Bank of America Corp.'s decision in March to drop debit overdraft fees ahead of regulatory changes seemingly came out of the blue. But that was hardly the case.
The company's announcement culminated several months of executive-level discussions, including face-to-face meetings with consumer and community advocacy groups pushing to change its policies on penalty fees. Business unit executives, along with Chief Executive Brian Moynihan, sat across from leaders of groups like the Center for Responsible Lending and the Consumer Federation of America, exchanging views on why banks charge such fees — covering processing costs, deterrence factors, etc. — and what the impact is on customers.
Though these were not considered negotiations, a B of A official moderating those meetings said they had a strong influence on the company's decision to stop covering overdrafts. "I think it was important," said Andrew Plepler, B of A's global head of corporate social responsibility and consumer policy.
"It was a business-line decision," he added. "But at the end of the day, I think that dialogue helped us land in a place where we concluded this was in the best interest of our customers."
Moves like these are getting B of A on the good side of consumer groups. In addition to dropping debit overdraft fees, the Charlotte company earlier this year broke with the financial services industry lobby to support the creation of a new regulatory entity in charge of protecting consumers. B of A was also among the first major mortgage lenders this year to adopt nongovernment principal-reduction programs for modifications of underwater mortgages (limited to certain Countrywide-issued loans that B of A inherited).
It seems unthinkable that this is the same company that consumer groups and politicians have lambasted over high fees on debit and credit cards, slow-moving loan mods under the Home Affordable Modification Program, and profligate bonuses to Merrill Lynch executives after taking $45 billion in capital from the Troubled Asset Relief Program.
Central to this transformation, many longtime critics say, is the more open and consumer-friendly regime of Moynihan since Ken Lewis retired in December. Moynihan's stance against the fees and the elevation of consumer policy into corporate strategy, observers say, is exemplified by the rising profile of Plepler, its longtime liaison to community development programs and face of the philanthropic side of the institution.
"When Brian Moynihan became CEO, I think Andrew's influence increased," said Martin Eakes, president and CEO of Self-Help/Center for Responsible Lending.
"I have certainly been a thorn in Bank of America's side at various points — maybe they would tell you forever — over the last 10 years," Eakes said. "But there's been a real change. Anyone who doesn't think that's true really hasn't been paying attention to the announcements and speed of change."
Before Moynihan took over, Plepler's corporate-responsibility role had already been expanded to include consumer issues. The advisory council he leads, traditionally a centerpiece of community reinvestment and minority outreach efforts with organizations like the NAACP and the National Urban League, had in recent years begun inviting consumer groups to join it for discussions. There are now 29 partners on the council.
This gives B of A "a lot of input from external partners about foreclosures and consumer advocacy issues," Plepler said. "We have an open, candid dialogue about what was on our mind … and things that were troubling them," particularly with loan modifications, minority-business lending and the fees associated with cards and deposit accounts.
"I'm also often explaining a lot of the business rationale for decisions that we make that may not be exactly what they hoped for," Plepler said. "It's not surprising we're not always going to agree … but we're benefiting from a much greater willingness to listen."
Through Plepler, these organizations can meet with business-line executives to air their concerns. In the debit overdraft discussion, Plepler brought in consumer groups to meet with payments product executive David Owen and consumer banking head Susan Faulkner (now overseeing cards and deposit services). He also enabled organizations like the NAACP and Hispanic civil rights group National Council of La Raza to air complaints about mortgage foreclosures and loan modifications with Barbara Desoer, the president for Bank of America Home Loans, and concerns about lending in low-income areas with Joe Price, the former CFO who is now leading the bank's consumer, small-business and credit card businesses.
"He obviously has his levers on the key influencers within his company," said Cy Richardson, vice president of housing and community development with the National Urban League.
Consumer activists say that Plepler has built up a well of trust because of his long ties to community organizing. The former U.S. Department of Justice tax lawyer has been involved with nonprofit work since his 1998 founding of the Urban Alliance Program in Washington, a noted youth mentoring program. He later took his community organizing to the Fannie Mae Foundation as senior vice president of its housing and community initiatives.
Barry Zigas, director of housing of the Consumer Federation of America in Washington, joined the B of A advisory council last year and has known Plepler since he served on the Fannie Mae Foundation board earlier this decade. "I always feel that Andrew is an honest broker," Zigas said.
That's a trait Eakes also applies to Moynihan, after the CEO pledged to place customer interests on par with those of shareholders. In B of A's second-quarter earnings call with analysts, Moynihan tied the overdraft decision to potential long-term risk in the bank's bottom line. The opt-in strategy is neither ethical nor sustainable, since customers who opt in may eventually opt out. B of A can't "have such a penalty-oriented pricing on this franchise," he continued, "or else we'll be destroying the value of the franchise over the long term."
In the short term, though, the decision will be costly. Debit overdrafts have been a major contributor to fee income and the bank projects that its elimination, along with expected reductions in interchange income and the costs of complying with the Credit Card Accountability, Responsibility and Disclosure Act, will reduce revenues from fees by $4.3 billion a year.
How that decline will affect B of A's consumer policy priorities remains to be seen. In the meantime, Plepler said the company wants to improve on making loan modifications more sustainable for workout candidates and find easier ways to identify and work with homeowners to help get them out of unwanted, unaffordable loans. "We want people to get a dignified exit, and a transition, that's going to be stable," Plepler said. "How do we make this as seamless as possible?"
Plepler plans to hold more cram sessions with community activists to brainstorm new ideas. Talking, as Plepler has shown, is always the first step.
