Several times a year we ask readers what they see as the most pressing issues facing the industry. Today's nearly universal observation is that consumers have lost faith in banks, that the industry's reputation has been unfairly tarnished.

There's no doubt that consumers think pretty poorly of the financial industry these days. But really, can we blame them? Bankers fret about their unpopularity, creating marketing campaigns designed to bolster public opinion, while at the same time continuing the same unseemly business practices consumers hate.

Case in point: Last month a Federal court in California ordered Wells Fargo to repay $203 million in overdraft fees, calling the bank's practice of batching ACH, check and debit transactions into one group and then processing them in a high-to-low sequence, "gouging and profiteering."

Wells' defense against the class action suit was anemic. Internal emails laid bare the $40 million in annual incremental revenue the bank anticipated as a result of the commingling and sequencing changes, with no evidence to support the bank's claim that it made the changes in 2001 to benefit customers who want their large, important transactions paid first.

The judge in the case was not kind in his assessment of Wells' behavior, writing in his ruling that, "the bank went to lengths to hide these practices while promulgating a facade of phony disclosure." He gave Wells until November 30 to quit the practices.

Is Wells red-faced and promising to do better? No. The bank is promising to appeal.

Bank of America, Citibank, U.S. Bancorp and others ought to take note. The first three are defendants in a pending class-action lawsuit in Florida that accuses them of the same practices. More imminently, an August FDIC letter suggests that regulators should crack down on the practice of processing transactions "in a manner designed to maximize the cost to consumers." The letter goes on to say that examples of appropriate processing procedures include "clearing items in the order they are received or by check number."

The incipient Consumer Financial Protection Bureau, the likelihood of new FDIC exam rules, the specter of a Florida court also ruling against high-to-low sequencing, and the recently enacted Reg. E rules all point to one conclusion: high-to-low sequencing to boost NSF/OD is a strategy whose time has gone.

Wells claimed that the bank pays the highest items first because consumers want them to. Here's a novel idea: give customers the option. How about an SMS message asking if a consumer wants to pay $35 to have a specific item paid? Or a text notifying of an item about to be returned?

New uses of technology allow banks to give consumers more control over their finances, which myriad research says they want; this could go a long way to repairing the reputational rift banks have suffered. First, though, the offending banks have to break their addictions to what a California court just deemed to be ill-gotten gains.


Rebecca Sausner Editor-in-Chief

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