Consumers are urging Senators to restore House-passed reforms to widen consumer access to low-cost checking accounts known as "basic banking" when they vote on the Financial Modernization Bill. These popular but hard-to-find accounts provide services for low initial deposits, low minimum balance requirements and reasonable service fees in exchange for limits on transactions. A three-page memo to Congress sent by the powerful American Bankers Association that trashes the "basic banking" provision is remarkable evidence of how out-of-touch banking lobbyists are today. The memo is misleading and cries out for a reality check. Here's an attempt to introduce some sober analysis of what's really at stake in this debate for consumers.

October 7, 1998

Bankers' Lobby "Spin": "Basic banking accounts are already widely available. Most banks, including nearly 90 percent of mid and large sized banks already offer such accounts"

TRUTH: In fact, statistics from the Federal Reserve's most recent report to Congress shows that low cost checking is on the decline and that only one-third of all banks offer such an option. Free checking is even worse: only three percent of all banks offer such a service.

Bankers' Lobby "Spin": "This level of micro-management and the potential imposition of price controls by the federal government are unprecedented (and…) unworkable"

Truth: In fact, it is intellectually inconsistent on its face to argue that everyone offers "basic banking" together with the claim that such accounts are unworkable and unprecedented. New York State has offered these accounts for the past few years and, to date, no bank has requested to raise its fees. Moreover, to say they're "unworkable and unprecedented" flies in the face of recent statements to Congress from some of the nation's biggest banks:

• NationsBank says: "We at NationsBank have always supported H.R. 10… includ[ing] the lifeline banking provision"
  
• Banc One says: "We have supported H.R. 10…and we have understood that support to extend to the lifeline banking amendment."
  
• Citibank says: "Citibank does not oppose the type of banking service known as 'lifeline banking' and encourages efforts to create products that meet the needs of all of its customers."
  

Bankers' Lobby Spin: "This will greatly add to bank operating costs and, ultimately, to the costs of bank products to all consumers, with little positive benefit to the community. Such a costly bureaucratic nightmare should be avoided."

Truth: The real nightmare to avoid is falling into the trap of never-ending bank fees that's impossible to escape. Introducing basic banking could have a very positive benefit for millions of American households who face this expensive and irritating dilemma. For the banking lobby to suggest otherwise shows a callous disregard for millions of customers. As government benefits become electronic over the next few years, seniors in particular will need such accounts. We would hope banks would not leave seniors who need to get their social security checks or other benefits in the lurch.

The true issue of cost should be defined in terms of the consumer, not the banking lobby, since today's banks are rolling in record profits. At last count, banks enjoyed a whopping $20 billion in earnings directly attributable to proliferating bank fees paid by the consumer! According to the FDIC, commercial banks and thrifts broke a "string of records" during the second quarter of 1998, posting $32 billion in earnings in six months, nearly $3 billion higher than the same period in 1997.

Bankers' Lobby Spin: "A small bank will be required to set up…a whole new type of heavily-regulated account, even though there may be no market for that account in the bank's market."

Truth: There is a market for low-cost checking for millions of American households. For example, 48 million households regularly keep balances of a $1000 or less in their checking account, many of which fall into the fee trap. Another 12 million households maintain no checking account whatsoever, disgruntled by banks and scared away by the proliferating fees that make banking too expensive. A potential market of this size is not only big: it represents a large part of the U.S.! In fact, this modest requirement only applies to those banks operating under the new structure created by the law. Most likely, these will be larger institutions like NationsBank, Banc One and Citibank, which claim providing "basic banking" is no problem.

Bankers' Lobby Spin: "[B]anks should not be held hostage to provide low-cost accounts in order to use the new authorities [available under the Financial Services Modernization Bill]"

Truth: If anyone is being held hostage, it is the taxpayer that will be subsidizing the new mega-financial institutions under the too big to fail doctrine. Providing access to account services that meet the needs of all customers, who are also taxpayers, seems only fair given the increased exposure to risk that these new authorities bring.

Bankers' Lobby Spin: "Potential for a huge regulatory burden --…Congress has been successful in removing many unnecessary regulations, reducing the regulatory burden on banks. This provision of the House-passed version of HR 10 …moves in the opposite direction by imposing a new and unprecedented regulatory requirement on deposit accounts…."

Truth: The banks are on target - banks' deregulation efforts over the past few years have been a success for them. But guess what? Consumers haven't gotten any relief from the escalating bank fees during this same time. In fact, fees have increased at more than twice the rate of inflation between 1990 and 1996.

And regulatory burden? They argue that it will be a regulatory burden at the same time they point out that the availability of basic banking services is a factor in evaluations under the Community Reinvestment Act. Where is the huge regulatory burden when they already are being assessed for how they measure up for such services?

Bankers' Lobby Spin: "…imposing such a lifeline account requirement on banks will inevitably lead to…creation of a new, voluminous and costly regulatory structure."

Truth: Less than a year ago, a banking industry survey found over 75 percent of banks surveyed believe their basic banking account is profitable or close to breaking even.