The relationship between businesses and customers is based on trust. How can anyone trust the banks and credit card companies after the revelations of the past couple of weeks? First we learned that the Libor rate was rigged.Then we’re told that credit card companies and many of the largest banks were guilty of price-fixing credit card transaction fees. And, then we find that JP Morgan Chase’s hedge fund losses, originally estimated at $2 billion, are now thought to approach $9 billion.
Everyone is still rattled from the financial meltdown
As if a loss of $17 trillion of wealth is not enough, everyone is still rattled because the economy is shaky, Europe is having serious debt problems, and even China’s economy has started to slowdown as a result of a diminishing worldwide demand. The banks and credit card companies should understand that we need honesty, transparency and stability from them – not reports of rigging, price-fixing, or more risky behaviour.
Politicians make matters worse
You might think that politicians might do something to help fix the situation. It seems as if too many of them are doing the opposite – calling for more de-regulation when experts believe that is what got us into this fix in the first place. The fox has been guarding the hen house, and the hens, most of the American pubic, are getting eaten alive. At least one of them could be chicken little’s mum.
JP Morgan Chase was thought to be the most stable of all the big banks
Prior to its reported loss of $2 million from one risky hedge trade, JP Morgan Chase was considered to be the most stable of the big banks. That’s what scares most people. If the most stable of the big banks is engaging in this risky behaviour again, what are the others doing? Meanwhile, in two months, estimates of its loses from a hedge trade gone bad have grown to $7 billion, with some estimates going as high as $9 billion.
Making customers pay again and again
What have banks and credit card companies done to rectify their mistakes? One might expect a lowering of fees to compensate the American public for the pain it has endured from…
- Bailing them out
- Learning the Libor rate was rigged
- Hearing that the banks and credit card companies have settled with retailers over price-fixing charges
- Knowing that credit card transaction charges typically get passed on to customers
- Discovering that the most stable US bank is engaging in risky, dangerous behaviour
Instead of lowering fees to help customers, what has happened? Fees have skyrocketed. Banks seem to be making customers pay more because of bank errors. According to David Lazarus of the Los Angeles Times, early withdrawal fees at Bank of America are nearly 1700% higher than previous fees.
Banks are businesses that need to make money
While banks are businesses that need to make money, they should figure out how to do so without killing the geese that lay the golden eggs. If the fees are really necessary to stay afloat, the banks need to do a better job of marketing them as a transparent choice rather than as requirements that are often hidden or buried in legal language that most customers have difficulty understanding. So far these fees have only served to anger and frustrate customers — causing them to distrust the banks that levy them. If financial institutions really need to charge these fees to stay afloat, customers wonder how banks can afford to pay their executives huge bonuses in spite of poor bank performance. There is definitely a credibility gap, and banks need to take responsibility for creating it.
If banks and credit card companies want to regain the public’s trust
To regain the public trust (that erodes further with each newly reported irregularity), banks and credit card companies need to be more transparent, do a better job of communicating, stop lobbying for less regulation (that many say caused problems in the first place), and stop engaging in fraudulent and risking behaviour. Is that too much to ask?
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