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BofA faces one of its worst nightmares -- reasonable fees

October 22, 2010|DAVID LAZARUS

Bank of America this week said it's reducing the value of the company by more than $10 billion because of recent financial reform that limits the amount the bank can charge to process debit-card transactions.

That's because the reform requires the Federal Reserve to set processing fees at a level that's "reasonable and proportional to the cost incurred by the issuer with respect to the transaction."

Jerry Dubrowski, a bank spokesman, said BofA is required by accounting rules to value its business based on projected cash flow. Because the bank expects cash flow to decline as a result of the debit-card reform, it has slashed $10.4 billion from its sticker price.

"All this tells you is that the environment has changed," Dubrowski said.

Yes, but doesn't it also say that current fees are unreasonable because the bank sees itself about $10 billion poorer when forced to charge a "reasonable and proportional" rate for its service?

"What the Fed determines to be reasonable is what the Fed determines to be reasonable," Dubrowski replied. "You could argue whether or not it was reasonable before."

Clearly, though, BofA anticipates a "reasonable" rate being set well below its current rate. BofA and other card issuers typically charge up to 5% of the cost of a purchase for credit- and debit-card transactions.

The only conclusion I can draw is that BofA knows the fees it's been charging for debit cards have been entirely unreasonable, and that's why it wrote off about $10 billion in shareholder value.

Put another way: The bank's value has been elevated for years because of unreasonably high debit-card fees, and now BofA is acknowledging that if it had to charge a fair price for the service, the bank wouldn't be worth as much to investors.

That's another good reason the time has come for federal authorities to require issuers to charge a flat rate to process credit- and debit-card transactions -- an automated procedure that consumer advocates say probably costs only a few cents, if that much.

No one begrudges banks making a profit. But they should have to play fair as they do it.

AT&T scare

West Hollywood resident Norma Rivol was surprised to see an announcement in her latest AT&T bill under the heading "News you can use."

Beginning Jan. 1, it said, "price increase notices for various services will be provided by Web only."

"That's ridiculous," said Rivol, who has been an AT&T customer for more than half a century. She doesn't own a computer, doesn't truck with the Internet and doesn't feel much need to take the cyber-plunge at this stage of her life.

"Why should I have to go on the Internet to find out about price increases?" Rivol asked me. "That doesn't seem right."

She needn't worry. Despite AT&T's misleadingly worded announcement, Rivol and other customers of the telecom giant won't be required to go fishing around the Web to learn if their bills are going up.

Lane Kasselman, a spokesman for AT&T, said the notice applies mainly to services that most customers seldom if ever use.

For example, it involves "international mobile termination charges" -- that is, calls to cellphones overseas. The online-only info also applies to "transaction-based services," such as a pay-phone call that goes over AT&T's network.

Kasselman said pricing information for such services was previously published in newspapers, not on customers' bills. Beginning Jan. 1, it will be available at AT&T's website.

"We think this is a more efficient way to do it," Kasselman said.

That's undoubtedly true. But couldn't the company have spelled it out in plain English, rather than scaring the bejeepers out of people like Rivol?

Programming note

Beginning Monday, you can catch me every weekday morning on KTLA-TV Channel 5 answering consumer questions (feel free to submit your own by e-mailing asklaz@ktla.com). I'll also appear as usual with the consumer news of the day on the 1 p.m., 6 p.m. and 10 p.m. newscasts.

David Lazarus' column runs Tuesdays and Fridays. Send your tips or feedback to david.lazarus@latimes.com.

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