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Elizabeth Warren's Challenge

The Banks and Their Protectors

by JAMES B. RULE

Remember The Sorcerer’s Apprentice?   The wannabee enchanter sets a spell to get his broom to carry water to the magician’s workshop, but his skills don’t extend to stopping the process.   By the time the boss gets back, the place is awash.

Something similar may be happening to your money.   And if so, you’d better hope that the Obama administration gives its fullest support to Elizabeth Warren, its shadow appointment as consumer affairs czarina.

Late last year, I discovered that I was no longer required to make a regular monthly payment I’d authorized from my Wells-Fargo checking account.   I went into my branch office in Berkeley and instructed them to cancel the order.   After waiting through their scripted happy-talk, I got an astounding response.   Depositors cannot cancel such monthly deductions; such arrangements can only be stopped by the recipients of the payments.

After years of studying how government and corporate bureaucracies deal with the public, I thought I’d heard it all.   But here my bank was telling me that, once I’d agreed to pay another party from my account, I had no power to stop such payments on my own.   In this case, I quickly solved the problem through other means.   But what if the payee had refused to turn off the tap drawing my funds?  Who would enforce the seemingly transparent right of any depositor to cease payments from his or her personal account?   I decided to learn what I could.

The federal agency responsible for oversight of banks like Wells-Fargo, it seems, is the Office of the Comptroller of the Currency.   This body has established something called the OCC Ombudsman, who maintains a website with the promising address www.HelpWithMyBank.gov   I dutifully submitted a detailed complaint via the website, triggering an acknowledgement assigning my complaint a number.  It bore the admonition: “Please do not reply to this e-mail. We are unable to respond to messages sent to this address.”

It seems that they have trouble responding any other way, as well.  My complaint yielded no response for more than six months—at which point the OCC simply suggested that I take my business elsewhere.   But the cyberspace Ombudsman did, apparently, refer my words to Wells Fargo, who responded promptly.   “Electronic debits are established between the customer and the payee; as a result, we cannot cancel them” wrote a Ms. Debbie Hein from the Customer Correspondence Department.   Not even breathing hard after this energetic leap of logic, she went on: “Please contact the source of the debit [i.e., the people debiting my account] to cancel the payment.”   Ms. Hein did go on to note that I had the option of placing a cancel payment order against these deductions—at that cost of $29.00, renewable every six month.    That seemed like a lot to pay for the privilege of hanging on to my own money.

Exasperated, I decided to write my elected representatives.   I banged out three detailed letters, with documentation of my communications with the OCC and Wells Fargo.   These I sent to Senators Feinstein and Boxer and to my Congresswoman, Barbara Lee—taking heart from word on Ms. Lee’s website of her membership on the House Subcommittee on Financial Services.   “This is to request your help in changing some predatory and unjust banking practices that affect me and countless other consumers,” I started out, and went on to detail my experiences.  Take that, OCC and Wells-Fargo!   Your day of accountability is just around the corner!  Or so I thought last February, when I faxed the letters from my home in Berkeley.

Neither Senator Boxer nor Representative Lee has ever replied—either to my original inquiry, nor to follow-up letters two months later.   Senator Feinstein did send a response, but its quality proved something of a disappointment:  “The Office of the Comptroller of the Currency has already responded to your request and issued a decision on your case,” she wrote.   “My office cannot overturn the agency’s decision or assist you with any appeal you might pursue.”   My reply to the Senator pointing out that the OCC had not issued any decision on my complaint—or even a comment on it—went unanswered.

Identifying myself as a UC Berkeley researcher, I e-mailed the OCC’s Washington office with a request for their position on Wells-Fargo’s policy.  A press officer pinpointed the Federal Reserve’s Regulation E as governing cases like mine.   Under the heading “Consumer’s Right To Stop Payment”, that regulation reads “The financial institution must honor an oral stop-payment order made at least three business days before a scheduled debit.   If the debit is resubmitted, the institution must continue to honor the stop-payment order….  Once a financial institution has been notified that the consumer’s authorization is no longer valid, it must block all future payment for the particular debit …”.

