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Fee Hikes at Banks Draw Congressional Wrath


Lenders brace for new round of grandstanding.

It looks like our 535 Finance Ministers who moonlight as members of Congress want to further extend their control of the nation's banks.

Congress is in a snit because some banks that received federal funds through the Troubled Asset Relief Program (TARP) jacked interest rates and fees.

"The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Elizabeth Warren, chairwoman of the oversight panel appointed by Congress to keep an eye on federal bailout funds, told the Wall Street Journal. "In a sense, we're asking taxpayers to pay twice."

The banks say the increases, even for low-risk customers, are a reasonable and legal way to recover some of the cost of bad loans that still clog their books.

But Congress, which had a hand in creating the credit mess by turning banks into instruments of social policy through the Community Reinvestment Act and ignoring the warning signs at Fannie Mae (FNM) and Freddie Mac (FRE), isn't buying the banks' explanation. (And never mind the fat bonuses some workers at Fannie and Freddie received, assuming bonuses are the unpardonable sin.)

This suggests the whole squabble is a charade and has nothing to do with getting the banking industry back on its feet. If that sounds more than a little paranoid, keep in mind that earlier this month President Obama refused repayment of TARP funds from 5 regional banks.

Weren't the loans made with the intention of Uncle Sam being repaid? Isn't repaying the TARP money a way for the banks to show good faith and develop a stronger balance sheet? Or is refusing repayment of TARP funds simply a way for the government to maintain control of the banks?

In the latest flap, Bank of America (BAC) nearly doubled the interest rate on some credit cards to 14% and imposed a $10 fee on a range of transactions.

Citigroup (C) offers immediate loans up to $5,000, but the bank's ads don't state that the loans can come with annual interest rates as high as 30%.

Wells Fargo (WFC) and US Bancorp (USB) offer "checking account advance" loans that allow customers to tap direct deposit funds before the money has been credited to their account. The short-term loans carry an annual interest rate of about 120%. The banks say the cost is low in most cases because the money is paid back quickly.

It's easy to avoid such charges by reading the disclosure statement for each financial product. Lacking that, customers can easily switch banks to get a better deal.

Many bank customers don't bother to read all that heavily lawyered, opaque mumbo-jumbo that arrives in the mail. But will customers be better off with heavily lawyered opaque mumbo-jumbo written by Congress, often foisted on the banks after the fact?

Come to think of it, wouldn't a sound and profitable banking system benefit everyone, except perhaps our 535 Ministers of Finance?
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