Banks Might Try Differentiation Through Honesty

Sometimes I get a little fatigued hearing people complain about the insurance industry's reputation for questionable claims practices. Therefore it was with a certain grim satisfaction that I found out that banks are apparently setting a new standard for screwing their customers. However, the example should serve as a cautionary tale to insurers as well as bankers about fair dealing.My impression about banks' ill-treatment of their customers developed as the result of three recent, unconnected conversations where acquaintances and friends reported to me that they had been stuck with sudden and drastic credit card interest rate increases. My first correspondent - a Bank of America customer - described herself as a very reliable customer who had made a late payment for the first time. The other two - one a JPMorgan Chase customer, the other WaMu - reported sudden, very high rate increases for no reason in particular.

The WaMu customer reported a conversation with WaMu that went something like this:

Customer: Could you explain why you raised my rate over 10 percent?

Service Rep: Well, your FICO score must have changed.

C: I happen to know that my FICO score has not changed.

SR: Well, we notified you that your rate would change.

C: First of all, since I make payments automatically, I don't necessarily read every bill beyond the payment amount; secondly, the contract I signed when I transferred the balance was for a certain rate for the life of the loan.

SR: Well, if you looked at the fine print you'd see that we reserve the right to change the rate at any time.

C: Then was your offer of a single rate just a lie?

Bank of America has received a great deal of bad publicity not merely for its use of industry standard "risk-based" pricing whereby rates are increased by criteria that are not likely to be clear to customers, but for "hiking rates base on no apparent deterioration in their credit scores at all," according to this report. Based upon my correspondents' reports, B of A isn't alone.

In the opinion of author and columnist Bob Sullivan, the banking industry isn't alone either. Sullivan's book, "Gotcha Capitalism: How Hidden Fees Rip You Off Every Day - and What You Can Do About It," addresses what the author characterizes as:

The constant bait-and-switch tactics that layer on fees and surcharges long after we're in a position to bargain over them. It's about rampant false advertising, about the explosion of small print and asterisks and about the seeming disappearance of federal authorities working to keep our marketplaces fair.

Whatever the merits of Sullivan's work, it points to rising resentment at what consumers regard as sharp practice. It doesn't help that in this instance, as the above-linked article suggests, responsible customers feel they're being opportunistically scorched by bankers trying to make up for their own lousy decisions.

Of course, customers are responsible for their contractual relationships to their lenders and thus must exercise due diligence when it comes to the wording of their contracts. However, the message many banks are sending their customers is, "Don't take your eyes off me or I'll pick your pocket."

Maybe it's a crazy idea, but perhaps the building consumer dissatisfaction with Bank of America and others creates the opportunity for some bank to use honesty and plain dealing as a differentiator. I can imagine the advertising campaign: "We're the bank that won't shaft you when we need some extra money."Customers are responsible for their contractual relationships to their lenders and thus must exercise due diligence when it comes to the wording of their contracts. However, the message many banks are sending their customers is, "Don't take your eyes off me or I'll pick your pocket."

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio