Bank Lawyer's Blog

False Promise

Former FDIC Chairman Bill Isaac once called Franken Dodd "the worst piece of financial legislation in modern history" and blasted the law's "Durbin amendment," in particular, as "pure and simple, special-interest politics."

I think the Durbin amendment is really a terrible precedent," Isaac says. "It weakens the banking industry at a time when we need it strong, and the folks who supported the Durbin amendment should be ashamed of themselves."

The subsequent cap placed on interchange fees by the FRB in response to Turban Durbin's amendment caused many bankers and credit union executives, and their trade group representatives, to predict that the only result would be to fatten the pockets of retailers at the expense of both financial institutions and their customers. Over five years down the road, that dire prediction appears to have been spot on, according to a recent opinion piece in the American Banker by the CEOs of the ICBA, CUNA, and NAFCU (people who sometimes are at each others throats on bank vs. credit union issues).

The price controls lawmakers were able to impose on those providing electronic payment options have resulted in an $8 billion annual handout to retailers that they have not passed on to consumers. Five years after the Federal Reserve issued a rule to implement the amendment, retailers have kept most of this revenue — an estimated $32 billion — for themselves.

While Congress may have thought this legislation would provide a benefit to consumers, data from a survey of merchants contained in a recent Federal Reserve Bank of Richmond study indicates that the amendment is simply not working as intended. The report found that "few merchants are found to reduce prices or debit restrictions as debit costs decrease." This just reinforces the argument that the Durbin amendment is essentially a merchant handout from Congress.

Consumer research echoes the reality that retailers are not passing on this revenue in the form of savings for customers. In September, Phoenix Marketing International conducted its fourth annual survey of nearly 2,000 consumers and found that the vast majority of shoppers have not experienced a price drop at the point of sale. In fact, in each of the 15 categories measured, at least 92% of shoppers reported that prices rose or stayed the same over the past year.

The authors further assert that the retailers' trade association claims of several years ago that retailers were passing along the savings to customers, and, more recently, that the fee reduction benefited banks and credit unions, as bald-faced lies.

A study released last week by the Credit Union National Association reported estimated reduced revenue of $1.1 billion for credit unions resulting from Dodd-Frank's regulatory costs, all of which the report attributed to the swipe fee provision. Real data in the form of costs of processing changes and declining fees since 2011 debunks claims that credit unions and small banks below $10 billion in assets are not feeling the pinch. Further, there has been a decline in the interchange rate since the price controls went into effect. It continues to remain around 4 or 5 cents below where it was pre-Durbin, according to a survey by the National Association of Federal Credit Unions.

The authors conclude that rather than trying to blow smoke up the nether regions of financial institutions and consumers, perhaps retailers' time would be better spent figuring out ways to pass along the savings on interchange fees to consumers. Don't believe that conclusion any more than you should the retailers' claims. What financial institutions really want is the repeal of the Durban amendment and the Fed's limit on interchange fees. That won't happen in 2016, but perhaps the next Pontifex Maximus of the Disunited States of America can spare a moment from building "the greatest border wall of all time, a wall that will make the Great Wall of China look like Tom Sawyer's picket fence" to promote some Republican-sponsored legislation to benefit community banks and credit unions for a change, instead of the Wal Marts and Home Depots of the world.

Yes, I know: and perhaps pigs will sprout wings.

Rant Me A River

When credit union consultant Marvin Umholtz gets worked up, it makes my blogging life a breeze. All I have to do is cut and paste. While a number of bankers would rather drink Drano rather than follow a newsletter dedicated to credit unions, I assure all of you bankers who bleed red rather than blue that you will love Marvin, especially when he goes after one of this blog's bête noire, the Adjustment Bureau, as he did in his latest email newsletter:

This correspondent knew that the self-righteous and meddlesome Consumer Financial Protection Bureau’s (CFPB) www.consumerfinance.gov zealous crusaders had targeted overdraft protection programs for the agency’s peculiar brand of “reforms,” yet the arrival of that CFPB intervention still came in a surprising way. In an 870-page proposed rule http://files.consumerfinance.gov/f/201411_cfpb_regulations_prepaid-nprm.pdf ostensibly regulating prepaid products, the CFPB reclassified overdraft services as an extension of credit and overdraft fees as the cost of credit. The agency has set its precedent in this prepaid products rule for all future treatment of overdraft services. If the CFPB extends the credit definition to all overdraft services in every circumstance as it is expected to do based on this prepaid products proposal, then it will effectively ban overdraft services – period. As a result of the loss of overdraft services many credit unions’ fee income would drop precipitously. The only conclusion that a rational person could come to would be that the CFPB has become the biggest threat to safety and soundness that credit unions now face. And since this proposed prepaid products rule also covers mobile and other electronic prepaid accounts, PayPal, Google Wallet, and scores of other innovators should also watch their backs. The CFPB’s proposed prepaid accounts rule was loaded with intended and unintended consequences.  

