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The Flip Side of the Financial Revolution

January 24, 1985|DON G. CAMPBELL | Times Staff Writer

PHOENIX — Like a bloodhound long frustrated by a series of not-so-hot trails leading, variously, to empty caves, unoccupied trees and similar dead ends, consumer activists today sense that they may be, at long last, on the heels of a live one.

A live one in the form of an issue so universal, activists feel, that it might well serve as the sort of rallying point that the consumerist movement hasn't had in nearly a decade.

That, at least, was the mood prevailing here at a recent national conference called by the White House Office of Consumer Affairs and 27 co-sponsors from the private sector to explore the impact on the public of deregulation of the money markets.

Warning Flares

Although largely self-congratulatory--as reflected in the full name of the conference: "Financial Services and the Marketplace, a Renaissance in Competition" and in the fact that the majority of the co-sponsors were from large financial institutions representing that marketplace--warning flares about the consequences of financial deregulation were fired in abundance.

While conceding, for instance, that "the financial revolution" now under way "will in the long run be beneficial," Stephen Brobeck, executive director of the Washington-based Consumer Federation of America, nevertheless had some disquieting results to report from a recent CFA deregulation study.

For example: Despite the proliferation of new financial services such as interest-bearing checking accounts and higher yields on savings, money market funds and certificates of deposit, Brobeck said that nearly 40% of all families have less than $1,000 total in any bank and find these services virtually useless. "Only a small minority even maintain a savings account, while only half have checking accounts.

"Of equal concern," the consumer activist said, "is that the proportion of families who can afford essential banking services has been declining. Between 1977 and 1983, the proportion of all families with checking or NOW (Negotiated Order of Withdrawal) accounts fell from 81% to 79%. In large measure, this decline reflects two new strategies being pursued by banking institutions--shutting down unprofitable bank branches and levying more and higher fees on small accounts.

"Most of the branches closed each year (about 500) are located in small towns and older urban neighborhoods," Brobeck added.

And, in terms of higher fees, the CFA's study found that:

--Monthly service fees range as high as $15 for regular checking accounts and $25 a month on NOW accounts.

--Item charges go as high as 50 cents per check written, $1 per deposit and 60 cents per transaction using an automated teller.

--Penalties range as high as $30 for overdrafts and $20 for a stop payment.

'No Viable Options'

"At many institutions," Brobeck said, "these charges exceed $100 a year on typical checking accounts and exceed the interest earned on passbook savings.

"Thus, poor and lower-middle-income families are left with no viable checking or savings options. So, at considerable expense and inconvenience, they are forced to cash their paychecks or government checks at check-cashing outlets and pay their bills by cash or money order. As banking customers, then," Brobeck complained to his banker-heavy audience, "they are relegated to the status of second- or third-class citizens. Just as in other product areas such as insurance, they are forced to pay more for less."

No less discouraging to Brobeck was the lack of cooperation that his consumer federation got from the cross section of banks contacted in the study--only a third of them responded to the questionnaire. And when followed up by telephone, a full third of those refused to cooperate. The study of 150 banks could be completed, Brobeck told a columnist for the American Banker, only by having CFA staff members pose as potential customers while contacting the recalcitrant banks.

In essence, then, Brobeck said, "the financial services revolution has imposed greater costs than benefits on tens of millions of families who lack knowledge, financial resources or access to banking institutions."

What is badly needed, the CFA chief executive told his audience in a thinly veiled "or else" warning, is a series of voluntary actions on the part of financial institutions that would include not only the elimination of "obviously fraudulent investment schemes," but also such "time bombs" as negative amortization and uncapped, variable-rate mortgage loans "as well as exorbitant fees and unreasonably long check-hold periods."

Affordable Checking

Other measures that financial institutions should voluntarily take are increasing consumer education and information dissemination and "affordable checking and savings accounts for those with low balances.

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