Kevin F. Kiley – Bill unnecessary

The Joint Committee on Banks and Banking will have to choose between two advocacy groups, each saying their way is the one that best serves Bay State consumers.

The committee will hear testimony on Beacon Hill on Tuesday relating to S. 128, a bill sponsored by Sen. Steven A. Tolman, D-Watertown, which seeks to create a new nonprofit organization to protect financial services consumers.

The basic idea is that the financial service industry is consolidating, it’s getting fairly complicated. We were looking for a way to allow consumers to join together and have the ability to have a similar amount of power, be able to consolidate the consumers’ power in the marketplace … and allow us to make better choices and enable the consumer to have more and better information about financial services, said Deirdre Cummings, consumer program director at the Massachusetts Public Interest Research Group.

If passed, the act would establish the Financial Consumer’s Association, an entity that would advocate on behalf of any group or individual consumer in matters concerning banking services. The definition incorporates more than just the traditional banks. It includes any business providing payment or transfer of funds, checking and savings accounts, credit cards, credit extension, credit reporting, securities activities, investment and management of funds, investment advice and financial counseling.

This goes back to the old economic adage that the marketplace will serve both the industry and the consumer if there is fair and equal access to information, said Cummings.

But Kevin F. Kiley, executive vice president and chief operating officer of the Massachusetts Bankers Association, said there has never been a time in the history of banking in Massachusetts where more information has been available to the public. When you add it all up, we think the industry has been responsive and this type of bill isn’t really necessary. Consumers are very well-served, he said, summing up the association’s opposition to the bill.

But all the choice in the marketplace is precisely the reason an organization is needed, said Cummings. Within the last few years, the acceleration of all the mergers and technology advances has led to a very confusing financial services marketplace, she said.

In addition to disseminating information, the association’s powers would allow it to represent the interests of consumers and intervene and negotiate on consumers’ behalf before regulatory agencies or other public entities and individual banks. It also would have the right to sue on behalf of members.

According to the terms outlined in the act, the board of directors would be elected from the congressional districts within the state and no person with $10,000 or more in shareholdings of any financial institution, or their immediate family members, would be eligible to sit on the board.

But looking out for consumers has traditionally been the forum of the MASSPIRG. So why the new organization? There are so many matters around financial services that we can barely scrape the surface. We work [on a variety]; it would be ideal to bring another organization into the fold, she said.

The bill would establish an organization that is independent and exists solely to look after the interests of the consumers. Cummings envisions that once the association is up and running, about two years after the bill is passed, it could begin performing fee comparisons, regular reports on the quality of service at area banks and even informative pieces on subjects such as how to bank online. Cummings said she recently spoke with a person who began banking online. The person only later realized the fees were more than it would have cost to bank in person. If the consumer organization had been in place, that may not have happened, she said.

Kiley said the association is unnecessary not only because of the plethora of choices out there, but also because banking in the state is one of the most highly regulated industries. The general public already has the ability to voice concerns or complaints to the commissioner of banks and information is already being disseminated. Kiley listed the bank fee Web sites recently launched by the state treasurer and the banking commissioner as well as the establishment of the Massachusetts Community Banking Council, which creates products and services for lesser served segments of the population.

A Regulated Industry
The creation of the SUM network was also a direct result of the banking industry listening to the demands of the public.

Simply put, consumers have a right to switch. They have a right to make an informed decision and select an alternative bank. We encourage that to occur. Banks are in the marketplace competing. Just pick up the business page of the local newspaper and look at all the advertising. Banks compete against each other for the right to serve consumers. That being the case, I think consumers make the informed decision as to where they want to bank, Kiley said.

Cummings, however, believes that the structure the legislation would provide is necessary.

The reason why there’s legislation involved is it provides for the structure of the organization but, most importantly, it allows for the communication and funding of the organization, said Cummings.

That is the most distasteful segment of the bill to Kiley. The legislation could force banks to inform its customers in bank statements of the existence of the organization and provide them with information on how to join, a circumstance Kiley said is grossly unfair.

It’s on the one hand saying ‘create an organization that is going to advocate in some cases against the [financial services] industry but, oh, by the way, you help do mailings to fund the organization,’ said Kiley.

But according to Cummings, the wording for the announcement would be created by a third party to ensure the language would be neutral. Additionally, the costs of stuffing the envelopes and the paper for the announcement would be paid for by the organization. While it hasn’t yet been decided how announcements would be made, if the association provides a separate piece of paper containing the announcement to the banks rather than a printed notice on bank statements, it might be light enough to not bump up the cost of postage.

What’s interesting about this is that while it appears [there has been] some attempt to bring in other segments of the financial service industry, the focus of these bills always ends up being on the industry that’s the most regulated, the banking industry. But what about the fee structure for the mutual fund industry, or for other financial service providers, said Kiley. I would argue that the banking industry provides much more information on the cost associated with doing transactions than other industries. The focus of the effort by PIRG might be better served in that direction.

Cummings agrees, at least to a certain point. We wanted to make it a level playing field so, yes, we want to include all the financial services [industries]. MASSPIRG is looking at creating similar organizations for consumers in the insurance and utilities industries, she said.

Both Kiley and Cummings are dubious as to whether they think their side will prevail in battle, citing the fact that anything can occur in the legislature. Currently, just five states have established similarly structured consumer organizations for utilities. Just given those odds, it’s a long shot [that the legislation will succeed], Cummings said.

This isn’t the first time the bill has climbed atop Beacon Hill. It most recently was discharged from the Committee on Commerce and Labor to the Committee on Banks and Banking, where it awaits public comment and, ultimately, a favorable or unfavorable recommendation.