The CFPB’s proposed rule amends Regulations Z and E to regulate prepaid cards, codes, or other devices capable of being loaded with funds and usable at unaffiliated merchants or for person-to-person transfers, and that are not gift cards, with overdraft services or credit features. The agency’s action effectively bans overdraft services use with prepaid cards since the CFPB proposal also requires the prepaid card provider determine the customer’s “ability to repay” prior to linking overdraft services to the product. With the added underwriting costs, the overdraft services would likely be uneconomical to the provider. The ramifications from the CFPB reclassifying overdraft services as credit would be widespread. For example, the Department of Defense’s proposed Military Lending Act rule that imposes a 36% federal usury limit on loans to military service members and their families for all consumer loans (other than those secured by real estate or a vehicle) is still pending. Should it be finalized as is expected, it would make the overdraft fee on all CFPB re-defined credit extensions via overdraft coverage have excessive and illegal annual percentage rates (APRs) due to the hefty fee charged for the overdraft. Operationally a credit union could not then allow any service member or member of their family to have overdraft services on their deposit accounts. Such a distorted approach to the marketplace would be problematic at best. It would certainly be inefficient; and it could generate ill will. It might also generate class action lawsuits. And that is just one illustration of the potential fallout from the CFPB’s reclassification of all overdraft services as credit extensions.

According to the CFPB, “Among other things, prepaid cards that access overdraft services or credit features for a fee would generally be credit cards subject to Regulation Z and its credit card rules. Moreover, the proposal would require that consumers consent to overdraft services or credit features and give them at least 21 days to repay the debt incurred in connection with using such services or features. Further, Regulation E would be amended to include disclosures about overdraft services or credit features that could be linked to prepaid accounts. The compulsory use provision under Regulation E would also be amended so that prepaid account issuers would be prohibited from requiring consumers to set up preauthorized electronic fund transfers to repay credit extended through an overdraft service or credit feature.” The CFPB’s lengthy rule included 89 pages of summary and background before it even began to discuss the proposal on a section-by-section basis. The legal language of the rule followed that analysis. Once the rule is published in the Federal Register, there would be a 90-day comment period.

The agency announced the proposed prepaid products rule in a November 13^th press release www.consumerfinance.gov/newsroom/cfpb-proposes-strong-federal-protections-for-prepaid-products and in conjunction held a prepaid accounts field hearing in Wilmington, Delaware. The field hearing included opening remarks by CFPB Director Richard Cordray www.consumerfinance.gov/newsroom/prepared-remarks-of-cfpb-director-richard-cordray-at-the-prepaid-products-field-hearing and a panel presentation featuring prepaid products industry representatives and consumer activists. In his remarks Director Cordray once again made it abundantly clear that the CFPB’s intent was to socially re-engineer the financial services marketplace to meet a decidedly left-leaning partisan agenda. At the close of his speech he said, “Just because consumers may not be able to afford or qualify for a bank account, or just because they do not want to be part of the brick-and-mortar banking system, this does not mean they deserve to be treated as second-class citizens. Like anyone else, they deserve to have a safe place to store their money and a practical means of carrying out financial transactions. And though many prepaid companies already have opted to offer some of these basic, common-sense protections, it is important to ensure that they are not simply optional but instead are cemented as the standard for the industry and enshrined in law.” Apparently, the CFPB knows what is best for all. It seems like the agency routinely uses the “protecting the most vulnerable” as the excuse for big government intervention and the imposition of innovation-crushing regulations.

Every time the in loco parentis CFPB acts purportedly in this correspondent’s best interests it seems more like the agency is trampling on his individual liberties. As a colleague once speculated during a conversation with this correspondent, the next thing the CFPB is likely to do is a full takeover of checking accounts. It’s only a matter of time. The CFPB will tell financial services providers what services people can have, how much service they can have, what they will pay for the service, and when the financial service provider is permitted to stop providing the service. There was also some discussion about the timing of the controversial “overdraft as credit aspect” of this prepaid products rule coming after the midterms rather than before. Was it deliberate or just a coincidence? There certainly were a lot of Democratic members of the House and Senate running for re-election November 4^th who had sponsored legislation that restricted overdraft programs that were probably drafted by the consumer activists. These members of Congress, at least those who were re-elected, and the activists now have the CFPB to do their dirty work.

If you'd like to subscribe to the newsletter, email Marvin at [email protected]. Tell him the Texas curmudgeon referred you. I mean, you simply have to love a guy who uses "in loco parentis" when referring to the Death Star.

CFPB Delenda Est!

Wal-Mart Is Go-Go On GoBank

Not satisfied with prepaid cards from Green Dot or Bluebird Accounts via American Express, Wal-Mart's march into the banking business is now all the way into checking account territory.

Walmart, the nation’s largest retailer, is teaming up with Green Dot, known for its prepaid payment cards, to supply checking accounts to almost anyone over 18 who passes an ID check.

Daniel Eckert, senior vice president at Walmart, said on Tuesday that the accounts would be available nationwide by the end of October. The accounts are intended to be low-cost alternatives to traditional bank checking accounts, with no fees for overdrafts or bounced checks and no minimum account balance.

In comparison, a basic checking account at Citibank charges $12 if a check is returned and $34 for overdrafts.

The new accounts from Green Dot, called GoBank, will cost $8.95 a month if they have direct deposits totaling less than $500 a month. Mr. Eckert said that most people on Social Security or fixed pensions would qualify.

GoBank, as the service is known, is part of Walmart’s long-running push into financial services for people with little or no access to traditional banking.

[...]

Walmart has been eyeing financial services for some time. Two years ago, the company announced a partnership with American Express to offer a prepaid card and debit accounts. Retailers like Target and 7-Eleven also offer prepaid cards.

But the new Walmart initiative will be the first full-blown, off-the-shelf checking account. To help attract customers, Walmart and Green Dot will forgo a screening system many banks use to vet potential customers and rely instead on a proprietary system. The model is expected to allow almost any consumer who passes an identification check to open an account in minutes, according to Green Dot.

In the past, Walmart has tried to secure a federal bank charter to become a deposit-taking bank, but abandoned that effort in 2007 in the face of opposition from the banking industry. Since then, the retailer has assembled an array of services that could be offered without a charter, as well as partnerships with financial service companies like Green Dot.

Five years ago, we discussed how well Wal-Mart was adapting to the stonewalling by the FDIC of its attempt to start or buy an industrial bank. One benefit was that Franken-Dodd's "study of the need for industrial bank charter" may have presaged the demise of that particular charter, making Wal-Mart sorry that it got what it wished for. But there was more to it than merely the form of the charter that it was denied.

It's interesting that Wal-Mart, by not being in the banking business, is side-stepping the public relations backlash that is tainting other bankers who had nothing to do with the causes of the current crisis, such as community banks that are dropping like lawyers on a dove hunt with Dick Cheney. Instead, 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.

Wal-Mart didn't get to be a retail "beast" by backing down when confronted. When denied entry through one door, it has relentlessly worked on finding other doors, and then opening them wide. I simply don't see them stopping. As a consequence, of course, lower income citizens who form Wal-Mart's core customer base and who have traditionally had less access to traditional banking services are being "served," but in a beneficial way. Therefore, whether or not bankers are thrilled, the same FDIC that once effectively barred Wal-Mart from the banking business ought to be standing and applauding these latest efforts. Or, at the very least, a squatting ovation seems in order.

The More Things Change

Six years ago, right before the Big Bang that sunk this country's economy, we discussed problems of declining net interest margin on bank profitability, the ineffectiveness of the rate-cutting efforts of the Federal Reserve to boost that margin, and that banks were desperately seeking income from all sorts of other fees (including overdraft fees) and new lines of business to combat the problem. Over half of a decade later, the situation sounds distressingly similar.

Central Massachusetts banks are feeling the squeeze — the interest rate squeeze.

Financial performance among banks based in Worcester County during 2013 reflected the fine line institutions are facing as they grapple with slim margins while investing in technology and working to comply with new federal regulatory requirements.

