TAG deposits, yet only the first $250,000 of each account will be explicitly insured. The rest will enjoy an implicit guarantee, based on the banks’ too-big-to-fail status. If the author is so concerned with government backstops for the private sector, he should be doubly troubled by the thought of the American taxpayer underwriting all those concentrated deposits in the absence of a bank-funded TAG program.

Although they might hold fewer TAG deposits because of their scale, community banks do more with less. In addition to helping small businesses, farmers and municipalities meet payroll and other recurring expenses, community banks use their limited TAG deposits to support relationship-based lending in local communities. This type of banking is fundamentally different from the transaction-based banking practiced by large banks, which use deposits for all kinds of investments that do nothing for local communities. This further illustrates why any flight of deposits from smaller banks due to a TAG expiration would be so devastating to local communities.

He makes valid points. Anyone who reads this blog knows how concerned I am about the increasing concentration of banking assets and deposits in the largest banks, as well as the continued decline in the number of community banks in this country. I also think too little has been done to save community banks from being steamrolled. Moreover, we're still wallowing in a severe slump, so extending TAG for another few years shouldn't pose a threat to the American taxpayer. If the Fed can continue to punish savers by keeping interest rates on savings deposits at ridiculously low levels through 2015 to help out the big banks, surely there's justification for extending TAG until the economy improves.

On the other hand, at some point, TAG will end. Bankers need to think about life after TAG, and advance planning can never start too soon. Community banks may win this round (although, they need to start pressing their elected officials to move quickly if this is to be accomplished by the end of 2012), but I sincerely doubt that they'll get another extension.