Incredulous at the disconnect between the regulations and Wells-Fargo’s practice, I ultimately reached a couple of the bank’s Senior Vice Presidents.   At first, the response wasn’t much different from Wells Fargo’s original letter: “Only the merchant and the customer can cancel or change the [automatic payment] agreement,” stated Mr. Chris Hammond, a media relations spokesman.   But what if the party receiving the payments refused to play ball?

Any responsible organization would stop making deductions at the consumer’s request, averred the second Senior V-P, Mr. Chris Huppert–as I thought of the bills and credit card charges I’d received over the years for services I’d long since declined.  “The bank is just a passive agent in the transaction,” he added.    I persisted: what about situations where recipients contended that they had a right to those monthly payments, and continued drawing them?    Well, Mr. Huppert allowed, there was a path open to depositors in such cases: they should re-contact the bank, report the recipient’s refusal to cease the deductions, and sign a written statement to that effect.   In this case, he assured me, future deductions would be refused.    But how many consumers know that this recourse even exists?

And what about the Federal Reserve’s Regulation E, whose plain language affirms the right of consumers to stop payments easily, at their own instance?   Mr. Huppert insisted that Wells Fargo’s practices were consistent with Automated Clearing House rules observed by nearly all banks—and “right in synch” with Federal Reserve regulations.   No one is Washington or anywhere else, apparently, has been inclined to enforce another interpretation.

We live in a world where financial transactions happen less and less in face-to-face encounters, and more and more with impersonal bureaucracies, public and private.   Increasingly, these new billings and payments take place via the internet.   Organizations of all kinds prefer to get paid electronically, directly from our computerized accounts.   It’s far cheaper and more expedient for them to avoid paper billing and access customer’s funds automatically.   And often it’s easier for consumers, as well—so long as all parties agree on who owes what to whom.

But disagreements inevitably occur—with cell phone companies, internet service providers, even the gym you’ve signed up with for a monthly fee.   As every consumer will have noticed, many service providers are enormously easy to communicate with when one wants to open an account—and virtually impossible to reach, when something goes wrong.   Sometimes it is impossible even to get a human being on the phone.   There has to be an easy, cost-free way for customers to pull the plug on such arrangements, when their bank accounts are hemorrhaging, and no one at the other end is listening.   The alternative is to leave consumers at the mercy of any organization they may once have agreed to pay—and to leave the organizations with no incentive to clean up their acts.

My tussle with Wells Fargo has taught me a bit about the position of bank customers—both the formal rights stipulated by the Federal Reserve, and about the extreme difficulty of getting anyone to enforce them.   One has to wonder what hope there could be for an ordinary consumer of limited time and patience, confronted by bank practices as one-sided as these.    My own file of electronic and postal correspondence over the last six months with Wells Fargo, its alleged regulators in Washington, and my elected representatives has taken on the proportions of a phone book for a respectable-sized town.  Most consumers are obviously not remotely in a position to do this—nor should they attempt to, if the systems for deflecting or simply ignoring such queries are as efficient as they appear.

The country and the world are now struggling to recover from a near-collapse of America’s financial system caused, in part, by banks’ irresponsible management of relations with their customers.   In what many consider an unduly mild response, the administration has sought to create the consumer financial protection agency that Elizabeth Warren has finally been picked to organize—if not, officially, to preside over.   The reason for her back-door non-appointment, of course, is the intensity of industry opposition to any serious reform.  According to The Huffington Post, the OCC and its industry allies have bitterly fought the proposed consumer protection agency on grounds that it would “always prevail” in clashes with banks.

If my inquiries are any guide, I think the banks and their protectors in government have a way to go before they reach that point.

JAMES B. RULE is a professor at the Center for the Study of Law and Society University of California, Berkeley. His latest book is Privacy in Peril. He can be reache at: jbrule@berkeley.edu