"We really, over the last five to six years, have seen the net interest margin shrinking year after year," said Thomas J. O'Connor, vice president in charge of the financial institutions practice at G.T. Reilly & Co. of Milton, an accounting and consulting firm that works with community banks. "It's really the market conditions. These aren't institutions that have done anything wrong. If anything, they've done everything right."

[...]

All the banks face a common problem: Costs to manage customers' deposits while complying with federal regulations, especially reforms enacted under Dodd-Frank legislation in 2010, are steady to rising. Yet interest rates paid by borrowers taking out new loans are low.

The result is low net interest margins, or the net income that banks make charging and paying interest relative to the bank's assets. In Central Massachusetts, eight banks had net interest margins smaller than overhead costs relative to assets during 2013.

"Bank earnings are going to be suppressed until interest rates start to rise at some time in the future," said Commerce Bank President and Chief Executive Brian W. Thompson. "I don't think there's any expectation that's going to happen until sometime in 2015."

You can substitute "Central Massachusetts" with pretty much any other geographic area, and you'll have the same problem as far as the interest rate yield curve is considered.

The yield curve problems go back even further than 2008, when the world came crashing down around us. The following is from a blog post I wrote in August 2005:

The underlying economic problem for the banks is the flat yield curve. It's frankly without precedent (outside of a recession), or at least that's what my bank and hedge fund clients tell me. I defer to them on such matters, because I'm merely their mouthpiece with no mind of my own. However, assuming that this is true, banks can't make nearly enough money making conventional loans for the simple reason that the spread between what they pay to borrow the money (for example, by issuing a certificate of deposit to a consumer) and what interest rate they can charge on a loan they make with the funds borrowed, isn't enough to cover operating expenses, much less make a profit. That's the problem when the spread between two- and ten-year bonds is 20 basis points (0.02%), and the spread between two- and thirty year bonds is 40 basis points (0.04%). Thus, there has  been increasing pressure on banks to increase fee income, from whatever sources are legal.  The fees charged are legal. The banks are trying to make money. It's what they do.

Later that year, the curve became inverted.

If Mr. Thompson is correct, the interest rate squeeze will have lasted over a decade. Thus, while much has changed in the world of banking in the last nine years, banks find themselves in a distressingly similar place today: trying to make a buck from sources other than interest rate spread. They are trying to do so while coping with a post-Dodd-Frank world in which the elephant in the room, the CFPB, sets the tone for vigorous opposition to "taking advantage" of "fog-brained consumers" who don't have a clue what's in their own interests. "Taking advantage" means "making any money from banking services provided to." Thus, overdraft fees have been savaged, debit card interchange fees have been squeezed, proprietary trading hammered, and "subprime," "payday," "tax refund anticipation," and "deposit advance" all have been rendered to be four-letter words by the federal banking regulators.

The future sure looks rosy, doesn't it?

CUs Knock-Knock-Knockin' On Heaven's Door

Because it's Monday and I'm a "Little Miss Sunshine" kind of guy, the kind of guy who wants every bank executive to get off on the right foot each and evey week, I need to pass along an upbeat article that was sent to me today by a credit union industry representative. As this correspondent said so well, "You can substitute 'community banks' for 'credit unions' in the article and it works just the same."

It's a cheery little piece by Credit Union Times Executive Editor Heather Anderson. She's been in the credit union business for her "entire career" (and although she won't confirm how long that might be, we assume it's at least "a while") and she thinks that credit unions are headed the way of the Do-Do Bird and Vanilla Ice: into oblivion. Why? Here's her reasons:

• Breakdown in barriers to entry into the business. She mentions prepaid debit cards as spelling the end of checking accounts as we know them.
• Check cashers and payday lenders sucking NSF and overdraft income wells dry.
• Free spending (and investing) baby boomers dying off and being supplanted by Gen Y scrooges who won't borrow to buy cars or houses and will live in Mom's and Dad's house until they move into the retirement home.
• The good times are gone and they ain't never coming back, no how, no way.
• The regulators need to help credit unions be innovative with "new" products and services, which is like telling Elizabeth Warren that an unaccountable giant federal bureaucracy may morph from the New Sheriff into the New Caliphate. It simply doesn't compute.

So, all-in-all, Heather thinks credit unions, and by analogy, community banks, are toast.

I was going to get Heather a tasty box of almond toffee for the holidays, but I may change that gift to a lump of Anthracite. She may need it to warm the cockles of her disheartened heart.

Bank of America Does It Right

Having blistered America's Bank for a social media faux pas, it's fair to give it a hat tip when it uses social media well. What the bank has done well is a video that it produced with Kahn Academy. For those not familiar with Kahn Academy, here's some background from 60 Minutes. Personally, I'm a fan of what Kahn and his cohorts have been doing to teach young people (and adults, for that matter) what many take to be tough subjects, like "Math" (gag, choke).

The latest effort with B of A is a video to teach consumers the difference between a debit card and a credit card, and the advantages and downside of each. While professionals in the banking industry might think it's simplisitic, I think it's effective in teaching the basics. It's not necessary that the average consumer be a banking geek; he or she just needs to know enough to make informed decisions. Kahn Academy (with B of A's help) is, in my opinion, making that happen. When I viewed the video again this evening, it had over 1,200,000 views. That's a lot viewing for a subject that is devoid of twerking or a character named "Katniss."

You can judge for yourselves. The video can be viewed here.

Russian Roulette With A Credit Card

For every American credit card holder who feels that he or she has been ripped off by his or her credit card company, you can live vicariously through the exploits of Russian Dimitry Argarkov who, according to the UK's TheTelegraph's Andrew Trotman, scanned the contract into his computer, rewrote it to his liking, sent it back, and his credit card company, without reading the revised version he sent back, signed it. When the credit card company refused to honor the terms they had unwittingly agreed to and attempted to sue him for fees and charges under the terms of the original offer, Argarkov defended on the grounds that he only owed what was due under the agreement he signed. And won.So far.

"The Bank confirmed its agreement to the client's terms and sent him a credit card and a copy of the approved application form," his lawyer Dmitry Mikhalevich told Kommersant. "The opened credit line was unlimited. He could afford to buy an island somewhere in Malaysia, and the bank would have to pay for it by law."

However, Tinkoff [the credit card bank] attempted to close the account due to overdue payments. It sued Mr Argakov for 45,000 rubles for fees and charges that were not in his altered version of the contract.

Earlier this week a Russian judge ruled in Mr Argakov's favour. Tinkoff had signed the contract and was legally bound to it. Mr Argakov was only ordered to pay an outstanding balance of 19,000 rubles (£371).

"They signed the documents without looking. They said what usually their borrowers say in court: 'We have not read it',” said Mr Mikhalevich.

But now Mr Argakov has taken matters one step further. He is suing Tinkoff for 24m rubles for not honouring the contract and breaking the agreement.

Tinkoff has launched its own legal action, accusing Mr Argakov of fraud.

Oleg Tinkov, founder of the bank, tweeted: "Our lawyers think he is going to get not 24m, but really 4 years in prison for fraud. Now it's a matter of principle for @tcsbanktwitter."

I don't know Russian law, so I have no idea how this is going to turn out for Argarkov or Tinkoff, but if this were in an American court applying US law, I'd favor the bank. If Argarkov had marked up the contract so that the changes were obvious, or if he'd brought to the bank's attention the fact that he scanned the agreement into his computer and had altered it, then the subsequent signing of the agreement by the bank might be arguably the assent of the bank to the revised terms. On the other hand, if the agreement is returned looking the same as it did when it was sent, other than the fact that it contains Mr. Argarkov's signature, the bank would not be on notice of the changed terms and, in that case, Mr. Tinkov and his lawyers have a valid point.

Again, I don't know how this is going to come out in a Russian court. I just hope Mr. Argarkov doesn't land in a Gulag.

As to any American consumer thinking of trying the same thing: Think of something else. Attempting to pull a fast one is never a solid financial game plan.

Gigging Sharks For Christmas

As a client alert issued by the law firm bearing my favorite acronym (MoFo) put it so well, last week "Congress gave banks and other ATM operators an early holiday present."

On December 11, the Senate unanimously passed S. 3204, which eliminates the external fee notice requirement in the Electronic Fund Transfer Act, 15 U.S.C. § 1693, et seq. (“EFTA”). The House passed an identical bill, H. 4367, last July. The President is expected to sign the measure into law.

I'm not sure which holiday they were discussing, but I assume it was either Christmas, Hanukkah, or Kwanzaa. I doubt MoFo celebrates Festivus.

Once the law goes into effect, ATM operators will be required to give only the on-screen notice of transaction fees. The additional external notice that's currently required will go the way of the TAG.

As MoFo notes, this law will do away with the plethora of "frivolous lawsuits" that bottom-feeders and their shark enablers have been using to squeeze settlements out of banks and credit unions whose only offense was, in many cases, not having the external signs booby-trapped with claymore mines to discourage "unknown perpetrators" from stealing them shortly before plaintiffs' lawyers photographed the absence of signage and used that absence as the basis of a lawsuit on behalf of plaintiffs who used the ATM shortly after the external signs disappeared. Sure, some of those plaintiffs gave us an occasional cause to grin, but, for the most part, they were as welcome as would be Charlie Sheen as the keynote speaker at the Sisters of Charity Federation annual convention.

Unfortunately, there remains plenty of ATM-related chum to attack the predators. The ADA, for example. Where there's a financial remedy tied to a solvent defendant, the plaintiffs' bar will always find the basis for a claim, no matter how far into the ionosphere they have to travel to find it.

Drive-Bys: Not Just For Gang-Bangers

Colorado attorney Jennifer Gokenbach sounds a warning of a phenomena we've seen not only in Colorado, but in other states, including Texas: the dreaded ADA Public Accommodation “Drive-By” Lawsuit. She alleges that "since April of this year, 20 lawsuits (and counting) have been filed against Denver area businesses by the same Plaintiff who is represented by the same two attorneys from Florida, for alleged violations of Title III of the ADA, including things like lack of ramps, narrow doorways, missing signage, doorknobs that can’t be opened by a closed fist, and misplaced soap dispensers and coat racks."

I should add that such ADA-related claims have also been filed against banks in a number of states, usually alleging that the bank's ATMs or branches don't comply with Title III of the Americans With Disabilities Act.

Ms. Gokenbach explains the gist of these lawsuits.

The problem with these cases is that the vast majority are not situations where a disabled individual truly felt discriminated against and sought out an attorney to help redress an injury due to a lack of accommodation. Instead, it is the lawyers who hire investigators to identify local businesses that are not in technical compliance with the ADA, and then recruit plaintiffs from disability advocacy groups to serve as the front person. The investigators take pictures and build the case while the plaintiffs merely “drive by” the establishment, without any honest intentions of ever servicing the establishment.

Once the boilerplate suit is filed, questionable litigation tactics are then employed, such as serving immediate discovery in violation of the rules, asking the courts to order the parties to a settlement conference to force a quick settlement, and refusing to accept agreements or assurances of ADA compliance without monetary payments, even though the ADA itself does not allow damages to be awarded to plaintiffs (the ADA allows only injunctive relief and attorneys’ fees).

Yes, that's right: "even though the ADA itself does not allow damages to be awarded to plaintiffs," the plaintiffs are trying to squeeze money out of the banks and other businesses. In many cases, defendants, looking at the matter strictly from a cost standpoint (since paying litigation attorneys to defend you can quickly cost more than paying off the plaintiff and his or her attorney) decide to close their eyes, hold their noses, and consider a relatively small monetary settlement a nuisance cost. However, other defendants decide they want to make the point that they're mad as hell and they're not going to take it anymore. After all, if you buckle under the wings of the first vulture to land on you, can others be far behind?

Ms. Gokenbach asserts that those businesses that decide to stand up to the shakedown have plenty of ammunition to bring to the gunfight. In addition to advising businesses to check with an insurance professional to determine whether they are covered against such claims (or, if not, if they can get coverage for future claims), she notes that "in some cases, where business owners decide to fight back, courts have dismissed the suits, sanctioned the plaintiff’s attorneys for unscrupulous litigation tactics, and/or awarded attorneys’ fees to prevailing business owners." Of course, each fight-or-flight decision has to be made on the facts of the individual case, as well as on the defendant's appetite for engaging in butt-kicking contests with butt-heads. Nevertheless, rolling over and forking over cash is not the only alternative when hit with a cookie cutter drive-by.

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I'm speaking at, and otherwise haunting, the annual NAFCU Regulatory Compliance Seminar this week in Seattle. Therefore, I'll be off the air until next week. If you're attending the conference, and aren't enraged by either of my presentations tomorrow, or otherwise offended by my blogging or the fact that I represent commercial banks, feel free to say hello. I generally don't engage in concealed carry when I travel, so chances are. I won't be strapped.

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?